Employment Contracts Australia: 10 Keys to Getting Them Right

Employers need more than a template

Employers must take care to prepare compliant, enforceable employment contracts that are tailored to their business, workforce and applicable laws.

An employment contract is a legally binding agreement between an employer and employee that sets out the terms and conditions of employment. While contracts can be verbal, relying on unwritten agreements significantly increases the risk of misunderstandings, disputes and non-compliance with the Fair Work Act 2009.

Like any contract, employment contracts are often relied upon when disputes arise or things are not working as expected. A well-drafted employment contract should help resolve employment questions and issues by clearly setting out the rights and responsibilities of both parties.

A well-drafted written contract creates clarity, manages expectations and protects your business when issues arise, particularly during disputes, performance management or termination.

Why employment contracts matter more than ever

Australian workplace laws continue to evolve.

Recent reforms, including the Fair Work Legislation Amendment (Closing Loopholes) Act 2023, increased compliance activity by the Fair Work Ombudsman, and the introduction of Payday Super, mean outdated contracts can quickly become non-compliant.

If your employment contracts haven't been reviewed in the past two years, there is a strong likelihood they are already out of date.

Outdated contracts may be partially or entirely unenforceable, exposing your business to underpayment claims, penalties and reputational damage.

A compliant employment contract is one of the most effective risk management tools an employer can have. It provides certainty, supports compliance and creates clear expectations from the beginning of the employment relationship.

What makes a compliant employment contract?

A compliant employment contract must align with:

• the Fair Work Act 2009

• the National Employment Standards (NES)

• any applicable modern award or enterprise agreement

• taxation legislation

• superannuation obligations

• other relevant workplace legislation.

It must also reflect the true nature of the employment relationship, not simply what is written on paper.

This is particularly important when assessing employment status, contractor arrangements, remuneration and workplace obligations.

Employment contracts are only one part of your HR documentation

Employment contracts are one of the most important HR documents an employer has, but they are only one part of a compliant HR framework.

Employers should also maintain current:

• position descriptions

• workplace policies and procedures

• onboarding documentation

• recruitment records

• performance management documentation

• employee acknowledgements

• HR checklists and recordkeeping.

Together, these documents create consistency, support compliance and reduce the risk of misunderstandings, workplace disputes and legal claims.

Robust HR documentation doesn't just protect employers. It creates clarity for employees, supports procedural fairness and demonstrates good governance if workplace decisions are ever scrutinised.

10 keys to getting employment contracts right

1. Ensure legal compliance from the outset

Your contract must meet minimum entitlements under the Fair Work Act 2009, including the National Employment Standards, modern awards and all applicable legislation.

2. Clearly define the employment type

Specify whether the employee is casual, part-time or full-time.

Misclassification can lead to underpayment, leave entitlement breaches and significant legal liability.

3. Set out duties and role expectations

Include a clear position description, reporting lines, duties and performance expectations.

Accurate, up-to-date position descriptions support performance management and provide clarity for both employers and employees.

Lack of role clarity is recognised as a psychosocial hazard under work health and safety legislation and can contribute to workplace stress, conflict and psychological injury.

Position descriptions also assist employers to correctly classify employees under modern awards, helping reduce the risk of underpayment.

4. Detail working hours and arrangements

Specify:

• ordinary hours

• flexibility arrangements

• hybrid or remote work arrangements

• work locations

• rostering expectations.

Clear expectations reduce misunderstandings and disputes.

5. Get remuneration right

Outline wages or salary, including whether remuneration is award-based or an annualised salary arrangement.

Include superannuation obligations consistent with the Superannuation Guarantee (Administration) Act 1992 and ensure payroll arrangements reflect current legislative requirements.

6. Include leave entitlements

Cover:

• annual leave

• personal/carer's leave

• compassionate leave

• FDV leave

• parental leave

• long service leave

• any additional contractual benefits.

These should align with the National Employment Standards and applicable state legislation.

7. Capture allowances and benefits

Document any:

• allowances

• vehicles

• bonuses

• professional development support

• reimbursement arrangements

• other employment benefits.

8. Include compliance requirements

Specify any mandatory requirements including:

• professional registration

• licences

• Working With Children Checks

• police checks

• vaccinations (where lawful)

• continuing professional development requirements.

9. Protect your business with enforceable clauses

Include appropriate clauses covering:

• confidentiality

• intellectual property

• conflicts of interest

• post-employment restraints (where reasonable)

• non-solicitation obligations.

These clauses should always be tailored to the role and business.

10. Include termination and review provisions

Clearly outline:

• notice periods

• probation

• termination processes

• redundancy provisions

• review mechanisms.

Employment contracts are often relied upon most when the relationship breaks down. If the contract is unclear or outdated, it may fail when you need it most.

Don't forget contractor vs employee risk

Employment contracts are only part of the picture.

You should also regularly review any independent contractor agreements.

Recent changes under the Fair Work Legislation Amendment (Closing Loopholes) Act 2023 mean that whether someone is an employee or contractor depends on the real substance, practical reality and true nature of the relationship.

Even if a contract labels someone as an independent contractor, they may legally be an employee if the working relationship operates like employment in practice.

Related article: Contractor or Employee?

Avoid copy-and-paste contracts

Using generic or recycled contracts is one of the most common causes of workplace compliance breaches.

Every business, role, award and workforce structure is different.

A contract prepared for one employee is unlikely to be appropriate for another without careful review.

Templates can be useful starting points, but they should always be tailored to reflect your organisation, current legislation and the specific employment relationship.

How Workplace Plus can help

A tailored, up-to-date employment contract is one of your most important risk management tools.

Workplace Plus supports employers across Australia to draft, review and update:

• employment contracts

• independent contractor agreements

• HR policies and procedures

• position descriptions

• complete HR documentation suites.

Our practical HR specialists help employers reduce legal risk, maintain compliance and create documentation that is fit for purpose.

Related resources

• Contractor or Employee?

• Essential SME HR Toolkit

• Must-have HR Policies

• Managing Probation

• Overpayment & Underpayment of Wages

• Policies, Agreements & Documentation Services

For tailored advice or assistance reviewing your employment documentation, contact Workplace Plus today.