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, it is recommended that every employee have 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.

They're not difficult to get right, but there are 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.

Not getting the type of contract right

Under Australian employment law, there are three types of employees: full time, part time or casual, and each person's employment contract must match the type of work they do, the hours and frequency of their work, and other terms and conditions.

From the outset, it is crucial to get each employee on the right type of employment contract. 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 a 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.

Find out more about employment types at fairwork.gov.au.

Not complying with employment legislation

At its most basic, every employment contract must have a number of clauses that are legally required. These are:

  1. The names of the employer and the employee.
  2. A commencement date.
  3. A description of the work to be performed (keep a copy of the job description with the employment contract).
  4. An indication of the place of work.
  5. The agreed hours.
  6. The wage rate or salary payable and how it will be paid.
  7. Leave provisions at least equal to the National Employment Standards (NES).
  8. Superannuation.
  9. Termination provisions and redundancy pay.
  10. The nature of the employment, e.g, if the employment is casual or permanent.

As you can see, the mandatory clauses aren’t extensive and it’s reasonably easy to ensure your employment contracts comply with the law. Because of this, Fair Work Inspectors can get pretty frustrated with businesses whose contracts don’t meet the basic requirements.

Also, if you ever found yourself in an employment dispute, a contract without all the “must have” provisions may not provide you with the necessary protection.

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Trying to shortchange workers’ rights

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

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

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 employee 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.Try MyHR Free

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 to regularly review your employment contracts and update them 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.

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.