A quick guide to understanding your employment contract and using the employment contract tool

An employment contract is a key document in any workplace relationship. It sets out the rights and responsibilities of both employers and employees. A well-drafted employment contract ensures clarity around job roles, pay, leave entitlements, and termination conditions. This helps avoid disputes, promotes fair treatment, and ensures compliance with Australian workplace laws, like the Fair Work Act.

Why understanding employment contracts matters

Employment contracts are essential for a smooth and fair workplace. They outline the rights, responsibilities and expectations of both employers and employees. A well-drafted contract helps prevent misunderstandings, reducing the chance of disputes. It sets the foundation for trust, making working relationships more productive and professional. A clear employment contract can save businesses and employees from costly legal battles.

A quick guide to an 'employment contract'

An employment contract is a legal agreement between an employer and an employee. It outlines job roles, responsibilities, pay, leave entitlements, and termination conditions. A clear contract helps prevent disputes and ensures both parties understand their rights. It also protects employees from unfair practices and helps employers stay compliant with workplace laws like the Fair Work Act.

[ez-toc]

How contracts foster fairness

A strong contract benefits both parties by:

• Defining roles: It ensures everyone understands their duties and limits confusion about responsibilities.
• Clarifying terms and conditions: Details about pay, leave and notice periods protect employees while helping employers stay compliant.
• Providing legal protection: Contracts act as proof of agreed terms, making them enforceable if disputes arise.

The importance of being specific

Generic agreements can lead to errors. Tailoring contracts to suit specific roles, industries or awards ensures compliance with employment law and avoids gaps in entitlements.

Quick tip

If you’re unsure about drafting contracts, consider the Fair Work Ombudsman’s Employment Contract Tool. It helps small business employers build contracts tailored to their needs. Protect your business by ensuring your contracts comply with workplace laws and include all required entitlements. Alternatively you can use our Business Kitz platform where you can download premium documents and agreements templates for free. Select 5+ for free from a library of over 160+ in our document library.Taking the time to create clear agreements builds trust, reduces risks and fosters a fairer workplace for everyone.

What is an employment contract, and why does it matter?

An employment contract is a legally binding agreement between an employer and an employee. It sets out the terms and conditions of employment, including the rights and duties of both parties. A clear and well-drafted contract ensures that both sides understand their obligations, reducing the chance of disputes. Search our examples here.

Written vs verbal agreements

Employment contracts can be written or verbal. A written contract provides clear evidence of agreed terms, making it easier to enforce if issues arise. In contrast, verbal agreements, while still legally binding in Australia, can lead to misunderstandings. Without written documentation, proving what was agreed becomes difficult if disputes occur.

Protections for employers and employees

Contracts protect both employers and employees. They:

• Clarify conditions of employment: Details about pay, hours, leave and duties ensure both parties know what to expect.
• Safeguard legal entitlements: Contracts must meet minimum standards set by laws, such as the National Employment Standards (NES). For example, they cannot reduce entitlements like annual leave or notice of termination.
• Offer dispute resolution: Written agreements make it easier to resolve disagreements. They provide a record of agreed terms if one party believes the other has breached the contract.

Employment contracts also ensure compliance with workplace laws and awards. Employers can use tools like the Fair Work Ombudsman’s Employment Contract Tool to draft agreements that meet legal requirements. By having a contract tailored to the role and industry, both employers and employees gain security and peace of mind.Without a contract, workplace relationships can face unnecessary risks. Drafting a proper agreement protects everyone involved.

Key elements every employment contract should include

A strong employment contract ensures clarity and compliance. It outlines the terms and conditions of the working relationship. Including key elements in every contract protects both the employer and the employee.

Essential components of an employment contract

A complete contract should include:

• Job title and description: Define the role, responsibilities, and expectations.
• Scope of work: Specify tasks, deliverables, and reporting structure.
• Working hours: State full-time, part-time, or casual status, including expected weekly hours.
• Remuneration: Detail the salary or wages, including overtime, penalty rates, and superannuation.
• Leave entitlements: Include provisions for annual leave, sick leave, and other applicable leave.
• Termination conditions: Outline notice periods, reasons for dismissal, and redundancy terms.
• Employment conditions: Include workplace policies, probation terms, and any confidentiality clauses.

Comparing permanent and fixed-term contracts

Use the following table to highlight differences between these two types of employment agreements:ElementPermanent ContractFixed-Term ContractDurationOngoing, no set end dateEnds on a set date or after a set periodNotice of terminationRequired by law or contract termsMay not require notice at the end of the termLeave entitlementsFull access to NES entitlementsAccess to leave based on contract durationRole flexibilityOften includes provisions for role adjustmentsSpecific to a set period or projectA well-structured contract should meet the legal minimum standards, such as those outlined in the National Employment Standards (NES). It also ensures that agreements align with any modern award or enterprise agreement that applies to the role.By addressing these key elements, an employer protects their business, and an employee gains clear terms about their role. For tailored contracts, consider tools like the Employment Contract Tool from Fair Work.

Understanding legal minimum requirements for employment contracts

Every employment contract in Australia must meet the National Employment Standards (NES). These standards set out the minimum rights and entitlements for employees. They cover critical aspects like working hours, leave, and termination.

What the NES includes

The NES provides 11 minimum standards for employees, which include:

• Maximum weekly hours: 38 hours for full-time employees, plus reasonable overtime.
• Leave entitlements: Annual leave, personal leave, compassionate leave, and parental leave.
• Notice of termination: Requirements for notice periods or redundancy pay.

All employment contracts must comply with these minimums. For example, a contract can’t offer fewer leave days than the NES permits.

Expanding on legal minimums

While contracts must meet NES requirements, they can provide more generous terms. For instance:

• Offering extra leave days.
• Setting higher pay rates than the award.

Employers who go beyond the NES show commitment to employee welfare, which can foster loyalty.

Breaches and consequences

If an employment contract violates the NES, it can result in serious penalties. For example:

• Underpaying wages: This can lead to fines and legal action under Fair Work laws.
• Failing to meet leave entitlements: Employees can file complaints with the Fair Work Ombudsman.

Consider a case where a contract states an employee must work 45 hours a week without overtime pay. This breaches the NES limit of 38 hours. Such terms are unenforceable and leave the employer liable for legal action.By ensuring compliance with the NES, employers protect their business from breaches and build trust with employees. Use resources like our Business Kitz platform to create contracts to assist with compliance.

Fixed-term contracts and the Fixed Term Contract information statement

A fixed-term contract is a type of employment agreement where the terms and conditions are set for a specific duration. These contracts are typically used for roles with a clear start and end date, such as seasonal jobs, project-based work, or temporary replacements. Once the agreed period ends, the contract automatically expires unless both parties agree to extend or renew it.

Key aspects of fixed-term contracts

• Set period of employment: The contract must specify the exact start and end dates.
• Conditions of employment: Fixed-term employees should be aware of their rights regarding pay, leave, and other entitlements during the contract term.
• End of the contract: The contract must clearly state that the employment ends on a set date or when a project is completed.

Fixed-term contracts often appeal to employers who need temporary or short-term workers for specific projects or seasonal peaks. They are also useful when a business is unsure about the ongoing need for the position.

The Fixed Term Contract Information Statement (FTIS)

The Fixed Term Contract Information Statement (FTIS) is a document introduced by Fair Work to ensure both parties understand their rights and obligations when entering into a fixed-term agreement. This statement outlines:

• The reasons why the contract is fixed-term.
• The employee’s rights to termination notice, redundancy pay, and other entitlements if the contract ends prematurely.

Employers must provide the FTIS to employees before signing a fixed-term contract. The statement helps clarify expectations and avoids misunderstandings.

Example scenario

Consider an employer hiring a worker for a project that lasts 12 months. The employer provides a fixed-term contract, with the start and end dates clearly stated. The contract also includes the FTIS, explaining the reason for the temporary nature of the role. At the end of the project, the employee’s contract will automatically terminate unless both parties agree to a renewal.This transparency helps avoid disputes. The worker knows exactly when their contract ends, while the employer is clear about their obligations. Understanding these fixed-term agreements can reduce conflicts and ensure smooth transitions for both parties.

When an employer wants to change the terms of a contract

Employment contracts can be modified during the course of the working relationship, but these changes must follow a clear legal process. Any alteration to the terms of a contract should be made with the agreement of both the employer and the employee. Mutual consent is essential to ensure that the changes are legally binding.

Legal framework for modifying contracts

Under Australian employment law, an employer cannot change the terms of an employment contract without the agreement of the employee. This includes any modification to pay, working hours, job duties, or other key conditions of employment. If changes are made without mutual consent, it could lead to a breach of contract. Such breaches may result in legal consequences for the employer, including the possibility of the employee claiming constructive dismissal if they feel the changes are unreasonable.

Practical steps for negotiating changes

1. Communication: The employer must clearly communicate the proposed changes and the reasons for them. Both parties should have an opportunity to discuss the changes.
2. Documentation: Any changes to the contract must be documented in writing. This can be done through an amended contract or an addendum to the original contract.
3. Consultation: The employer should consult with the employee before making any changes. It is good practice to provide the employee with time to consider the changes and seek advice if necessary.
4. Agreement: Both parties must sign off on the new terms. This ensures there is a record that both sides have agreed to the changes.

Risks of improper changes

If changes are implemented without following the correct procedure, the employer may face breaches of employment conditions. For example, reducing pay or changing working hours without agreement could be seen as a violation of the original terms. This could lead to disputes or even legal action. In some cases, the employee may claim the changes have made the contract invalid or no longer enforceable.Employers should always ensure that any changes comply with the Fair Work Act and that they respect the National Employment Standards (NES). By doing so, they can avoid the risks associated with breaches and maintain a positive working relationship with their employees.

What to do if you suspect a breach of contract

If you suspect that the terms of your employment contract have been breached, it's important to understand what constitutes a breach and how to take the right steps to address it.

Defining a breach of contract

A breach of contract happens when one party, either the employer or the employee, fails to meet the agreed terms outlined in the employment contract. Some common examples of breaches include:

• Unpaid wages: Not receiving the agreed pay or missing out on overtime or penalty rates.
• Altered terms without agreement: Changes made to working hours or job responsibilities without mutual consent.
• Unmet leave entitlements: Failure to provide the correct leave (e.g., annual or sick leave) as promised.
• Safety violations: Not adhering to workplace health and safety standards outlined in the contract.

Actionable steps for employees

1. Document the breach: Keep clear records of the situation. Note any conversations, emails, pay slips, or documents that support your claim.
2. Reach out to HR or Fair Work: If the issue is not resolved, contact your HR department or the Fair Work Ombudsman for assistance.
3. Seek legal advice: If the situation does not improve, consider consulting an employment lawyer who can explain your legal options.
4. Evaluate your options: If the breach is severe, such as an unlawful pay reduction, it may be necessary to explore other options, including possibly resigning or taking further legal steps.

Guidance for employers to address and rectify breaches

1. Act quickly: When a breach is identified, address it as soon as possible. Investigate and communicate openly with the affected employee.
2. Correct the breach: If the breach can be rectified (e.g., missed wages or inaccurate terms), make the necessary adjustments immediately.
3. Review policies and contracts: Ensure employment contracts are clear, up-to-date, and compliant with workplace laws.
4. Educate managers: Provide training for managers on how to avoid breaches, understand the contract terms, and follow HR policies.
5. Offer dispute resolution: Mediation can be an effective way to resolve disputes without escalating them to legal action.

Ensuring compliance

Employers must comply with employment law, including the Fair Work Act and the National Employment Standards (NES). Seeking professional advice from workplace relations experts or employment lawyers can help ensure compliance and prevent future breaches. By addressing issues quickly and maintaining open communication, employers and employees can foster a fair and compliant working environment.This proactive approach helps prevent potential legal disputes, ensuring a better working relationship for both parties.

Do you need a lawyer to review or draft an employment contract?

Employment contracts are crucial documents that define the rights and responsibilities between employers and employees. In some cases, it is important to seek legal assistance when drafting or reviewing these contracts.

When legal help may be essential

Some situations require professional legal advice or assistance:

• Complex agreements: If your business is creating a contract for a specialised role or a complex arrangement, a lawyer can ensure the terms are legally sound and cover all necessary areas.
• Disputes or potential breaches: If there's a disagreement or potential breach, an employment lawyer can help resolve the issue in accordance with employment law.
• Custom contracts: For businesses in niche industries or with unique requirements, a lawyer can tailor a contract to fit specific needs, ensuring it complies with all legal standards.
• Understanding legal language: Employment contracts often use legal terminology that may be difficult for non-experts to understand. A lawyer can break down the language and clarify obligations.

Cost-effective options for small businesses and employees

If you're a small business owner or an employee, there are options to access legal help without a large cost:

• Free resources: Many government websites, like the Fair Work Ombudsman, offer free guides, templates, and tools that help both employers and employees understand employment contracts.
• Free consultations: Some law firms offer free initial consultations. This can be a good starting point for small businesses or individuals who need advice but can't afford ongoing legal fees.
• Community legal services: Non-profit organisations and legal clinics often provide free or low-cost advice, especially for those facing financial difficulties.

Useful tools and templates

• Fair Work Ombudsman: The Fair Work Ombudsman provides templates and resources that help employers create contracts that comply with Australian workplace laws. These templates are a good starting point for creating standard employment contracts.
• Business.gov.au: This site also offers useful templates, including sample employment contracts tailored for different types of employees.
• Employment contract tools: Digital tools like employment contract generators help small businesses draft legally compliant contracts quickly. Some tools (like our Business Kitz platform) even offer tailored templates based on the specific needs of the business. Scan a sample of our range here.

By using these resources and consulting a lawyer when needed, both employers and employees can ensure their contracts are clear, fair, and legally binding. This proactive approach helps protect both parties and prevent potential legal issues down the road.

Tools and resources to help you navigate employment contracts

When it comes to managing employment contracts, there are several tools and resources available to assist both employers and employees. These resources can help ensure that contracts are legally compliant, clear, and fair. Here are some practical options:

Fair Work Ombudsman contract templates

The Fair Work Ombudsman provides free templates for employment contracts. These templates are designed to meet the minimum requirements set by the National Employment Standards (NES) and can be tailored for different types of employment, such as full-time, part-time, or casual roles. Using these templates ensures that employers comply with Australian employment law, and it helps employees understand their entitlements.

Digital tools for drafting, signing, and managing contracts

There are also digital tools that simplify the process of drafting, signing, and managing employment contracts. These tools can save time, reduce errors, and ensure compliance with workplace laws.

• Employment contract generators: Some platforms offer easy-to-use online tools where employers can create customised employment contracts. These tools often ask for basic information and automatically generate a contract that meets legal standards.
• E-signing tools: Many employers now use electronic signing tools to streamline the contract process. These tools allow employers and employees to sign contracts online, making it easier to handle remote work arrangements.
• Contract management software: For businesses with multiple employees, contract management software can track contract expiry dates, amendments, and compliance with employment laws.

Links to relevant legislation

• Fair Work Act: Employers and employees should familiarise themselves with the Fair Work Act 2009, which sets out the primary laws governing employment relationships in Australia. This legislation covers areas such as pay rates, leave entitlements, and termination rights.
• National Employment Standards (NES): These are a set of 11 minimum employment standards that apply to all employees covered by the Fair Work system. The NES ensures that employees are entitled to basic rights, such as annual leave, parental leave, and notice of termination.

Here is a comparison of free versus premium tools available for managing employment contracts:FeatureFree toolsPremium toolsContract templatesFree templates from Fair WorkCustomisable templates with expert inputLegal adviceGeneral guidelines onlyAccess to legal consultations and tailored adviceContract managementBasic tools for creating and storing contractsAdvanced contract management software with alertsE-signing capabilitiesAvailable on some platformsIncluded with premium service plansUsing these tools and resources, both employers and employees can ensure they are aware of their rights and obligations, which helps avoid misunderstandings and disputes. Whether you're creating a contract for the first time or managing existing agreements, these resources will make the process smoother and more efficient.

FAQ: Employment contracts

What entitlements should an employment contract include?

An employment contract should clearly set out the minimum entitlements, such as pay, leave, and working hours. It ensures that both the employer and employee understand their rights and obligations. The contract must also align with the national employment standards and any applicable awards or enterprise agreements.

How do I get related information about employment conditions?

For related information on employment conditions, you can check the Fair Work Act, fact sheets, or consult with a workplace relations professional. They can explain your rights and help you understand the rules that apply to your specific job type.

What happens if an employee is covered by an award?

If an employee is covered by an award, the employment contract must comply with the rules set out in the award. This includes pay rates, work hours, and any other relevant entitlements. The employer is responsible for ensuring the contract reflects these conditions.

What are minimum entitlements in an employment contract?

Minimum entitlements refer to the basic rights and benefits employees must receive, such as paid leave, superannuation, and working conditions. These are set out in the national employment standards and should be included in every employment contract.

What is the difference between a written employment contract and a verbal agreement?

A written employment contract clearly sets out the terms and conditions of employment. It helps prevent misunderstandings by providing a reference point. A verbal agreement may be harder to enforce and lacks the clarity of a written contract.

Can I build my own employment contract?

Yes, using an employment contract tool can help small business employers to make sure the contract complies with the law. This tool helps you create a contract tailored to your business needs and specific employee roles.

How do I know if my employment contract complies with the law?

To ensure compliance, check that your employment contract covers all minimum legal entitlements, such as pay, leave, and notice periods. You can use an online employment contract tool to build a contract that meets the requirements of the national employment standards.

What happens when a fixed term contract ends?

When a fixed term contract ends on a set period of time or a season, the employer must comply with any notice and entitlements required by the contract. If the employer wishes to extend the contract, they should issue a new contract that reflects any changes.

Do casual employees have an employment contract?

Yes, casual employees can also have an employment contract. This contract should outline their rights, pay rates, and whether they are covered by an award. Casual employees are not entitled to the same benefits as permanent employees, such as paid leave.

How does a new contract affect part-time employees?

A new contract for part-time employees should set out the agreed upon working hours, pay, and other entitlements. Part-time employees are entitled to the same benefits as full-time employees on a pro-rata basis, depending on the terms of their contract.

What should I do if I have a question about employment contracts?

If you have a question or concern, you can contact a workplace relations professional for advice. Alternatively, the Fair Work Infoline on 13 13 94 can provide support and direct you to relevant information about employment contracts.

Why is it important to make sure the contract reflects employment conditions?

Making sure the contract reflects employment conditions protects both the employee and employer. It helps avoid disputes by clearly stating expectations, entitlements, and obligations. Both parties can refer to the contract in case of misunderstandings or workplace issues.

Can I get a contract that is tailored to my business needs?

Yes, you can use an employment contract tool to create a contract that is tailored to your business needs. This tool helps you ensure the contract complies with the law while reflecting the unique

Moving forward with confidence

Having a well-drafted employment contract is crucial for both employers and employees. It sets clear expectations and protects everyone involved. By ensuring your contract outlines key details like job role, pay, and leave entitlements, you can avoid misunderstandings and potential disputes. It’s important to regularly review and update contracts to keep up with changes in laws and business needs.Leverage the available tools and resources, like those from the Fair Work Ombudsman, to create, manage, and sign employment contracts. These resources help ensure compliance with the law and make the process easier for both small businesses and employees.If you're unsure about your contract or need help with a complex situation, don’t hesitate to seek professional legal advice. Many free resources are available, and consulting a legal expert can provide the clarity you need. Protect your business and your employees by staying informed and using the right tools such as the Business Kitz platform to generate, sign, store and manage your essential business documents.