A contract between you and your employees is vital. It will ensure that both parties are aware of their roles and responsibilities in the business relationship. Employment agreements and individual flexibility arrangements (IFAs) are two types of contracts that employers use. In this article, we explain the differences between the two and identify the times where you will need both an employment agreement and IFA.

Employment Agreement

An employment agreement is an important document to have in place at the beginning of each employment relationship. While a written contract is not a legal requirement, using one is beneficial. A written employment agreement will clearly outline the terms of the employer-employee relationship. 

The National Employment Standards (NES), which governs the minimum entitlements owed to employees, is a good place to start when deciding on the terms of the relationship. An employment agreement must comply with the standards set by the NES. The NES sets standard requirements for:

  • weekly hours;
  • flexible working arrangements;
  • annual leave;
  • parental leave (and other related entitlements);
  • personal leave and compassionate leave;
  • community service leave;
  • long service leave;
  • public holidays;
  • termination and redundancy; and
  • the Fair Work Information Statement.

You may also want to include additional terms to protect your business. For example, you could include a confidentiality clause. This clause would prevent an employee from sharing any private information about your business. 

IFA

An IFA also outlines the relationship between an employer and employee, but is not a substitute for an employment agreement. It exists to cater to the individual needs and wants of either the employer or the employee. 

The modern award (award) sets the minimum terms and conditions of employment for employees, including pay. An IFA has the power to alter the terms of the award to suit the individual circumstances of both parties. In order to amend the award, there must be a genuine need.

An employee cannot be forced to sign an IFA. Because they are specific to individual situations, IFAs are entered into by each employee individually. 

The primary time when an IFA is useful is where the employee has personal circumstances that the award does not accommodate. For example, an award may state that the ordinary hours of work are between 9.00 am and 5.00 pm. An employee may need to pick up their children at 3.30 pm, and enters into an IFA with the employer for their ordinary hours to be 7.00 am – 3.00 pm. The ordinary hours for other employees of the business would still remain as 9.00 am to 5.00 pm.

Better Off Overall

You need to ensure that the employee is “better off overall” under the IFA than they would be under the award. It’s your responsibility to make this assessment. To do so, you should look at the situation overall. When assessing the IFA, consider how the employee will end up financially, as well other factors individual to their circumstances.

Although you need to make the assessment of the IFA, the Fair Work Commission (FWC) has the authority to find that the IFA has been improperly made. If the FWC makes this finding, there could be a penalty. Times where an IFA has been improperly made include:

  • making employment conditional upon signing an IFA;
  • not putting the IFA in writing;
  • the terms don’t meet the better off overall test; or
  • the IFA isn’t checked and updated regularly. 

Elements of an Award That Can Be Altered

An IFA can only amend:

  • arrangements for working hours;
  • overtime rates;
  • penalty rates;
  • allowances; and
  • leave loading.

You can draft an IFA when you and the employee agree upon the terms. Getting an employment lawyer to draft the IFA is important, since the terms must comply with the requirements set out by the FWC. You will be at fault if the employee suffers an overall detriment as a result of the altered terms.

How to Implement an IFA

If an employer or employee would like an IFA, they should approach the other with this request. If you are approaching the employee, the request should be in writing. From there, the steps for implementing an IFA are as follows:

  1. you should determine whether the IFA will be valid. If the employee is on an award, the IFA can alter a maximum of five terms of the Award. If the employee is on an enterprise agreement (EA), the parties must look to the flexibility term in the EA which outlines the entitlements that can be varied;
  2. the parties will discuss the IFA;
  3. you will need to ensure that the employee is better off overall under the IFA than they were without the IFA in place. You will also need to ensure that the IFA does not contradict any relevant award or EA;
  4. the IFA is documented in writing, explaining the new terms and their application, as well as an explanation of how they do not contradict a relevant award or EA;
  5. both parties sign the IFA;
  6. you keep a copy and give a copy to the employee; and
  7. the IFA remains in place until the parties agree to end the arrangement, or until the employment relationship ends.

An IFA will end when the employment relationship ends, or by written agreement between the employer and the employee. Otherwise, an IFA made under an award can be ended with 13 weeks’ notice. If an IFA is made under an EA, the EA will state how much notice is required, however it cannot be more than 28 days.

What to Consider When Implementing an IFA

When implementing an IFA, you should:

  • adopt a collaborative approach. This will involve ongoing discussion, and consideration of the employee’s requests;
  • check the award to see which terms are alterable;
  • hold a consultation with the employee to determine what changes suit both the business and the individual;
  • ensure that the IFA does not disadvantage the employee; and
  • ensure that the IFA does not contain terms that are unlawful.

Key Differences Between an Employment Agreement and IFA

While all employees should have employment agreements, only some employees will need to enter into IFAs. Below are the key differences between an employment agreement and IFA:

Employment Agreement IFA
In place for all employees In place for an individual employee
Employers will often use a standard template to draw up the agreement Employers will tailor the IFA to suit specific needs of the employee
Cannot contain terms or entitlements that are anything less than the NES, or an award (if applicable) Can alter terms of the relevant award so that the employee is better off overall

Key Takeaways

Often, employees and employers are seeking flexibility so that they can work together in a mutually beneficial way. An employment agreement outlining the terms of the employment should always be in place. However, individual employees may require amendments. An IFA is the best way to legally make and document these amendments.

Having both an employee agreement and an IFA in place will ensure that both you and the employee are protected and accommodated. If you have any questions, contact LegalVision’s employment lawyers on 1300 544 755 or fill out the form on this page.

Jessica Anderson
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