Small Business Hiring Guide: Types of Employment Contracts & Agreements
Hiring an employee, or bringing in an intern as a small business owner can be difficult. You are wearing all the hats. You have to keep the business functioning and profitable, but also ensure you are not putting your business at risk and remaining legally compliant.
We have designed this page as an employment guide for you, so you can learn what you need to know about hiring employees, bringing in interns & people for work experience at a glance. All that is left for you to do is read it and get on with the other important stuff you do daily in your business.
Below, you'll learn about the various types of employment contracts / types of employment agreements and how to avoid getting into hot water with Fair Work or your employees.
What you may already know is that there are a variety of ways in which you can employ people in Australia, using these types of employment contracts/agreements:
Permanent full time
Permanent part time
Casual
Fixed term contract
Work from home
Remote / hybrid
Paid internships; &
Unpaid internships/work experience
What you may not know is that in Australia, there are different entitlements, obligations and conditions, specific to each type of employee. So, it’s vital you have accurate information in any agreement or contract you offer someone. Because if you get it wrong there may be consequences.
Importantly, you want to avoid being at risk of sham contracting which many employers can be at risk of, purely due to lack of knowledge. We’ll cover that below too.
What is an employment contract or employee agreement?
A contract (or agreement) is the name for the terms of employment that are offered by an employer to a potential employee.
It is a legally binding agreement that defines the relationship between you and your employee/s.
Broadly speaking, employment contracts detail specific information relating to:
duties
salary/hourly rate
work hours
duration of contract (fixed term agreements)
leave entitlements
employee termination terms
Not all employment agreements are created equal. In this article, we break down the key features of each type of employment agreement you are likely to encounter. Further down, we will also explore the common legal pitfalls to avoid and explain why well-drafted employment contracts can be one of the most valuable tools in a small business owner's risk management tool kit.
Full time employee agreements
An individual hired as a full-time employee in Australia is considered a permanent employee or permanent full time employee.
A permanent full-time employee generally works 38 hours or more per week on a permanent (or ongoing) arrangement.
What are full-time time employees entitled to?
Full-time employees receive a range of entitlements under the National Employment Standards (NES), including but not limited to:
Annual Leave
4 weeks of paid annual leave per year
Personal/Carer’s Leave
10 days per year
Notice of Termination
Employers must provide written notice or payment in lieu
Redundancy Pay
If applicable, based on the length of service
Permanent full-time employees often work under an Award, enterprise agreement, or individual contract, which may outline additional entitlements or obligations specific to a specific industry.
For example, at the time of publishing this page, a medical receptionist working in a medical clinic would be covered by the Health Professionals and Support Services Award 2020.
Find our permanent Full Time Employee Contract template (note it can be used for part-time and fixed term employment as well), here.
Part time employee agreements
If you don’t need to hire someone full time, a part-time employee agreement is one of the other options.
Permanent part time employees work less than 38 hours per week on a regular and ongoing basis, for example they work every Wednesday, Thursday and Friday each week. If you hire someone as a part time employee in Australia, they are considered a permanent employee, even though they are not working a full week.
Permanent part time employees often work under an Award, enterprise agreement, or individual contract, which may outline additional entitlements or obligations specific to an industry.
What are part-time employees entitled to?
Like full-time employees, part-time employees receive a range of entitlements under the National Employment Standards (NES). However, the entitlements of a part-time employee are calculated on a pro rata basis.
This means that their leave entitlements and other benefits are proportional to the hours they work. This includes, but is not limited to:
Annual Leave
Pro-rata of 4 weeks of paid annual leave per year
Personal/Carer’s Leave
Pro-rata of 10 days per year
Notice of Termination
Employers must provide written notice or payment in lieu
Redundancy Pay
If applicable, based on the length of service
For example, a part-time employee working 19 hours per week (half of a full-time schedule) would be entitled to 2 weeks of annual leave and 5 days of personal leave per year.
Find our permanent Part Time Employee Contract template (note it can be used for full time and fixed term employment as well), here.
The alternative to a part-time employee when you do not need them to work full-time hours and there are no set days or there is not likely ongoing work, might be to hire them as a casual employee.
Fixed term employee contracts
Fixed-term employment contracts are commonly used for project based roles, maternity leave cover, or seasonal employment. They can be full-time or part-time.
What are fixed-term contract employees entitled to?
Fixed-term employees receive the same entitlements as permanent full-time and permanent part-time employees, including sick leave and annual leave.
The only difference is that there is an end date and their employment does not continue indefinitely.
Find our permanent Fixed Term Employee Contract template (note it can be used for full time and part time employment as well), here.
Casual employee agreements
Casual employees work on an irregular or flexible basis without guaranteed hours and are often employed by the shift. A casual employee can also accept or decline work as it is offered with no obligation to attend.
Casual workers do not receive the same leave entitlements as permanent employees, but are compensated with a casual loading (usually an additional 25% on top of the base hourly rate) to account for the lack of paid leave.
Casual employees are entitled to:
Unpaid carer’s leave
2 days per occasion
Unpaid compassionate leave
2 days per occasion
Unpaid family and domestic violence leave
5 days per 12-month period
Unpaid community service leave
What to know when hiring casual employees
Casual employees of small businesses can become eligible to convert to permanent part time or full-time employment after 12 months of employment (if they have worked regular shifts), and if that is their preference.
If your casual employee has worked a regular pattern of hours for over 12 months, they can request to transition to permanent part-time. This is known as casual conversion.
If that is the case, a revised employment agreement to reflect their part-time permanent employee status should be drawn up.
Find our casual employee agreement template on this page.
Remote work / work from home / hybrid agreements
The rise of remote work and hybrid arrangements (partial work from home and partial working onsite) has led to an increase in employment contracts incorporating flexible working arrangements.
While remote and hybrid workers have the same entitlements as their in-office counterparts, their contracts should also address the following:
work hours and availability expectations
technology and equipment provisions
workplace health and safety obligations (even at home)
confidentiality and data security responsibilities
These types of agreements must comply with the Fair Work Act and any applicable Awards or enterprise agreements.
Need an agreement for your remote worker/hybrid employee? Take a look at our Work from home Agreement template here, our Work from home Self-Audit template here and our Remote/Hybrid work Agreement template here.
Internship agreements and work experience agreements
If you would like to bring on an intern in your business, regardless of whether they are to be a paid intern or an unpaid intern, it is vital to have an agreement in place.
While internships are largely about helping people gain industry experience, business owners must ensure that any internship contracts are compliant with the Fair Work Act and also ensure the internship is not a sneaky way to get another employee at a cheaper rate.
Internships, whether paid or unpaid, can be unlawful in many circumstances.
To ensure the terms of the internship you are offering are legally compliant, you must ensure that:
the intern is not performing productive work that would otherwise be done by a paid employee;
the primary purpose is educational and skill development; and
there is no expectation of payment (where it is an unpaid internship).
If an intern is undertaking productive work, they may legally be considered an employee and entitled to at least minimum wage and other benefits under the NES. It is always important to keep an eye on what an intern is doing and whether they are becoming productive.
Discover our unpaid internship agreement template here .
Avoid the common risk of ‘sham contracting’
Many people have innocently found themselves guilty of what’s known as ‘sham contracting’. They think because they hire someone as a contractor that is the end of the story. But the Australian Tax Office (ATO) doesn’t see it that way and not knowing about this isn’t a defence. So, here’s what you should know about classifying your workers as either employees or contractors.
When business owners engage contractors who legally should be considered as employees, they are at risk of finding themselves in trouble with Fair Work Australia and with considerable fines and backpay of entitlements, including superannuation, annual leave and more.
To determine if a current contractor is likely to be considered an employee, the main question that is to be considered is, is that person serving in your business and working as a representative of your business? If the answer is yes, it is likely they are an employee. If the answer is no, then it is more likely they are a contractor.
The following indicators are considered by the ATO in determining whether a relationship is an employee relationship or a contractor relationship, noting an employee classification will mean some or all of the following factors are typically present:
The business controls how, where and when the worker works;
The worker serves in the business and acts as a representative of the business;
The worker is paid for the time worked or at a price per activity;
The worker cannot subcontract or delegate to anyone else and must do the work themselves;
The business provides all the tools or equipment the worker needs to do the job - such as a cash register or computer etc.
The business bears the risk of the work done and has insurance in place.
For more about avoiding the risk of misclassifying contractors, consider reading these articles we’ve written to help business owners like you:
How to hire an Independent Contractor
Common mistakes business owners make when hiring Contractors
Benefits of employment agreements for small business owners
Chances are, you are already juggling enough challenges in your business in any given week, so it is essential to protect yourself with a well-drafted employment agreement that supports both your business and your employees.
A clear and concise employment agreement with comprehensive terms can provide:
certainty around the terms and conditions of employment;
reduced risk of disputes or misunderstandings with an employee;
Protection for your time, your business interests, and your peace of mind!
A final word on the types of employment contracts for small business
This guide has given you a clear overview of the different types of employment contracts and the key inclusions to consider. Now you are well placed and ready to boss with legal confidence, making informed decisions for your business.
Keeping up to date with employment law, reviewing your contracts regularly, and staying informed through resources like our blog is essential to building a compliant and resilient business. By taking these proactive steps you can save time, money, and stress down the track.
Whether your business is hiring now or planning to bring on different types of employees or interns as your business grows, we encourage you to explore the additional information below and revisit this page. You can also browse our curated range of employment contract templates designed specifically for small business owners in Australia.
Related: What should an Employment Agreement include?
How to hire an Independent Contractor
Common mistakes business owners make when they hire Contractors
Find our templated employment contracts/agreements via these links:
Full time, Part time & Fixed Term Permanent Employee Agreement template
Work from home Agreement template
Work from home Self-Audit template
Remote/Hybrid Work Agreement template
Unpaid Internship/Work Experience Agreement template
Related:
