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Contract of Employment, Letter of Offer or Letter of Engagement?

Contract of Employment, Letter of Offer or Letter of Engagement….as an employer, is it necessary to provide any?

And what’s the difference anyway?

Let’s ask a few key questions and draw some conclusions once the cards are on the table.

What is a Contract of Employment?

A Contract of Employment is a legal agreement between an employer and employee setting out the terms and conditions that apply to the employment relationship.

The Contract of Employment usually includes information such as employer ABN/ACN, commencement date, compensation, work location, what Modern Award (if any) might apply and circumstances under which an employee can be terminated.

A Contract can be in writing or verbal. Employment Contracts can be informal and inferred from the fact that someone performs work for another party and that the other party pays the worker.

Generally, if someone agrees to work for another party in return for payment of wages, it is likely an Employment Contract exists.

An employer cannot “contract out” of their legal minimum obligations. An Employment Contract cannot provide for less than the legal minimum set out in the National Employment Standards (NES), relevant award, enterprise agreement or other registered agreements that may apply.

If it does, these Contract terms and conditions will be considered unlawful and not enforceable.

What is a Letter of Offer?

A Letter of Offer is generally regarded as a brief informal document to offer a position to a candidate.

The Letter of Offer is sent to confirm the conversation between the employer and candidate and contains basic information such as position title and salary.

What is a Letter of Engagement?

A Letter of Engagement is a written agreement to perform services in exchange for compensation.

This document is traditionally used by professional services firms such as lawyers, accountants, finance providers and consultants to define the scope of the engagement and the terms of compensation for the firm. In more recent times, the term “Letter of Engagement” has been used interchangeably with “Contract of Employment”.

The Fair Work Ombudsman’s website offers templates for employers to use when employing staff and these documents are titled “Letter of Engagement”.

Why having a Contract of Employment (or Letter of Engagement) is Smart

We’ve seen it’s not necessary to have a formal document in place to confirm an employment relationship. If someone agrees to work for another party in return for payment of wages, it is likely an employment contract exists. There are many smaller businesses employing friends of the owner/s and it’s often tempting for both parties to reduce paperwork by not having anything in writing to confirm the working arrangement.

While informality and less bureaucracy can be a positive, it is strongly recommended a written employment document be produced to ensure all parties are aware of their workplace rights and obligations.

Without a written contract, both parties expose themselves to unnecessary risk around disputes and misunderstandings over the terms of employment.

For an employer, attending a Fair Work mediation around an unfair dismissal claim without supporting contractual documents is akin to throwing dollars down the toilet and this is one time some pre-emptive planning and tailored documentation has tangible rewards.

The Fair Work Ombudsman offers a range of employment templates on their website:

HR Documents & Templates Customised for your Business

As with any business document/s, it is worthwhile considering your individual circumstances before applying a template to your situation.

Greg Bowmer is an expert Human Resources (HR) Consultant operating on the Gold Coast and in Brisbane.

Feel free to give Greg from Bare Bones Consulting a call on 0401 279 065 for a coffee and some advice before you take the Contract of Employment, Letter of Offer or Letter of Engagement plunge…HR risk management is part of our smarter, stronger, faster approach to HR.

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Note: Bare Bones Consulting provides HR services for employers. Employees seeking advice on workplace concerns should contact the Fair Work Infoline on 13 13 94.