Small Business Contract Series — What to include in an employment contract

This is the first article in our series exploring small business contracts. Today, we’re focusing on the contract that brings new people through your doors: the employment contract. 

Note: this is not legal advice.

Time to take the leap from sole trader to small business? You’ll need employees. And to get them, you’ll need an employment contract. Here, we take a look at why such contracts exist and how to set them up for your business.

Making an offer of employment official

Basically, an employment contract is a document that outlines the key terms and conditions of employment between you and your employees. Depending on the nature of your business, it can include anything from the type of employment and the employee’s roles and responsibilities, to the rate of pay. 

When you offer someone a job, you’re not legally required to give them a written employment contract. But it’s good business practice. If a dispute about employment entitlements ever arises, it’s much better to have something in writing that shows what both you and the employee agreed upon. Indeed, contracts like these exist to make sure that everyone — both the employer and employees — are on the same page. 

For employees, an employment contract spells out their rights and entitlements, including job duties, compensation, benefits, leave provisions, and termination terms. If push comes to shove, it can provide crucial protection against unfair or unexpected changes to their employment conditions.

And for you, as their employer, an employment contract not only defines responsibilities and expectations, but can also cover nitty-gritty things like intellectual property ownership to help protect your business down the track. Plus, having employee obligations and work requirements on paper helps you with planning, workload allocation and resource management.

So you know you need one. Question is, what should you include in your employment contract? 

The breakdown of a typical employment contract 

Before we list all the common elements of a small business employment contract, it’s important to flag that every business is unique. The elements that you might need in your contracts — and the conditions and workplace awards that apply to your business — may differ from what’s below. If you’re writing your contract from scratch, we recommend you run it past a legal expert before sharing with potential employees. 

Another option is to use the Australian Government’s Employment Contract Tool. This step-by-step tool helps you build an employment contract that’s tailored to your business needs and complies with workplace laws.

Whichever route you take, you’ll likely need to include the following elements in your contract:

1. Basic information

• Names and details of the employer and employee, including your business name and address, as well as the employee’s name, contact information, and date of birth

• Job title and a description that clearly defines the employee’s position and responsibilities within your business

• Employment type (e.g. full-time, part-time, casual, or fixed-term)

• Commencement date

2. Compensation and benefits

• Rate of pay, including base salary, hourly rate, or other forms of compensation (e.g. commissions, bonuses)

• Payment schedule (e.g. weekly, monthly)

• Overtime pay, clearly defining how overtime hours will be calculated and compensated

• Leave entitlements including annual leave, sick leave and personal leave, as per the relevant award or legislation

• Superannuation contributions 

3. Work arrangements

• Hours of work per day, week and month, including any flexibility arrangements

• Place of work (e.g. office, remote location)

• Notice periods for both the employer and the employee to terminate the employment

4. Additional optional clauses

• Confidentiality clauses to protect sensitive business information 

• Intellectual property clauses to specify ownership of any intellectual property created by the employee during their employment

• Non-compete clauses to restrict the employee from working for a competitor for a specific period after leaving the company

• Dispute resolution clauses that outline the process for resolving any disagreements that may arise between the employer and the employee

Remember, an employment contract is likely to be one of the first formal dealings a new employee has with your business. Include a welcoming cover letter, and keep the contractual information as clear, concise and easy to understand as possible. Think about the signing experience, and use a tool like Docusign eSignature to show that you’re easy to work with. It’s all about fostering a positive and productive working relationship, right from the get-go. 

Then, as your business grows and you start employing even more people across more teams, put the power of contracting templates to work. With Docusign CLM, you can generate a new employment contract with the click of a button using templates and a clause library, and you can easily set conditional rules for things like the review of non-standard terms.

With the right tools behind you, employment contracts are quick and easy to create, send and manage — helping you bring in new hires at the pace your growing business needs.