Employment agreements and contracts: what Australian small business owners need to know

If you run a small business in Australia and you have employees, you need an employment agreement — or at least something in writing that sets out the terms of the relationship. The Fair Work Act 2009 and the Fair Work Regulations require every employer to give new employees a copy of the Fair Work Information Statement, and most Modern Awards also require you to provide written notice of certain terms. Getting the agreement right from day one protects both you and your employee, and it is the single best defence against disputes down the track.

Is an employment agreement the same as an employment contract?

Essentially, yes. In Australia, "employment agreement" and "employment contract" are used interchangeably in everyday language. Strictly speaking, the contract is the whole legal relationship — it includes the written document, the verbal discussions, the award, the National Employment Standards (NES), workplace policies, and any implied terms. The written agreement is simply the clearest evidence of what the parties agreed.

Whether you call it an agreement, a contract, or a letter of offer, the key point is the same: you should have something in writing that records the core terms before the employee starts work.

The relationship between awards and contracts

This is where many small employers go wrong. Under the Australian system, an employment contract cannot pay less than the Modern Award that covers the employee. The award sets the legal minimum for wages, hours, breaks, penalties, loadings, and entitlements. The contract can provide more than the award, but never less.

If an employee is covered by a Modern Award, the award terms apply automatically — even if they are not mentioned in the written agreement. If the employee is award-free (for example, some senior managers), the NES still applies as a statutory minimum.

What must be in an employment agreement?

While there is no single statutory form, the Fair Work Act and the Modern Awards require you to document certain things. A well-drafted agreement for a small business should cover:

• Employer and employee details — full names, ABN, start date, job title.
• Type of employment — full-time, part-time, or casual. This matters for leave entitlements, notice, and redundancy pay.
• Hours of work — ordinary hours, days of work, start and finish times. For casuals, state that there is no guaranteed hours commitment.
• Pay — base rate of pay, how it is calculated (hourly, weekly, salary), and when pay day is. If the employee is salaried, confirm that the salary is intended to satisfy award obligations.
• Leave entitlements — reference the NES (annual leave, personal/carer's leave, parental leave, etc.). Most awards add extra entitlements like long-service leave.
• Notice of termination — the minimum notice period under the NES (or more, if the contract or award says so). For employees over 45 with at least 2 years' service, the NES minimum increases by one week.
• Applicable Modern Award or enterprise agreement — name the instrument. If you are not sure which award applies, use the Fair Work Ombudson's Award Finder.
• Probation period — commonly 3 to 6 months. The NES minimum notice still applies during probation.
• Confidentiality and intellectual property — who owns work product created during employment.
• Work health and safety obligations — mutual duties under the relevant state or territory WHS Act.
• Dispute resolution — reference the award dispute procedure or a simple internal grievance process.

The National Employment Standards (NES) — non-negotiable minimums

The NES applies to every employee in Australia. You cannot contract out of it. The 11 standards include:

1. Maximum weekly hours (38 hours, plus reasonable additional hours).
2. Requests for flexible working arrangements.
3. Offers and requests to convert from casual to permanent.
4. Parental leave and related entitlements.
5. Annual leave (4 weeks per year; shift workers get 5).
6. Personal/carer's leave and compassionate leave.
7. Community service leave.
8. Long service leave (as defined by state/territory law).
9. Public holidays.
10. Notice of termination and redundancy pay.
11. Fair Work Information Statement.

Any agreement term that tries to give the employee less than the NES is void. The NES steps in and applies instead.

Common pitfalls for small business employers

• Using overseas templates. A contract drafted for US, UK, or NZ law will almost certainly miss Australian requirements and may include unenforceable clauses.
• Forgetting the award. Even if you pay above award rates, the award still governs penalties, loadings, breaks, and consultation obligations. Name the award in the agreement.
• Misclassifying employees as contractors. The "sham contracting" provisions in the Fair Work Act carry significant penalties. The label in the agreement is not decisive — the true nature of the relationship matters.
• Vague job descriptions. A poorly defined role makes it harder to manage performance and easier for the employee to claim the duties have changed unilaterally.
• No review clause. Roles, awards, and pay rates change. Include a simple mechanism to review the agreement periodically.
• Outdated agreements. An agreement signed five years ago may no longer reflect the current award, the employee's actual duties, or the law.

Casual vs permanent: why the label matters

The rules around casual employment changed significantly with the Fair Work Amendment (Supporting Australia's Jobs and Economic Recovery) Act 2020. A casual employee is now defined by the absence of a firm advance commitment to ongoing work, and the practical reality of the arrangement matters more than the label in the agreement.

Key points:

• Casuals receive a casual loading (typically 25%) in lieu of paid annual leave, personal leave, and notice.
• After 6 months (or 12 months for small businesses under 15 employees), a casual has the right to request conversion to permanent if they have worked a regular pattern of hours for at least the previous 6 months.
• Mislabelling a permanent employee as casual to avoid entitlements is a serious compliance risk.

Enterprise agreements: when they replace the award

An enterprise agreement (EA) is a negotiated collective agreement between an employer and a group of employees. If a valid EA covers an employee, the EA replaces the Modern Award for that employee. EAs must pass a "better off overall test" (BOOT) before they are approved by the Fair Work Commission.

Small businesses rarely use EAs because the negotiation and approval process is complex. Most small employers rely on the Modern Award plus a written contract. If you are considering an EA, professional advice is strongly recommended.

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