Your complete guide to employment contracts

But based on your industry, you may have specific requirements to put one in place. We highly recommend you use contracts as a tool to enforce terms and conditions that can inform the employment relationship.

Although the employment agreement should ideally take the form of written contracts, verbal contracts are still acceptable. Although the latter does significantly increase the risk of misinterpretation by one party or the other and can create issues down the line when employment ends. But more on that later.

Let's start from scratch.

What are employment contracts?

Employment contracts are an agreement between you as an employer and your employees that sets out the terms and conditions of employment. Contracts, like we said before, can be written contracts or verbal contracts.

All contracts must provide for at least the same minimum terms, conditions, and wages set by the National Employment Standards (NES). These are outlined in the Fair Work Act 2009 or the relevant award, enterprise or other registered agreement. You cannot contradict Fair Work obligations in your contracts even if an employee agrees to these amendments.

Any edits you make to the terms and conditions set within your contracts will need to be signed off by your employees.

What to include in employment contracts

Contracts are the most effective way to outline the terms and conditions of the employment relationship.

The purpose of a contract is to create the foundation of the employment relationship including employment status. This aspect of contracts is particularly important if the employee works for you on a part-time or casual basis. Setting out the conditions of employment in written contracts—including remuneration and obligations—helps to reduce the risk of misunderstanding or confusion.

Although every employment contract is different and needs to reflect the specific employment relationship between the employer and the employee, there are certain conditions of employment that should be included in contracts, regardless of your business size or industry.

You should include the following terms and conditions in your employment contracts:

• The name and personal details of the employer and the employee

• The date employment commences and the probation period (if this is for permanent employee contracts)

• The job title and description, which sets out the employee's role and duties

• Clause referring to your employer policies and procedures

• Clauses referring to the essential requirements of the role such as licences, clearances, and registrations

• The type of employment being full-time, part-time, or casual

• The place of work and operational hours of your business

• Remuneration clause. Setting out the payment method in terms of a salary, wage, or piece rate; what is included in this payment or paid separately such as superannuation, loadings, overtime, bonuses, benefits, and allowances. Commissions are generally set out in a separate scheme

• Leave entitlements. The NES provides compulsory minimum standards for various types of leave including annual leave, personal leave, and long service leave

• Clauses protecting employer property and information like a company vehicle or intellectual property

• Confidentiality agreement making it clear what business and employer information should be kept confidential, and what the possible consequences may be in the event of a breach

• Non-disparagement clause preventing employees from actions that can reflect negatively on the company

• The amount of notice that both the employer and employee must give before ending the employment relationship. The Fair Work Act includes minimum notice periods

• Termination conditions including redundancies

• Clauses regarding assignment, jurisdiction, severability and variation of terms

What provisions to include in employment contracts

On top of the terms and conditions set out above, you also need to consider provisions to deal with any potential changes in the employee’s role or the scope of their duties. For example, will the same contracts still apply if employees need to change locations, roles, or duties?

Depending on the employee’s position, you may also need clauses in your contracts preventing them from setting up a similar business close to their former employer for a period and/or stealing your clients, though these clauses can be hard to enforce.

Types of employment contracts

Each type of employment engagement has different benefits and consequences.

The best way to engage workers in a way that's 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.

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 on whether the employee is covered by an industrial instrument.

Employees under full-time employment contracts are entitled to paid leave and must 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, their part-time entitlements are on a ‘pro rata’ basis.

Casual employment contracts

Casual employees will work for you on a demand-only basis. Unlike a permanent agreement, casual employees have no set-in-stone commitment to ongoing employment and generally work on an ad hoc basis, which means their working hours are irregular. Casual employees are paid for the hours they work, and they can refuse shifts.

They are also not entitled to paid sick leave 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, these contracts end either when a project is completed or when an event has passed. Fixed-term contracts clearly outline the length of the employee's employment period from start to end.

Although this type of employment arrangement is often short-term, fixed-term workers still receive the same financial and other entitlements as permanent employees. Although they don't require notice if their employment contract ends with their fixed term.

Contracts for independent contractors

Independent contractors are typically self-employed workers who contract their services out to other companies. Contractors negotiate their own financial compensation and working arrangements. Plus, they have the freedom to work for multiple employers at once.

It’s important for you as an employer to clearly define whether your new hire is a permanent employee or an independent contractor as there may be business risks if your contractor turns out to be an employee.

Changing the terms of employment contracts

Employment contracts can be varied and altered upon agreement.

This is usually done through a formal letter of variation, which outlines the changes to the terms and conditions or the provision of a new contract to supersede the old contract.

It's important that your employees sign off on the changes to the terms and conditions and that consideration is applied when you add new employee obligations.

Termination of employment contracts

Employment contracts can be terminated by either an employer or through an employee resignation.

Regardless of what triggered the termination, the correct procedure must be followed to ensure the process is fair and aligns with workplace procedures.

Depending on the circumstances, if an employee is dismissed or resigns, their employer still owes them their financial entitlements. This can include paid notice, and their final payment, which includes any entitlements owed to them like accrued but untaken annual leave.

Make sure you clearly outline the terms relating to ending employment in your employment contracts and employee handbooks.

Employment contracts and legislation

The relationship between you and your employees depends on the nature of your employment contracts.

Many aspects of employment law also depend on it, so you need to understand how contracts are put together.

Employment contracts are legally binding as long as they have three elements:

• An offer

• An acceptance of the employment contract

• Consideration

If any of these three elements is missing in your contracts, they're not legally enforceable.

Breaches in employment contracts

It's important to remember that signing employment contracts legally binds both employers and employees.

So, the obligations that contracts outline go both ways to cover the legitimate interests of both parties.

How do employees breach employment contracts?

An employee under a contract can often still decide to break their contract through early termination. They just need to make sure that they serve out their notice period first.

However, breaking employment contracts doesn't always mean your employee is in breach of the law, there are certain actions that do breach employment contracts.

Here are some examples:

• Sharing their employer's confidential information

• Leaving an employer to join a competing company

• Taking client contact information when they leave the company

Breaching employment contracts is one of the most common grounds for dismissal. That is as long as your contracts specify that dismissal is on the line if contract terms are broken.

How do employers breach employment contracts?

As an employer, you need to make sure that you're following the law in every step of your contract process.

From making sure that the terms in your contracts align with your employees' award or agreement to following through on your contract terms right up until the end of your employees' time with you.

Here are some examples of breaching your obligations:

• When a company unfairly dismisses an employee either by not giving them the proper notice or without reasonable grounds for dismissal. This can lead to financial penalties that the Fair Work Commission orders.

• Altering the terms of employment contracts without first consulting with the employees who will be affected by the change.

• Neglecting to pay your employees the money their contract entitles them to. This includes financial benefits, bonus payments, overtime, casual loading, or any other payments outlined in your contracts. This can also lead to financial repercussions in the form of fines and penalties.

Written contracts vs. verbal contracts

It is best practice to have a written contract of employment signed by witnesses, even though the law accepts a verbal contract as legally enforceable too.

Some awards do require you to tell employees in writing about things like their status of employment or hours of work. In these cases, a written contract may work best for you to prove that you've met your legal obligations.

What are verbal contracts?

Verbal contracts are a lot harder than written contracts to pin down, for obvious reasons.

That's why verbal contracts often only work in the event that no disputes—financial or otherwise—occur and both parties have a mutual understanding of what they agreed on.

Many verbal contracts are only partly confined to a verbal dialogue between one party and the other party. There may still be supporting paperwork to prove the existence of verbal contracts like emails.

When are employment contracts helpful?

When it comes to your business and legislation, there are two scenarios when your employment contracts become very helpful to the protection of your business.

1. Contracts help you when you need to discuss rights, duties, promises, and agreements.

Make sure your contracts mean what they say, rather than what they ought to mean. So, it's important that your contracts clarify employment rights, duties, financial promises, and agreements.

1. Contracts also help you in the event that disputes arise.

In disputes, first consider whether the contract has an offer, acceptance, and consideration. If it's a legally binding agreement and you breach that contract, for example, by not paying the financial bonus you promised, you are open to legal action.

The tools you need to nail your employment contracts

We've mentioned already how important it is to have written contracts with your employees.

But it's not always easy to fully understand and follow through on the laws involved in the process. The majority of businesses that find themselves on the wrong side of the law are often unaware of their own missteps.

With new laws constantly being enforced that you must account for in your paperwork, no business can assume that they are doing the right thing.

How BrightHR helps your business

The range of software tools and services we offer at BrightHR help you follow the rules of employment law to create ironclad employment contracts including standard form contracts and commercial contracts that protect you and your business.

We have your back throughout every step in the process.

Writing your employment contracts

Whether it's a standard form contract or different agreements that suit your employees' needs, one of the biggest time commitments for employers is the hours they need to put into their HR admin tasks.

We help you slash your HR admin hours in half with a library of expertly written HR document templates including contracts and employee handbooks. So, all you need to do is download the right template, customise it, and roll it out.

Plus, all your HR documents can be backed up on our unlimited, secure, cloud-based document storage system. Giving you the benefit of never needing to worry about losing a document or missing a step in your onboarding process.

Getting the terms of your employment contracts right

Your employment contracts set the tone for your new employees.

In this competitive labour market, you want to make sure that you're making the right moves to attract the best talent and doing right by your current employees. We help you hit all the notes by giving you access to a 24/7 team of employment relations advisers.

So, whenever you hit a snag with a written contract or have difficulties with other terms you may want to include in your contracts, you can call us for instant answers to your questions.

Discover all the ways we can support you in building a better business by booking your free demo with our software specialists today.