Employment Contract (AU)

What Is a Employment Contract (AU)?

An employment contract is a legal agreement between an employer and an employee. It outlines the rights, responsibilities, and duties of both parties during the working relationship. In Australia, this contract does not always have to be a physical document signed by both people. It can be a verbal agreement or a combination of written terms and verbal understandings. However, relying on verbal agreements is risky for both business owners and workers.

A written contract provides certainty. It clearly states what the employee will be paid, what hours they will work, and what their specific duties are. It protects the business by setting expectations for performance and behaviour. It also protects the employee by ensuring they receive their minimum legal entitlements.

Every employment contract in Australia exists within a broader legal framework. The contract sets out the specific terms for the individual job, but it sits on top of the "safety net". This safety net includes the Fair Work Act 2009, the National Employment Standards (NES), and any applicable Modern Awards or enterprise agreements. A contract cannot offer less than what is provided in this safety net. If it does, the contract term is invalid, and the higher legal standard applies.

For tradespeople, small business owners, and startups, a solid contract is the foundation of a good working relationship. It helps prevent disputes about pay, leave, and job expectations further down the track.

When to Use This Document

You should use a written employment contract whenever you hire a new staff member. This applies whether you are hiring a full-time manager, a part-time retail assistant, a casual labourer, or a specialist tradesperson. Even if you are hiring a family member or a friend, a written contract ensures the arrangement remains professional and legally sound.

For New Hires

The most common use of this document is during the recruitment process. Once a candidate accepts a job offer, you should present the contract for signature. Ideally, this happens before the employee starts their first shift. Signing the contract confirms that both parties agree to the terms of employment.

For Promotions or Role Changes

You should also use a new contract when an existing employee moves into a significantly different role. For example, if a warehouse employee is promoted to a supervisory position with higher pay and new responsibilities, their old contract may no longer reflect their reality. A new agreement captures these changes and updates their duties and remuneration.

When Changing Employment Status

If you intend to change an employee’s status from casual to part-time or full-time, a new contract is required. The legal obligations differ between casual and permanent employees. A casual to permanent conversion changes how leave is accrued and how notice of termination works. The contract must reflect these new entitlements clearly.

For Contractors vs Employees

It is vital to use this document when you have an employee, not a contractor. Sometimes businesses try to use contractor agreements for staff who are actually employees to avoid paying tax and super. This is called "sham contracting" and is illegal. If you control the hours, the work, and provide the equipment, the person is likely an employee, and you must use an Employment Contract (AU).

Key Sections and Required Elements

A robust employment contract needs to cover specific areas to be legally compliant and practically useful. While you can customise the contract to fit your industry, certain elements are non-negotiable under Australian law.

Identification and Parties

The contract must clearly identify who is hiring whom. You need the full legal names of the employer and the employee. For the employer, you should include the Australian Business Number (ABN) or Australian Company Number (ACN). This removes any ambiguity about who is responsible for paying wages and entitlements. You should also include the job title and the specific location where the work will be performed.

Position Description and Duties

This section defines what the employee is actually being paid to do. It should list the core duties of the role. It is also standard practice to include a "flexibility clause". This clause allows the employer to direct the employee to perform other duties that are within their skill level and reasonable. For a tradie, this might mean picking up a different tool on a slow day. For an office worker, it might mean covering reception. However, these duties must still be safe and reasonable.

Remuneration and Benefits

This is the most read part of the contract. It must state the rate of pay, whether it is an annual salary or an hourly rate, and how often they will be paid. Weekly or fortnightly pay cycles are common in Australia.

Crucially, this section must reference the applicable Modern Award. Most industry roles in Australia are covered by an award, such as the Building and Construction General On-site Award or the General Retail Industry Award. These awards set minimum pay rates, penalty rates for weekends and overtime, and allowances. The contract should state that the employee will be paid at least in accordance with the relevant award.

You must also include details of the Superannuation Guarantee. As of July 2024, the minimum rate is 11%, rising to 11.5% in July 2025. The contract should specify the superannuation fund you will contribute to.

Performance, Probation, and Review

A probationary period allows both parties to test the fit. It is standard industry practice to include a probation period, usually between three and six months. During this time, you monitor the employee’s performance and cultural fit. The contract must state the length of this period.

It is important to note that the minimum employment period for unfair dismissal protection is generally 6 months (or 12 months for small businesses with fewer than 15 employees). A probation period in the contract should not exceed these limits if you wish to maintain the right to dismiss without an unfair dismissal claim.

Termination of Employment

This section outlines how the job can end. It must specify the notice periods required. Under the NES, there are minimum notice periods based on how long the employee has worked. For example, an employee of at least one year but less than three years is entitled to two weeks' notice. The contract cannot provide less than this, but it can provide more.

This section should also cover what happens if the employee resigns without notice, known as "abandonment of employment", and the requirement to return company property like laptops, tools, or uniforms upon leaving.

Intellectual Property and Confidentiality

For startups and businesses dealing with sensitive information, this section is critical. It clarifies that any work, inventions, or intellectual property the employee creates while working for you belongs to the business, not them. It also restricts the employee from sharing confidential business information, such as client lists or trade secrets, during and after their employment.

Work Health and Safety (WHS)

Under the Work Health and Safety Act 2011 (Cth) and state equivalents, employers have a primary duty of care. While often covered in a separate policy, the contract should acknowledge that the employee has a duty to follow reasonable safety instructions and look after their own health and safety at work.

How to Write a Employment Contract (AU) (Step by Step)

Writing a contract does not have to be difficult, but you must follow a logical process to ensure you capture everything.

Step 1: Determine the Employment Type

Decide if the role is full-time, part-time, or casual. This affects leave accruals and notice periods. Full-time and part-time employees are permanent and get paid leave like annual leave and personal leave. Casuals get a higher hourly rate (casual loading) but do not get paid leave. You must state the employment type clearly in the document.

Step 2: Check the Modern Award

Before you write the pay rate, look up the Modern Award that covers your industry on the Fair Work Ombudsman website. Find the classification that best matches the role. This will tell you the minimum pay rate and any mandatory allowances. Use this information to fill out the Remuneration section.

Step 3: Draft the Duties

Write a list of the main tasks the employee will perform. Be specific but not restrictive. Add the flexibility clause mentioned earlier to ensure you can move the employee between tasks as business needs change.

Step 4: Set the Probation Terms

Decide on the length of the probation period. Three months is common for junior roles, while six months may be appropriate for senior management. Ensure you understand the probation rules for small businesses if you have fewer than 15 staff.

Step 5: Include NES and Award References

You do not need to copy the entire National Employment Standards into the contract. It is sufficient to state that the employment is governed by the Fair Work Act 2009, the NES, and the specific named Modern Award. This incorporates the legal requirements by reference.

Step 6: Add Specific Clauses

Depending on your business, you may need to add clauses for:

• Remote Work: If the employee can work from home, outline the expectations for home office safety and reimbursement of expenses.
• Salary Packaging: If you are offering benefits like a car or laptop in lieu of salary, detail this here.
• Casual Conversion: If you are hiring a casual, the law may require you to offer them a permanent position after 12 months. Including a conversion clause clarifies this pathway.

Step 7: Review and Sign

Print the contract and review it for errors. Both the employer and the employee must sign and date the document. You must then provide the employee with a copy.

Step 8: Provide the Fair Work Information Statement (FWIS)

This is a regulatory requirement. You cannot just hand over the contract. You must give every new employee a copy of the Fair Work Information Statement (FWIS) before they start, or as soon as possible after. This statement explains their rights under the NES. You can download it from the Fair Work Ombudsman website.

Step 9: Record Tax and Super Details

Ensure the employee fills out a Tax File Number (TFN) declaration form. Without this, you will have to tax them at the highest marginal rate. You also need their chosen superannuation fund and BSB/account numbers for payroll.

Common Mistakes to Avoid

Ignoring the NES

The biggest mistake employers make is drafting contract terms that undercut the National Employment Standards. You cannot contract out of the NES. For example, you cannot write a contract that says "no annual leave" or "only 3 days sick leave per year". Even if the employee signs it, that term is void. The employee is still entitled to the full 20 days of annual leave and 10 days of personal leave under the NES.

Misclassifying Employees

Do not call someone a contractor to avoid paying superannuation or leave entitlements if they are really an employee. The Fair Work Ombudsman and the ATO look at the substance of the relationship, not just the title of the contract. If you control how, when, and where the work is done, they are likely an employee. Sham contracting carries heavy penalties.

Forgetting State-Based Leave

While the NES covers most leave, Long Service Leave (LSL) is largely governed by state legislation. For example, the rules in NSW under the Long Service Leave Act 1955 differ slightly from those in other states. Your contract should acknowledge that the employee is entitled to LSL according to the relevant state laws. Do not assume a federal rule covers everything.

Vague Job Titles and Duties

Using a vague job title like "General Hand" without a description of duties can lead to problems. If the employee refuses to do a task because they claim it is not in their contract, you have no written ground to stand on. Be specific about the role.

Skipping the FWIS

Many business owners forget to give the employee the Fair Work Information Statement. This is a strict legal requirement. Failing to provide it can lead to compliance issues if a dispute arises.

Neglecting Privacy Obligations

If your business has an annual turnover of more than $3 million, you must comply with the Privacy Act 1988 (Cth). Your contract should address how you collect and use the employee's personal information. Even for smaller businesses, it is good practice to handle this data carefully and securely.

Legal Considerations (AU)

Fair Work Act 2009

This is the primary piece of legislation governing employment in Australia. It sets out the minimum standards and protects employees from unfair dismissal and adverse action. Your contract must be consistent with this Act.

Modern Awards

Awards are industry-specific legally binding instruments. They detail pay rates, overtime rates, penalty rates for weekends and public holidays, and allowances. There are over 100 modern awards in Australia. You must identify the correct one for your employee and reference it in the contract.

Superannuation Guarantee

The Superannuation Guarantee Charge is a federal requirement. You must pay super for all eligible employees, including casual workers. The current rate is 11%. You must pay these contributions into a "complying superannuation fund" at least quarterly. Failing to do so is a serious offence and can result in audits and fines from the ATO.

Work Health and Safety (WHS)

Employers have a duty to provide a safe workplace. This duty extends to remote or hybrid work arrangements. If you require an employee to work from home, you may need to ensure their home office setup is ergonomically safe to prevent injury.

Record-Keeping

The Fair Work Regulations 2009 impose strict record-keeping requirements. You must issue pay slips within one working day of pay day. You must keep employment records for seven years. These records must include details of the employee’s name, pay rate, hours worked, and leave balances. Your contract should facilitate this by clearly defining the terms that need to be recorded.

Termination and Redundancy

If you make an employee's role redundant because the business no longer needs the work done, they may be entitled to redundancy pay under the NES. The amount depends on how long they have worked for you. Small businesses with fewer than 15 employees are generally exempt from paying redundancy pay. Your contract should clarify if redundancy provisions apply.

Frequently Asked Questions (preview)

Can I write the contract myself?

Yes, many small businesses use templates to create their own contracts. However, you must ensure the template is up to date with current Australian laws. Using an outdated template can be risky. For complex arrangements, such as those involving complex intellectual property clauses or executive share schemes, it is wise to consult a lawyer.

Is a digital signature valid?

Yes, electronic signatures are generally valid in Australia for employment contracts. Platforms like DocuSign or HelloSign are commonly used. As long as both parties clearly intend to be bound by the agreement, a digital signature is legally effective.

What happens if there is a dispute?

If there is a disagreement over the contract, the first step is usually to check the written agreement and the applicable Modern Award. Most disputes are resolved by discussing the issue directly. If this fails, the Fair Work Commission provides a free dispute resolution service. They can help mediate the issue or make a binding decision.

Do I need a lawyer to sign the contract?

No, neither party needs a lawyer to sign a standard employment contract. However, employees have the right to seek independent advice before signing. Some employers offer to pay for the employee to get legal advice on the contract, particularly for senior roles, but this is not a legal requirement.

Can I change the contract later?

You cannot unilaterally change the terms of an employment contract. If you want to change a fundamental term, such as reducing hours or changing duties, you must consult with the employee and get their agreement. If you force a change without consent, the employee may have a claim for breach of contract or constructive dismissal.

How often should I review contracts?

You should review your standard contract template whenever there is a major change in employment law. This includes changes to the Superannuation Guarantee rate, minimum wage increases in July each year, or changes to the NES. Keeping your template current ensures every new hire is set up correctly.