10 common employment contract mistakes

Nick Stanley
By Nick Stanley

Most businesses recognise the importance of the employment contract. While they aren't required under Australian employment law, we recommend that every employee has a signed, written employment contract.

Employment contracts set out the terms and conditions of employment and are negotiated between the employer and the employee.

You need to ensure the document is well-written and clear, so both the employer and the employee know what each party is entitled to and what is expected of them.

You don’t want to face an employment dispute, a hefty fine from the Fair Work Ombudsman, or end up in the Fair Work Commission because there are issues with the employment contract.

MyHR works with lots of companies to ensure their employment contracts are clear and legally robust, and we see some common errors that every business wants to avoid.

Not having a written contract at all

While it may be tempting to think you can get someone to work at your company without drawing up an employment contract that you both sign, doing so will leave you exposed if things go wrong.

The employment contract forms the legal basis for employment, and if you are subject to an inspection by the Fair Work Ombudsman, the employment contract will help provide a firm basis to prove you are paying your employees correctly.

If you are in the process of hiring a new team member, or have staff that have been with you for a long time, you should absolutely guarantee you have a written employment contract for each of your employees.

That includes your casual and part-time workers.

Trying to shortchange workers’ rights

In Australia, every employee enjoys the protection of minimum entitlements and protections under the NES and/or a relevant modern award or enterprise agreement.

These minimum entitlements are the responsibility of the employer and, by law, no employment contract can provide for less than the legal minimums.

As an employer, you can’t ask your employees to agree to less than the basic rights and an employee could make a claim for underpayment if they believe they were denied these rights during their employment.

Even if you don’t include them in an employment contract or have terms in the contract that don’t comply with the law, the minimum entitlements are still legally binding and if a Fair Work Inspector finds you have breached them, you could owe your employee(s) unpaid wages or back pay for leave. You could also be fined.

Remember, the employment contract is the basis of the relationship between you and your employee. Having a watertight contract will get you off to a good start and provide an honest foundation to build on.

Find out more about minimum employee rights under the NES at fairwork.gov.au

Not getting the type of contract right

It is crucial to get each employee on the right type of employment contract so it matches the nature of their employment. This may seem reasonably straightforward, but there are some mistakes that businesses commonly make:

  • Using a casual employment contract for part-time workers. As soon as a person is required to work regular hours, no matter how few, they are not casual.
  • Hiring contractors who are actually employees. Contractors are self-employed and aren’t covered by most employment-related laws.

Having an employee on a type of contract that does not match the reality of their work could mean you face an employment dispute or other costs, including outstanding wages, holiday pay, or PAYG tax.

So before you hire someone, it's essential to consider what work needs to be done, how often, and for how long. That will make it easier to choose whether a full-time, part-time, or casual employee is the best fit.

Reusing old templates

While the good old DIY approach might save time, taking an old template and applying it to all new employees can be risky.

Sure, most individual employment contracts are broadly the same for all employees, but failing to tailor your contracts to each role means you may miss important things (such as all the mandatory clauses) and put you in jeopardy of not complying with employment regulations.

You don’t want to end up in an employment dispute and find the contract is missing important elements and is not binding. An administrative error because you recycled an old template is no defence.

Personalising the employment contract will not only safeguard you from unnecessary risk, it will ensure it is specific to the position, the person, and the needs and goals of your business.

Not being clear...

An employment contract is based on mutual understanding and everything in it should be clearly understood by both parties.

Any ambiguity in the contract could mean that your employee does not know what the business expects of them, and what their obligations and duties are.

If you agree to a probation period, a certain number of working hours, a roster, on-call availability, or procedure for shift changes, these things should be clearly set out in clauses in the contract.

Ensuring the terms and provisions are all clearly defined and match the reality of the job the person needs to do will ensure the employment contract is robust, and will greatly reduce the likelihood of problems or disputes down the track.

The employment relationship will be a lot sturdier because you also know exactly what your employee expects of the business, for example, what allowances they may qualify for or how they can earn incentives such as bonuses, skill payments, or study entitlements.

As in all relationships, honesty and transparency are always the best policy..

...or being too specific

Being clear is the overarching rule, but there are some areas where being too specific in the employment contract could be a disadvantage.

For example, for executives and management staff, if the contract has stated times when your employee can take rest and meal breaks and this turns out to be difficult to achieve in the regular workday, it could be a breach of your employment contract. Both parties would be better served if the contract leaves room for flexibility or doesn't specify times at all.

A good rule of thumb is, aside from the provisions you are legally obliged to include, only add those that you are confident you want to bind your workers to and that you want to be bound by.

Employment contracts can be changed, but only if there is a genuine reason and both parties agree. Going back to tweak them over and over so they match the reality of the job could be laborious and may strain the relationship you have with your team members.

Confusing the contract with company policies

So you’ve worked through the mandatory clauses and added any others that ensure your employee (and you) know exactly what’s expected of them. At this point, you might be tempted to include policies and procedures you want to be part of the business culture.

But before you do, think about whether you want to give the rules the permanence and legal weight of a clause in the contract. It may be better to create non-contractual policies and procedures you want workers to follow. Doing that will give you the flexibility to alter them if things in the business or wider industry change, rather than having to go through the process of changing the employment contract.

Any policies and procedures that are contractually relevant, however, should be explicitly referenced in the contract so a new employee knows they exist and that it’s part of their job to know and follow them. For example, if the business gives the person a company car as part of their package, you should have a clause outlining expectations of company vehicle use.

If you keep the clauses short and simple, they will be easier to understand and abide by.

Not following the provisions of the contract

Once you’ve created an employment contract and you and your employee have signed it, you both must follow the obligations within it.

It may be tempting to take shortcuts in the workplace - for disciplinary reasons or if you feel your team should be more productive - but it's not good practice.

One of the guiding principles of the Fair Work Act is that the employer and the employee must act in good faith. That means if an employee comes to management with a concern, you must listen, investigate, and take any necessary action to resolve the issue.

Failure to adhere to the provisions of an employment contract or failure to act in good faith could mean an employee could successfully challenge you in any dispute. 

It’s much better to see the contract as a foundation for quality employment relationships, and a building block for a workplace culture of cooperation, trust, and excellence.

Not keeping it up-to-date

So you and your new employee have signed the employment contract, and you’ve filed it somewhere safe and accessible. At this point, you could leave it to gather dust (or its digital equivalent).

However, going forward, it is much better for your employment contracts to be living documents that you regularly review and update, if necessary.

Be sure to update the contract if there are changes to the nature or terms of the job, e.g. if the hours of work change (this includes guaranteed hours, days of work, or start/finish times). You can get into trouble if you don’t amend the contract.

If you have casual employees, you should issue them a revised employment contract every 6 months. You also need to consider whether the hours worked over those 6 months will continue in a regular and systematic pattern, or whether they need to be changed to meet the operational requirements of the business. If they are to continue, you may also consider whether to make the casual person permanent.

Remember, there must be a genuine reason for any contract changes and any amendments must be discussed with the employee and be made in writing (a letter of variation is often better than redrafting the whole contract if the changes are minor or temporary).

Regularly reviewing your employment contracts will mean you stay compliant with laws and regulations. There are also annual changes, e.g. the Fair Work Commission's annual review of minimum wage rates, and you don’t want to be caught out because you failed to update the employment contract.

Related Resources

HR basics: Employment contracts
HR basics: Employment contracts
By Julian Hackenberg, HR Manager - 15 Jun 2023

In our ongoing series of articles on fundamental HR and people management practices, we take a look at the cornerstone document of the employment relationship: the employment contract.

This may seem incongruous given that there’s no legal requirement in Australia to have a contract of employment with your employees. However, an employment contract sets out the terms and conditions of employment, so both employer and employee clearly understand what their rights and obligations are, what’s expected of them, and what they can expect from the other party.

Not having a clear contract can create uncertainty, and leave the employment relationship open to misinterpretation, dispute, and potential legal wrangles.

So let’s have a good look at employment contracts, including what they are, what they should and shouldn’t contain, the process for drawing them up, and why you need to get them right.

Read more
Contractors vs employees: how to get it right
Contractors vs employees: how to get it right
By Jason Ennor, Co-founder and CEO at MyHR - 01 Mar 2022

Employee or independent contractor? Here's a practical guide to approaching this common question which can cause significant issues for your business if you get it wrong.

Read more
Complete employee onboarding checklist
Complete employee onboarding checklist
By Nick Stanley - 10 Feb 2021

The candidate interviews are done, you've made the decision on the right person for the role, and they've accepted the job offer. Good news. Now you can start planning your new employee's successful integration to the company.

Read more
Get Started with MyHR

Make HR easy

Experiencing is believing. Book a demo today.

Book a demo Start free trial