Employment Agreement

What is an Employment Agreement?

An Employment Agreement is a contract for use when an Australian business hires a new employee. It can be used for a variety of employment contexts such as full time, part time or casual employment, fixed term employment or permanent employment.

It is a contract or agreement between the employer and the employee and sets out the terms and conditions of the employment relationship including things like the employee's role and duties, their rate of pay, any benefits they may receive (such as a company car), confidentiality obligations, the termination process and notice periods.

What are the different types of Employment Agreement?

There are two broad categories of Employment Agreement in Australia:

• Fixed term: The employee is hired for a fixed period of time, until the end of a specific project. Once that fixed period of time ends, their employment will end. For example, this is popular for seasonal work like fruit picking.
• Permanent: The employee is hired on an ongoing basis. Their employment continues indefinitely, until it is terminated by either the employee or the employer. This is the more common employment structure and could include office workers, trades, retail, hospitality, or various other job types.

In addition, whether they are engaged on a fixed term or a permanent basis, employees may also fall into one of the following categories:

• Full time: The employee works full time hours (normally 38 hours per week).
• Part time: The employee works a regular schedule but fewer than full time hours. For example, the employee might work business hours on Mondays and Tuesdays only.
• Casual: The employee's hours vary from week to week, with no guaranteed hours. This is especially common for retail and hospitality workers, but can also apply to many other job types.

For employees that are working fully remotely, consider using a Remote Work Agreement instead.

What is the difference between an Employment Agreement and a Service Agreement?

A service agreement is another way that workers may be hired in Australia. A service agreement is used for hiring workers as contractors rather than as employees.

The difference between an employee and a contractor is based on many factors. It depends on the entire arrangement between the business and the worker, and whether the worker is working within the business, as part of the business (like an employee) or whether the contractor is running their own business (like a contractor). Some common considerations include:

• whether the worker can subcontract/delegate the work
• whether the worker provides their own tools and equipment
• whether the worker is paid for the time worked, or based on a quote for the result achieved (eg a quote for the painting of a room)
• the amount of control that the worker has - whether the worker can choose their own hours or location of work, and what sort of control the business has over how the work is performed
• who is responsible for mistakes in the work - whether the worker has to rectify mistakes at the worker's own cost, or whether the business is responsible for any mistakes in the work

Employees have the right to some entitlements that most contractors do not - such as superannuation, guaranteed minimum wages, and paid leave (except in the case of casual employees). It is against the law for a business to incorrectly treat a worker as a contractor when they should be treated as an employee. In doing this, the business will be neglecting its various obligations such as payment of superannuation and employee entitlements. There can be significant penalties associated with this.

Further information is available through the Australian Taxation Office, the Fair Work Ombudsman or business.gov.au. We also have a legal guide called What's the Difference Between an Employee and an Independent Contractor? which also addresses this matter in more detail. Consider getting legal advice if further information is required.

What is the difference between an Employment Agreement and a Letter of Offer of Employment?

A Letter of Offer of Employment is similar to an Employment Agreement, but is much more brief.

A Letter of Offer of Employment is designed to be a quick and easy document for employers to send to employees as soon as they are hired. Many employers choose to send a Letter of Offer of Employment and then to follow it up with an Employment Agreement. However, as an Employment Agreement goes into a lot more detail, the employee may need some time to go through it before they sign it, and therefore it is handy to have a basic Letter of Offer of Employment to get the ball rolling.

A Letter of Offer of Employment can often structured either as a standalone document, or as one that is going to be followed up with an Employment Agreement.

Is it mandatory to have an Employment Agreement?

No, but it is highly advisable to have one. Having a written Employment Agreement helps protect the interests of both the employer and the employee. It also helps ensure that both parties understand the terms, and are able to enforce their rights.

A written Employment Agreement is also useful in courts, commissions, tribunals or other forums. For example, if the employee makes a claim for unfair dismissal to the Fair Work Commission, it will be useful for them to have a written agreement to provide as evidence.

Who can enter an Employment Agreement?

The employee and the employer should sign the Employment Agreement. The employer could be a company or other business entity (such as a partnership). The employer could even be a sole trader.

The employee should have the lawful right to work in Australia either via their citizenship or a valid work visa.

Each state and territory of Australia has rules about the minimum age for employees. The rules often vary for different industries or categories of work. In many states and territories the minimum age for part time or casual jobs is often quite relaxed. However, there are often more strict rules for full time employees. In most states and territories, employers may also need a Child Employment Permit if they are employing someone under the age of 17.

What can be the duration of an Employment Agreement?

An Employment Agreement can be for a fixed term, meaning that the end date is agreed before the contract is signed. When that date arrives, the employment will naturally come to an end. The duration of a fixed term contract could be as short as one week or less, but must not exceed two years in total (including any extensions or renewals).

Alternatively, an Employment Agreement can be permanent (ongoing) meaning that the employment does not end until it is terminated by either the employer or the employee.

If the employee is being employed for more than two years, then they will need to be given a permanent contract rather than a fixed term contract.

What has to be done once an Employment Agreement is ready?

Once this document has been prepared, it can be signed by the parties. Both the employer and the employee will need to sign the document, and keep a copy for their own records.

There are some other documents that the employer also needs to provide to the employee (see the section below).

After signing an Employment Agreement, the employer should:

• Make sure the new employee has been given a copy of the Fair Work Information Statement.
• If the employee is a casual, make sure they have been given a copy of the Casual Employment Information Statement.
• If the employee is on a fixed term contract make sure they have been given a Fixed Term Contract Information Statement. Copies of each of these information statements are available for free from the Fair Work Ombudsman.
• Get the employee to complete Online Commencement Forms or a Tax File Number Declaration and Standard Choice Super Form. These forms are all available for free from the Australian Taxation Office.
• Make sure they understand their other payment obligations which may include pay as you go (PAYG) withholding tax, the superannuation guarantee and fringe benefits tax (FBT).
• Ensure the employer has workers' compensation insurance to cover the employee. The employer may also need to notify the insurer of the new employee's details.
• Maintain a file for the employee including their full name and contact details, emergency contact details, tax details, payment details, a copy of their signed Employment Agreement, and any other relevant information.
• Keep accurate records for the employee, including payment records and tax records.

Which documents should be attached to an Employment Agreement?

When an employee starts a new job, the employer needs to give them the Fair Work Information Statement. If the employee is being employed on a casual basis, then they also need to be given the Casual Employment Information Statement. If they are being employed on a fixed term contract then they need to be given a Fixed Term Contract Information Statement. Copies of each of these information statements are available for free from the website of the Fair Work Ombudsman.

In addition, any relevant employee policies can also be attached. This could include:

• Employee Handbook
• Workplace Health and Safety Policy
• Drug and Alcohol Policy
• Social Media Policy
• Conflict of Interest Policy
• Remote Work Policy
• Employee Reimbursement Policy
• Discrimination Policy

Is it necessary to have witnesses for an Employment Agreement?

No, witnesses are not mandatory for an Employment Agreement, but they are useful for evidentiary purposes. If there is ever a dispute over the Employment Agreement, witnesses can help to prove that each party's signature is valid.

Witnesses should be independent adults (aged over 18), who have the mental capacity to understand what they are doing. They should not be related to one of the parties.

What must an Employment Agreement contain?

An Employment Agreement should contain all of the key terms of the employment relationship, such as:

• The employer's name
• The employee's name
• Job title and description
• The employee's start date
• The employee's job duties
• The employee's normal working hours
• The employee's salary or wages including the amount and frequency of payment
• Any other employee benefits such as superannuation
• The employee's leave entitlements such as sick leave and annual leave
• The primary work location
• Termination process

Which laws are applicable to an Employment Agreement?

The Fair Work Act 2009 (Cth) applies the National Employment Standards (NES), which are a set of minimum employment standards in Australia. Further information is available from the Fair Work Ombudsman.

In addition, each state and territory has legislation that deals with various employment matters such as occupational health and safety or discrimination.

This Employment Agreement does not take into account the requirements of modern awards or enterprise agreements. If such an award or agreement applies, then that will set out some additional minimum standards with which the employer must comply.

General principles of contract law, as provided by the common law, may also apply.

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