An employment contract is a written agreement between an employer and the employee. It sets out enforceable terms and conditions that govern the employment relationship. Although the employment agreement does not have to be in writing, ideally it will be.
An employee contract must provide for at least the same minimum terms and conditions and wages set by the National Employment Standards (NES) contained in the Fair Work Act 2009 or the relevant award, enterprise or other registered agreement.
Both the employer and employee must agree to any changes to the employment contract.
What to Include in An Employment Contract
An employment contract is the most effective way to codify the terms and conditions of the employment relationship. It should outline fundamental aspects of the employment relationship including employment status, particularly if the employee is engaged as a part-time or casual basis, remuneration and obligations. Setting out the conditions of employment in writing is likely to reduce the risk of misunderstanding or confusion.
When drafting a letter offering employment together with an employment contract it is useful to have them professionally reviewed to ensure that the terms are sufficiently clear. Doing so will also mitigate the risk of inadvertently incorporating unlawful terms.
Although every employment contract is unique and needs to reflect the specific employment relationship between the employer and the employee, there are specific conditions of employment that should be included in an employment agreement, regardless of your company size or industry. You should include the following terms and conditions in your employment contracts:
- Name and personal details of the employer and the employee
- Commencement date of employment and probation period (if a permanent employee)
- Clause referring to employer policies and procedures
- Clauses referring to essential requirements of the role e.g. Licences, clearances, registrations
- Type of employment (i.e. full-time, part-time or casual)
- Place of work and hours of operation of the business
- Remuneration clause – setting out the method of payment e.g. salary, wage, or piece-rate) and what is included or paid separately e.g. superannuation, loadings, overtime, bonuses, benefits and allowances. Commission is usually set out in a separate scheme.
- Leave entitlements – the NES provides compulsory minimum standards for various types of leave e.g. annual leave, personal leave, long service leave
- Clauses protecting employer property and information – e.g. company vehicle, intellectual property
- Confidentiality agreement making clear what employer information should be kept confidential and setting out the possible consequences of a breach
- Non-disparagement clause preventing the employee from any action which can reflect negatively on the company
- Amount of notice required to be given by the employer and employee to end the employment relationship (there are minimum notice periods under the Fair Work Act)
- Termination conditions including Redundancy
- Clauses regarding Assignment, Jurisdiction, Severability and Variation of Terms
Also consider provisions to deal with potential changes in the employee’s role or their scope of duties (i.e. will the same contract still apply if the employee has to change locations, roles or duties?) and depending on the employee’s position, perhaps clauses preventing them from setting up a similar business close to their former employer for a period of time and/or stealing their clients, though these clauses can be hard to enforce.
Types of Employment Contracts
Each type of engagement has different benefits and consequences, but it is preferrable that agreements take written form.
How to engage workers in a manner that is right for your business will depend on your specific business needs. You should also consider the industry standards of each role and how the arrangement will affect your business financially.
Below are the most common types of engaging workers:
Full-Time Employment Contracts
Full-time employees have ongoing employment and generally work 38 ordinary hours per week or an average of 38 ordinary hours a week. This may vary depending upon whether the relevant employee is covered by an industrial instrument. They are entitled to paid leave and are required to be given notice of termination.
Part-Time Employment Contracts
Part-time employees have ongoing employment and typically work less than 38 hours a week. They usually work regular hours each week and are entitled to the same minimum employment entitlements as full-time staff. However, the part-time entitlements are on a ‘pro rata’ basis.
Casual Employment Contracts
Casual employees work for an employer on a demand-only basis. Unlike a permanent agreement, casual employees have no firm commitment in advance of ongoing employment and generally work on an ad hoc basis (so the work hours are irregular). Casual employees are paid for the hours they work, and they can refuse shifts. Casual employees are not entitled to paid sick or annual leave, and their employment can generally be terminated at any time without notice. To compensate, casual employment attracts an hourly loading.
Fixed-Term Employment Contracts
This is when an employee is hired for a specified period of time or to complete a specific task or project. Typically, the contract ends either when a project is complete or an event has passed (e.g. a peak season). Fixed-term contracts clearly outline the length of the employment period from start to end. Although this type of arrangement is often short-term, fixed-term workers still receive the same entitlements as permanent employees though notice is not required if the employment contract ends at the end of the fixed-term.
Independent Contractor
Independent contractors are typically self-employed workers who contract their services out to other companies. Contractors negotiate their own fees and working arrangements and they have the freedom to work for multiple employers at once. It’s important for an employer to clearly define whether the person they hire is a permanent employee or independent contractor as there may be risks to the business if the contractor turns out to be an employee.
Termination of an Employment Contract
An employment contract can be terminated by either the employee (ie through a resignation) or the employer.
Regardless of what triggered the termination, the correct procedure must be followed to ensure the process is fair and carried out in accordance with the workplace procedures. Depending on the circumstances, if an employee is dismissed or resigns, they may be entitled to be paid notice, and must be given their final payment, which includes any entitlements owed to them e.g. accrued but untaken annual leave.
Make sure you clearly outline the terms relating to ending employment in your employment contract and employee handbook.
For more information on Employment Contracts call us for free initial advice on 1300 651 415.
Please note this guide is intended to provide general information only and should not be substituted for the advice of a trained employment relations professional. Peninsula accepts no responsibility for employment contracts that are made based on the information provided. If you are unsure about what to include in an employment contract, Peninsula recommends you seek out professional guidance.