What Should (and what should not) Be In Your Employment Contracts

blog Jun 14, 2024

The Importance of Employment Contracts for Small Businesses

Employment contracts serve as the cornerstone of the employment relationship, outlining the terms and conditions that both the employer and the employee must adhere to. These contracts provide clarity and set expectations for both parties involved. Without a well-drafted employment contract, small businesses may find themselves facing legal issues and disputes.


For small businesses, having proper employment contracts in place is essential. These contracts not only protect the interests of the employer but also safeguard the rights of the employee. By clearly defining job details, hours, remuneration, and legal compliance, employment contracts ensure that both parties are on the same page from the beginning.


A well-drafted employment contract can prevent misunderstandings and disputes by clearly outlining the expectations and responsibilities of both parties. This is particularly important in small businesses where resources may be limited, and the impact of disputes can be more significant. A clear contract helps to establish a strong foundation of trust and transparency, which is vital for maintaining a positive working relationship.


Key Elements to Include in Employment Contracts

When creating an employment contract, it is crucial to include certain key elements to ensure legal compliance and protect the interests of both parties. Here are some key elements that should be included:


  • Parties to the Agreement: What entity is responsible for the Agreement and what are the details of the employee who is being engaged under the Agreement.


  • Job Status: Clearly define the nature of the employment relationship and the position the employee is accepting by entering into the contract. This helps avoid any confusion or misunderstandings in the future. Detailed job descriptions also help in setting performance standards and evaluating employee performance – but these should not necessarily form part of the employment contract, but sit alongside it.


  • Hours: Specify the working hours and any overtime arrangements. This ensures that both the employer and the employee are aware of the expected working hours and any additional compensation for overtime work. It is essential to comply with relevant laws regarding working hours and overtime to avoid legal issues.


  • Remuneration: Clearly state the salary or wage, payment frequency, and any additional benefits or allowances. This provides transparency and avoids any disputes regarding payment. Ensure that the remuneration package is in line with industry and legal requirements to attract and retain talent.


  • Legal Compliance: Ensure that the employment contract complies with all relevant laws and regulations. This includes provisions for leave entitlements, termination procedures, and any industry-specific requirements. This includes referencing any applicable Modern Award or Enterprise Agreement as well as the applicable classification. Legal compliance is crucial to avoid penalties and legal disputes.


  • Probationary Period: Include a probationary period clause to allow both the employer and the employee to assess the suitability of the employment arrangement. This period provides an opportunity to evaluate the employee's performance and fit within the company culture before making a long-term commitment.


Notably, with the changing legislative landscape, regular reviews of employment contracts are necessary to align with current laws and regulations.


Other Additional Consideration

It’s also important to tailor employment contracts to the specific employment conditions of your business, and the specific role. Generic contracts may lack clarity and fail to address the unique requirements of each position. By customising contracts for different roles, small businesses can ensure that both parties have a clear understanding of their rights and responsibilities.


You may also wish to strengthen your contracts by adding additional, but fairly standard clauses to ensure your business is protected even further.


This might include clauses that deal with Confidentiality and Non-Disclosure which act to protect sensitive business information, particularly important for small businesses that may rely on proprietary information or trade secrets to maintain a competitive edge.


Similarly clauses dealing with Intellectual Property, specifying the ownership of any intellectual property created during the course of employment.


Another aspect to consider is the inclusion of flexible working arrangements. With the rise of remote work and flexible hours, small businesses should consider incorporating terms that address these arrangements. This can include remote work policies, flexible hours, and provisions for telecommuting. Such clauses not only provide clarity but also enhance employee satisfaction and retention.


What To Leave Out

It’s essential to ensure you do not include any clauses which contradict the legislation, are non-compliant or create circumstances which are not aligned with the relevant laws.


In addition, it is best practice to leave out any changeable elements in employment contracts.


Regular Reviews and Tailoring Contracts for Clarity and Protection

Employment laws and regulations are subject to change, and it is essential for small businesses to stay updated. Regular reviews of employment contracts are necessary to ensure compliance with the latest laws. By conducting periodic reviews, small businesses can identify any outdated or non-compliant clauses and make the necessary amendments.


In Conclusion

Employment contracts are a vital protection resource for small businesses. They provide clarity, compliance, and protection for both employers and employees. By outlining job status, hours, remuneration, and legal compliance, employment contracts set the foundation for a successful employment relationship.


Regular reviews and tailoring contracts to specific roles are essential to ensure legal compliance and protect the interests of both parties. Small businesses should prioritise the creation and maintenance of proper employment contracts to safeguard their interests and foster a positive work environment.


In addition to the practical aspects, employment contracts also play a significant role in building a strong organisational culture. They reflect the values and expectations of the business, setting the tone for the employment relationship. By investing time and effort into drafting comprehensive employment contracts, small businesses can demonstrate their commitment to fair and transparent employment practices. This, in turn, can enhance employee morale, reduce turnover, and contribute to the overall success of the business.


Small businesses should view employment contracts not just as legal documents but as tools for building a positive and productive workplace. By prioritising clarity, compliance, and regular reviews, businesses can create a solid foundation for growth and success. Employment contracts are an investment in the future of the business, providing the structure and protection needed to navigate the complexities of the employment relationship.


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