By Sally Desch
Director, HRM
Employment contracts form the foundation of all employment relationships and here we share our handy checklist of what should be included in employment contracts. A current, compliant, and strong employment contract will significantly assist any business in all areas of their people management.
These 10 items are some of the most important clauses that your business should be include in every employment contract.
1. Payment Terms
As obvious as this may sound, it is extremely important to set out the payment terms in an employment contract, as well as ensuring that these terms meet the National Minimum Wage. Be aware that an annual wage review of both the National Minimum Wage and the minimum pay rates under the various awards is conducted by the Fair Work Commission. Therefore, it’s beneficial to regularly check for wage changes.
2. Hours of Work and Work Arrangements
An employment contract should set out the type of employment arrangement, i.e. full-time, part-time, casual, fixed-term, maximum term, etc. and the start date of the employment contract. As well as the ordinary hours of work, the spread of hours and the maximum weekly hours. If applicable, it is good practice to include what constititutes overtime work and when overtime rates will apply.
3. Warranty Clauses
It is also important to include a warranty clause in any contract of employment. This clause will provide you with a warranty that the employee has the necessary qualifications, skills, and/or licenses to do the work that is required in their role. In addition, it also provides a warranty that the employee has the legal right to work in Australia.
4. Leave Entitlements
Employees are entitled to take leave for a range of reasons as set out under the National Employment Standards (NES). The leave entitlements include, but are not limited to, annual or holiday leave, personal or carer’s leave, sick leave, and compassionate leave. There are also provisions for family and domestic violence leave which include full-time, part-time and casual employees.
5. Probationary Period
Including a probationary period in the employment contract allows you to set a time period in which you as the employer can assess the suitability of your new employee; and gives your employee the opportunity to assess the suitability of their new role and their employer. It’s important to note that a probationary period may not be longer than the Minimum Employment Period (MEP) which is 12 months for small business (<15 employees) and 6 months for others.
6. Confidential information and Intellectual Property
Safeguarding your business is paramount and you will need to protect both confidential information and your intellectual property. Through the course of your employee’s employment, they will most likely have access to a range of confidential information and intellectual property. This clause is designed to protect items like your sensitive data, your competitive advantage in the market, client information, etc.
7. Termination of Employment - with and without notice
The termination clause should set the mutual expectations for termination of employment, both with and without notice. This clause will govern the terms on which an employer can lawfully terminate an employee’s contract and employment with the business.
Equally, should the employee wish to resign from the business, the termination clause will also set out the notice period they are required to give to you as their employer.
8. Post-employment Restraints
Another critical clause to include in an employment contract to protect your business is a post-employment restraint of trade. This will prevent a former employee from undertaking work for a competitor or soliciting or attempting to solicit current employees or clients of the business as well.
Post-employment restraints usually cover, but are not limited to, a specific period of time, define a geographic area, detail industries or activities the employee may not be involved in and could even restrict contact with your clients and/or employees.
9. Deductions
Making deductions from an employee’s salary can only be made in limited situations under the Fair Work act. To prevent any possible misunderstandings or disputes, the circumstances in which you have agreed to deduct funds from an employee’s salary, should be clearly stated in the employment contract.
10. Off-set Clause
The importance of an off-set (or ‘set off’) clause is that it enables an employer to pay an employee a salary or hourly rate which is inclusive of other entitlements under the Award. Such as annual leave loading, penalties rates, overtime, allowances and the like. This makes managing the payroll much easier; however, care should be taken to ensure that the higher base pay rate does cover the off-set Award entitlements.
Other Items
As a matter of best practice, at HRM we also recommend that the following items be included in the employment contract:
title of the position
who the position reports to
primary location(s) of employment
date the agreement/contract commences
the date the employee’s employment commences
frequency of their pay
the day they will receive their pay
applicable industrial instrument (i.e. Modern Award, Enterprise Agreement)
Who can help me with employment contracts?
You can get help with your employment contracts from employment lawyers and specialist human resources (HR) consultants.
At HRM we have over 20 years’ experience providing HR and recruitment services on the Sunshine Coast. We can help you with the entire employment process, from recruitment to employment contracts, right through to ongoing HR for your business operations. We pride ourselves on customising our services to suit your business needs.
If you would like more information and or assistance on setting up your Employment Contracts, please contact the Team at HRM at ask@hrmcc.com.au
Important note
ABA. Advice Beyond Accounting does not provide HR advice nor assistance with employment contracts or recruitment. However, we can assist you with your forecasting, budgeting, and cash flow in relation to additional head count for your business. Along with ongoing management of your tax compliance in relation to salaries and wages.