If you employ staff, you need to have employment contracts in place. For starters, not having employment contracts in place can open your business up to all sorts of problems, such as employee disputes.
Perhaps more importantly, however, your culture can suffer if you don’t have contracts of employment. When in place, a contract of employment makes the whole staff management process much easier for you and your workers, simply because everyone knows where they stand. That in turn builds trust, improves employee relations and can help you build your team and culture the right way.
Naturally, that raises the question: what should you include in a contract of employment?
What is a contract of employment and why is it important?
A contract of employment is a two-way agreement between you and each staff member you employ. It sets out enforceable terms and conditions, protecting you and reducing the risk of legal action, while regulating your employees’ behaviour in the workplace.
For staff, a contract of employment offers peace of mind and security. If they have negotiated better terms for themselves, they’ll want them in their contract to make sure they get them.
A well-drafted document means all parties know where they stand and can help avoid disputes at a later stage.
When creating a contract of employment, remember that the contract must contain the same minimum terms and conditions set by the National Employment Standards (NES), and contained in the Fair Work Act 2009. Both the employer and employee should also agree to any changes made to the contract in the future.
Do employees need a contract of employment?
Although you don’t need to offer your employee a written agreement, you may run into difficulties if a dispute arises and there is no record of the terms of employment.
If for whatever reason you can’t have a formal agreement in place from the start of employment, it’s still a good idea to make a note of the basic agreed terms. This will always be useful, even if only for record-keeping purposes. Just by maintaining a record of the employees’ start date, salary, entitlements, work days and time, you will reduce the risk of a dispute at a later date.
Even if you don’t offer your employee a contract of employment, it’s worth noting that the National Employment Standards (NES) will still apply, as will any applicable award, plus the national and state employment legislation.
Remember: By law you are required to provide any new employee with a copy of the Fair Work Information Statement. This gives your employees all the required information regarding their rights under the NES.
What to include in your employment contract
Every employee contract will be unique and should be made to reflect the specific relation an employer has with their employee. However, regardless of the company or industry you will find that there are some terms and conditions, you should include:
The employer’s name.
The employee’s or worker’s name, job title or a description of work and start date.
Type of work. Is it full time, part-time or casual?
How much and how often an employee or worker will get paid.
Hours and days of work and if and how they may vary (also if employees or workers will have to work Sundays, nights or overtime).
Leave entitlement - The NES sets out compulsory minimum standards for various types of leave e.g. annual leave, personal leave, long service leave.
Where an employee or worker will be working and whether they might have to relocate.
Clauses that refer to essential requirements of the role e.g. licences.
If an employee or worker works in different places, where these will be and what the employer’s address is.
How long a job is expected to last (and what the end date is if it’s a fixed-term contract).
Notice required by the employer and employee to end the relationship (be aware of the minimum amounts set in the Fair Work Act).
The length of the probation period, plus any terms and conditions which apply.
Benefits that may affect a remuneration clause (for example, childcare vouchers and lunch).
Obligatory training, whether or not this is paid for by the employer.
The date that a previous job started if it counts towards a period of continuous employment.
Confidentiality and non-disparagement clauses.
What types of employment contracts will you encounter?
You will find that there are five main types of employment contract, with each one having their own benefits and drawbacks. When it comes to hiring staff, one might suit more than another.
Full-time employment contracts
Full-time employees have ongoing employment, and generally work an average of 38 ordinary hours a week. Full-time employees are entitled to paid leave and required to be given notice on termination of contract.
Part-time employment contracts
Part-time employees have ongoing employment, but will usually work less than 38 hours a week. They typically work regular hours each week, in shift patterns, and are entitled to the same minimum employment entitlements as a full-time worker. Unlike a full-time employee, part-time entitlements are awarded on a pro-rata basis.
Casual employment contracts
Casual contracts are for workers who you need on a demand-only basis. Casual work is not a permanent agreement, while full- and part-time work is. This means that casual workers have no firm commitment in advance of ongoing employment.
Casual workers are only paid for the hours they work and can refuse shifts. They are not entitled to paid sick or annual leave, and their employment can be terminated without any notice.
Fixed term employment contracts
A fixed term contract is when an individual is hired for a set period or to complete a specific task.
The contract will clearly outline the length of the employment and although this arrangement is often short-term, a fixed-term worker will receive the same entitlements as permanent employees.
Independent contractors are most often self-employed workers who contract their service to other companies. Contractors will negotiate their own fees and working arrangements. They also can work for multiple employers at one time.
As an employer, you should define whether an employee is permanent or independent from the start of employment, as you might run into issues if the contractor turns out to be a full or part-time employee.
Terms of an employment contract
Any employment contract will contain express terms and implied terms.
Express terms are ones which are actually stated in writing or verbally. They are explicit. They will meet any legal requirements such as the right to breaks, holiday, maternity or sickness entitlement. They are not limited to the employment contract but can include other documents such as your staff handbook.
Implied terms, or psychological contract, are ones which aren’t written down in the contract, but are implicit in it such as a term incorporated by statute or so obvious that it is assumed to have been impliedly agreed, e.g. an employer’s duty to provide a safe and comfortable place of work or the right to receive at least the minimum wage.
Can you change a contract of employment?
You can vary the terms of your employees’ contracts, but you should do so with caution. It also normally requires the consent of the employee.
You can agree to any changes with the employee after consultation. You can also offer incentives to get them to accept the changes.
You can make changes unilaterally, but this can be risky, namely because your employee could bring an action for breach of contract if it is something they disagree with. An employee might also resign and then bring a case of constructive dismissal.
You could terminate the existing contract by notice and offer them re-engagement based on the new contract terms. However, this could be considered as redundancy dismissal and you’ll need to follow rules around consultation periods for redundancy. You also need to offer them re-engagement immediately. Even then, an employee could potentially still bring a constructive dismissal case.
If you think a contract of employment is just another bit of box ticking and no one ever looks at them, think again. While you don’t need to have one in writing it certainly helps to clarify things, especially if there is a dispute down the line.
What should you do if you need to terminate a contract of employment?
A termination of contract can happen through the resignation of the employee or by the employer.
It doesn’t matter what caused the termination, a specific course of action must follow to ensure the process is carried out in line with the correct workplace procedures. Sometimes, if you dismiss an employee or they resign, they will be entitled to paid notice and must receive their final payment. This will include and entitles owed to them, for example, any untaken, but accrued annual leave.
How can I get help writing a contract of employment?
Writing an employment contract can feel like a daunting prospect for anyone without an HR specialism.
We’d always recommend working with an independent HR provider or consultant. They will be able to create a custom contract of employment for your employees and advise you if you need extra support.
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Disclaimer: This document contains general information and is also not intended to constitute legal or taxation advice. If you need legal or taxation advice, we recommend you speak to a qualified adviser.