When you run a business, having employment agreements in place can often be overlooked and feel like extra, unnecessary paperwork.
The purpose of an employment agreement is to protect both your business and your employees. It clearly sets out the conditions of employment including the hourly rate of pay, the employees leave entitlements, the agreed hours that will be worked, the work that will be performed. Employment agreements also deal with issues such as confidentiality, intellectual property rights and any restraint of trades post-employment.
An employment agreement clearly outlines the expectations that you have as an employer and whilst we hope that there will never be a contract dispute between the employer and the employee, having an agreement in place will aid in in settling disputes faster and more effectively than relying on a handshake agreement.
National Employment Standards and Modern Awards
It is important to note that employment agreements cannot contain terms less favourable than the minimum standards set out in the National Employment Standards.
You must also ensure that any employment agreement includes the minimum standards set out in the modern award that covers the particular employee.
Each modern award states the minimum or base rate each employee must receive in that industry. The modern awards also state what extra monetary entitlements, or award entitlements employees must receive, including:-
- Overtime pay;
- Penalty rates; and
- Loading rates.
Legally, each employer is required to pay their employees the base rate plus any applicable extra monetary entitlements. If an employer simply wishes to pay their employees a salary, or a higher hourly rate, without expressly paying these extra entitlements, the salary/ hourly rate must be large enough to compensate or include the payment of these entitlements.
This is where an employment agreement will need a set-off clause.
A set-off clause is a clause in an employment contract which allows the employer to pay their employees a higher base rate to accommodate for all award entitlements that the employee is entitled to receive.
In other words, instead of an employer paying their employees the modern award base rate, plus any award entitlements such as overtime, penalty rates, allowances etc, the employer has the option to pay their employees one larger set rate that is inclusive of all these benefits.
If you do not include a set off clause in an employment agreement, or you do not have an employment agreement in place, but the business is paying above the award rate, then there is a risk of having to pay an employee their award entitlements as well as any wages they have already been paid.
It is important that an employment agreement is drafted well, having regard to the industry the business is in, as well as the Fair Work legislation. As such we would encourage every business, no matter how big or small, to have employment agreements in place.
If you would like to put in place employment agreements at your workplace, give Macrossan & Amiet Solicitors a call.