Employment Contracts: What’s Essential…and What’s Not

Running a business can be challenging. Customers to service, marketing your product, deadlines to meet – and that’s before you get to the employment side of things.

When it comes to employing people, the most basic document is the employment contract.

In our experience, there’s no shortage of businesses relying on outdated employment contract templates, documents laden with unnecessary legal-speak or worse, nothing in writing at all. And that might seem fine when everything’s going smoothly. But when problems between employees and employers crop up – and it’s inevitable they will – well-drafted employment contracts can save your business time, money, company reputation…and relationships.

In this article, we’ll walk through what you actually need when it comes to employment contracts.  We’ll cut out complexities and focus on what really matters to any business owner: simple advice to make an informed decision. At Bare Bones Consulting, simplicity is the foundation of how we operate: making HR clear, practical and affordable to our clients. And that includes employment contracts.

What is an Employment Contract?

An employment contract is an agreement between an employer and an employee, setting out the terms and conditions of employment. A contract can be in writing or verbal.

An employment contract can also be known as an “Employment Agreement”, “Letter of Engagement” or simply “Contract”.

Is a Written Employment Contract Legally Required in Australia?

Surprisingly – at least to many people – there’s no legal obligation to have a written employment contract.

In Australia, verbal agreements on an employment relationship can still be legally binding. But without a written record, it can be your word against an employee’s when there’s a disagreement on terms and conditions of employment. If a dispute arises, that can be a stressful, time-consuming and potentially s very expensive situation to navigate. Why put yourself at risk?

What Length Should a Contract Be?

Unless you’re employing a CEO with multi-faceted KPI’s, short and long-term incentives and a complex remuneration structure, there’s simply no need for employment contracts to be lengthy and full of jargon. Despite what your lawyer might tell you (and charge you for), longer doesn’t necessarily equate to better.

In our experience, a well-written employment contract for an employee covered by an Award need only be around five pages. Enough to cover the essential terms and conditions of employment, without containing confusing and potentially ambiguous content.

But it’s not just about length. A good contract should be written in simple language. When both parties can easily comprehend the terms of the employment relationship from the outset, it reduces the risk of misunderstandings and builds confidence and trust.

Clear, concise employment contracts are the smart starting point for a transparent working relationship. That’s win/win for all concerned.

Key Takeaways

• While a written employment contract is not a legal requirement, having one in place protects both employer and employee.
• Verbal agreements are risky and terms of employment can be difficult to prove when things go wrong.
• There’s no need for excessive pages of legal jargon in the majority of employment contracts.
• A contract should reflect the role, the law, rights and obligations of parties and the true working arrangement
• Bare Bones Consulting helps businesses create simple, lawfully sound contracts, without generic templates, unnecessary complexity or subscription fees.

Need a review of your current employment contracts? Enquire online or call 0401 279 065 for practical HR advice you can trust.

Contract or not, the National Employment Standards apply

The National Employment Standards of the Fair Work Act apply to all employees, irrespective of there being a written Employment Contract in place.

An employment contract can’t offer less pay or fewer conditions than the minimum wage, the National Employment Standards, or an award or registered agreement.

A contract cannot leave employees worse off than their minimum lawful entitlements.

What Should an Employment Contract Contain?

A good employment contract doesn’t need to be lengthy. But it does need to be accurate; reflecting employment law and terms and conditions of employment for your business. Here’s what we suggest be included as a minimum:

Parties to the Agreement

Use the full and legal names of both the business and the employee. This avoids disputes about parties to the agreement.

Employment status

Define the role as full time, part time or casual. If casual, ensure the contract contains content confirming:

• there is no firm advance commitment to continuing and indefinite work, and
• the employee is entitled to a casual loading or a specific rate of pay for casuals under a Fair Work instrument or their employment contract.

Applicable Award and Award classification (if applicable)

If the role is covered by an Award, define the Award and Award classification for the position. This aligns with entitlements, pay rates and conditions – so it’s critical to get this detail right.

Job Title

Keep the job title clear and specific. Avoid vanity titles: “Director of First Impressions” does you no favours if the role is essentially for a Receptionist. Align the position title with those listed in the Award classifications whenever possible.

Start Date

List the employee’s first day of work to mark the beginning of employment obligations. This becomes your legal reference point for payment of wages, entitlements, the minimum period of employment and notice requirements.

Pay and Conditions

Include wage or salary amount, payment frequency, superannuation information and any regular allowances or benefits.

Annualised wage arrangements

If you elect to use an all-inclusive annualised salary for Award-covered employees, ensure you comply with the relevant “annualised wage arrangements” clauses in the Award.

Leave Entitlements

Reference entitlements under the National Employment Standards, such as annual leave, personal leave, family and domestic violence leave and parental leave.

Obligations to the Employer

List what you feel are the primary obligations as an employee of your business. One example?

• Perform, to the best of your abilities, any work within your skills, training, experience and knowledge as directed by the Employer.

Termination Clause

Set out required notice periods and the grounds for ending employment. This should be consistent with the National Employment Standards and the applicable Award or registered agreement.

Confidentiality and IP

Protect business information and clarify ownership of any intellectual property (IP) created during employment.

Non-Solicitation and Poaching

This clarifies the employee’s obligations to not approach clients of your business or co-workers for a specified period of time should the employee leave the business.

Acknowledgement of receipt of Fair Work Information Statement/s

Employers must give every new employee a copy of the Fair Work Information Statement (FWIS) before, or as soon as possible after, they start their new job. There are also Fair Work Information Statements for employees engaged as casuals or under fixed-term employment.

How to Create or Review an Employment Contract

Starting with correct information makes sense. While certain terminology might be consistent across employment worldwide, exercise caution if using generic Contract templates, particularly templates originating overseas. To be effective, your Contract should be tailored to your business, not someone else’s: content should reflect Australian law, the actual role, terms of employment and the industry in which your business operates. Correct content ensures each member of your team holds a written record of their employment terms, conditions and obligations; offering you protection if the individual elects to not meet these.  That peace of mind only comes from Contracts drafted with the right information.

Ensure you:

• confirm the Award (if applicable) and that the Award classification/level aligns with the actual duties being performed. This ensures correct rates of pay and entitlements and goes a long way to avoiding underpayment issues down the track.
• tailor the contract to the specific role and work environment. Avoid adding unnecessary content that doesn’t reflect how your business actually operates.
• ensure both the employer and employee carefully review the contract, sign and date it before the role begins. This allows questions to be asked and answered, negotiations made if required and protects both sides from misunderstandings before the employment relationship commences. Once the new person has commenced, they are officially an employee. It is smarter to have everything in place and agreed before this step takes place.

If you’ve already got contracts in place, we’re happy to review these. We know what makes a contract both compliant and practical, so when we’re involved you’re not just getting a HR compliance check, you’re getting confirmation that your contract is right for your real world.

Let’s take a look at what you’ve got. We’ll help you cut through the clutter and get back to basics with clear, compliant contracts that make sense for your business and your people. Contact us or call 0401 279 065.

Common Mistakes in Employment Contracts

With over twenty years in HR across a wide variety of industries and sectors, we’ve observed patterns of errors when it comes to contract content.  While many of these might seem minor, over time they can add up to serious compliance risks or disputes. Some of the most common pitfalls?

• Using free online templates, often from overseas sources
• Failing to include key details such as Award and Award classifications, pay structure, notice periods or working hours
• Using annualised salaries without well-worded set off clauses
• Forgetting to update the contract or employee records when duties change
• Including legal language that is ambiguous or confusing
• Not tailoring the contract to reflect the actual working relationship

We’ve seen businesses get into trouble simply because their contract didn’t align with lawful obligations. In one case, a number of employees were undertaking more senior duties than when they were initially hired and there was no written record of this, leading to underpayment and a lengthy, adversarial and costly remediation process.

How Bare Bones Consulting Can Help

At Bare Bones Consulting, we specialise in drafting employment contracts that are simple, clear and practical. With over 20 years of experience in HR and industrial relations at senior management level, we know what works, what doesn’t and how well-drafted documents prevent issues occurring.

We’re not interested in producing content-loaded documents simply to charge more or asking our clients to enter into expensive lock-in subscriptions when they need help.  Our focus is on the right HR documents and advice for your business, employees and operating environment.

Here’s a snapshot of what we offer:

Document Reviews and HR process audits: we look at what you already have, assess it against current legislation and Award requirements, and help make it fit for purpose. If everything’s good, we’ll be honest and tell you.

Plain-English Contracts: we create contracts that are legally sound, easy to understand and reflect how your workplace actually operates.

Award and Compliance Checks: we make sure your classifications, entitlements, pay rates and records line up with the applicable Modern Award and employment legislation

Straightforward Advice: clear guidance, tailored for your situation and delivered in plain English: no legal jargon or unnecessary extras.

Bottom line? We help you get the basics sorted (the bare bones!), so you can focus on what matters to you: growing your business, spending less time on employment matters…. or even a better work/life balance!

Simplify Your Employment Contracts

While it might seem tempting to not issue a written Contract (or have intentions to get around to it later), you’ll struggle if a dispute arises and you do not have a record of the terms of employment.

If you’re time-poor or have no idea what a good contract looks like for your business, here’s some reassurance: employment contracts don’t need to be complicated. As long as you have something in place reflecting lawful entitlements, the rights and obligations of all parties and the way you actually operate, you’re heading in the right direction.

A smarter step? Let someone who knows contracts and HR put these in place for you. After all, a well-written Employment Contract provides a platform for a harmonious professional relationship and less drama all around. And who doesn’t want that?

Want to simplify your HR? Let’s look at your Contracts together and make sure they work for you.  Enquire online or call 0401 279 065 to get started.