In Short
- Employment contracts set out the rights and obligations between you and your employees.
- Before drafting a contract, you must check whether a modern award applies and ensure the employee receives at least the minimum entitlements under the Fair Work Act and the National Employment Standards.
- You should also determine whether the employee will be full-time, part-time, casual, or engaged on a fixed or maximum term contract.
Tips for Businesses
Start by checking whether a modern award applies to the role and identifying the relevant classification and minimum pay rate. Decide whether the employee will work full-time, part-time, casual, or on a temporary contract. Ensure the contract reflects the employee’s correct status and complies with the National Employment Standards. Keep clear records and review contract terms before issuing them.
Summary
This article explains employment contracts and key drafting considerations for business owners under Australian employment law. It outlines how awards, employee classifications, and contract types affect employee entitlements and contract structure. The content was prepared by LegalVision’s business lawyers.
An employment contract is an agreement between you and each of your employees. Further, it sets out the rights and obligations of both parties. Employment contracts are essential as they are the backbone of your employee relations. However, it can be challenging to determine how you should structure your employment contracts and what is most appropriate for your business. Therefore, this article will take you through some critical considerations before preparing your employment contracts.
As an employer, understand your essential employment obligations with this free LegalVision factsheet.
Does an Award Cover the Employee?
The first step in determining what to include in an employment contract is determining whether an award covers the employee.
The Fair Work Commission (FWC) is Australia’s national workplace relations tribunal. The FWC has a range of functions relating to the termination of employment and other workplace matters. The Fair Work Commission hears cases about:
- unfair dismissal;
- transfer of business;
- modern awards;
- enterprise bargaining; and
- industrial action.
What are Awards?
One of the FWC’s key roles is to create and reviewawards. An award is an enforceable document that contains the minimum terms and conditions of employment of particular types of employees, in addition to any legislated minimum terms. Generally, an award applies to employees in a particular industry or occupation and is a benchmark for assessing enterprise agreements before approval.
Does an Award Cover my Employees?
If you determine that an award covers a particular employee, you should note down the:
- details of the Award;
- classification; and
- minimum rates or salary payable under the Award.
You will need these details when preparing an employment contract. Further, you must ensure that you pay an award employee no less than the minimum rate of pay or salary payable under the Award to avoid violating the Fair Work Act.
Where an award or enterprise agreement does not cover an employee, the National Employment Standards (NES) will still cover them. The NES provides 11 minimum standards for almost all employees related to maximum work hours, leave entitlements and more.
Are You Employing a Full-Time, Part-Time or Casual Employee?
When working out how you should draft your employment contract, the next question is to consider whether your employees work on a:
- permanent full-time or part-time basis fixed or maximum term basis; or
- casual basis.
The entitlements of an employee hired under a permanent contract are generally more extensive than those of a casual employee. As casual employees are not entitled to paid leave and other benefits, they generally receive hourly rates of pay with a casual loading to account for these benefits that they do not receive.
How to Classify Employees
The first step to determining this is how many hours the employee will work per week. If they work an average of 38 hours per week, they will likely be a full-time employee. Full-time employees have entitlements under the NES, including annual and personal/carers leave.
If your employees work less than 38 hours per week, you must determine if they are part-time or casual employees. A part-time employee is a permanent employee who works less than 38 hours per week. They will usually work regular hours each week and have ongoing employment.
Casual Employees
On the other hand, casual employees have no set hours and do not receive all entitlements under the NES, such as paid personal/carers or annual leave. Therefore, you should be careful not to misclassify your permanent employees as casual employees. Where an employee meets the criteria of a permanent employee, they should receive the entitlements owed to permanent employees.
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Temporary Employees
You may also consider engaging workers for a limited period of time. In these circumstances, you could consider using either a:
- fixed term employment contract; or
- maximum term employment contract.
Fixed Term Employment
Fixed term employees work under contracts with predetermined end dates, providing certainty about employment duration. The Fair Work Commission recognises these contracts where genuine operational reasons exist, such as covering parental leave or completing specific projects.
Employers must ensure that fixed term arrangements align with relevant awards and the National Employment Standards, particularly regarding termination notice periods and redundancy entitlements.
Maximum Term Employment
Maximum term contracts set the maximum employment period without guaranteeing work for the full term. Unlike fixed term contracts, they allow earlier termination while providing businesses with flexibility and employees with a defined employment period.
However, maximum term (and fixed term) agreements have some limitations:
- employment agreements cannot exceed a total period of two years, including any renewals or extensions.
- employment agreements cannot be renewed or extended more than once; and
- employees cannot be engaged under consecutive contracts for the same or similar work if the total period exceeds two years.
Key Takeaways
Working out which employment contract to use is a two-stage process. You must:
- work out whether an award will cover your new employee; and
- whether you wish to employ them on a full-time, part-time or casual basis.
Once you determine this, you will understand the employee’s entitlements and will be in a position to prepare your employment contracts.
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Frequently Asked Questions
Employment contracts regulate the relationship between you and your employees. Therefore, a well-drafted employment contract is critical for setting clear expectations for your employees and ensuring that your commercial interests are protected.
Working out which employment contract to use is a two-stage process. First, you must work out whether an award will cover your new employee and whether you wish to employ them on a full-time, part-time or casual basis. Once determined, you will understand the employee’s entitlements and will be in a position to prepare your employment contracts.
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