Types Of Employment Contracts: How To Choose

Which employment contract should you use before you hire someone?

The reassuring answer is that you don't need to memorise every employment law rule before making a decision. You just need to match the contract to how the role will actually work in your business.

If the person will work regular hours, manage ongoing tasks and be part of your team, an employment contract is usually the right starting point. If the work is occasional, project-based or genuinely independent, there may be other options - but the label you choose needs to match the reality.

Let's look at the main types of employment contracts in Australia and how to choose the right one before you offer the role.

What Are The Main Types Of Employment Contracts In Australia?

The main types of employment contracts in Australia are full-time, part-time, casual and fixed-term employment contracts. You may also engage an independent contractor, but that isn't an employment contract and comes with different legal risks.

For most small businesses, the decision comes down to the level of certainty you need around hours, the length of the role and how much flexibility your business needs.

• Full-time employment: For an ongoing role with regular hours, usually around 38 ordinary hours per week.
• Part-time employment: For an ongoing role with fewer than full-time hours, usually with an agreed regular pattern of work.
• Casual employment: For work with no firm advance commitment to ongoing work, often used where shifts change with demand.
• Fixed-term employment: For a role that ends on a set date or after a specific project, subject to limits under the Fair Work Act 2009.
• Independent contractor agreement: For a genuinely independent business providing services to you, not someone who is really working as part of your business.

Your contract type affects pay, leave, notice, termination rights, rostering and record-keeping. It also affects what you need to tell the person before or when they start, including giving them the Fair Work Information Statement and, for casuals, the Casual Employment Information Statement.

The contract should also sit alongside any modern award, enterprise agreement and the National Employment Standards. Your written contract can't undercut those minimum legal entitlements.

Should You Hire Someone Full-Time Or Part-Time?

You should use a full-time employment contract if you need someone on regular ongoing hours close to full-time, and a part-time employment contract if you need ongoing work for fewer agreed hours.

Full-time employment is usually the cleanest option where the role is central to your business. For example, if you're hiring an operations manager, senior developer, clinic receptionist or store manager who'll be needed every week, full-time employment gives both sides certainty.

Under the National Employment Standards, full-time and part-time employees receive paid leave entitlements. This includes 4 weeks of annual leave per year for full-time employees, 10 days of paid personal/carer's leave per year, and other minimum entitlements such as compassionate leave, parental leave and paid family and domestic violence leave where the eligibility rules are met.

Part-time employees receive those entitlements on a pro rata basis. So if a full-time employee works 38 hours per week and your part-time employee works 19 hours per week, they usually accrue around half the annual leave and personal leave of a full-time employee.

Example: Part-Time Versus Casual In A Cafe

Say Mia runs a cafe in Brisbane and needs a barista every Monday, Wednesday and Friday from 7am to 3pm. That's 24 hours every week, and the pattern is stable.

A part-time employment contract will usually make more sense than a casual employment contract because Mia has a regular, ongoing need for those hours. The barista would accrue paid leave on a pro rata basis. If Mia also needs someone for occasional Saturday shifts during busy weekends, that separate role may be better suited to a casual employment contract.

For full-time and part-time employees, the minimum notice of termination under the Fair Work Act is generally 1 week for up to 1 year of service, 2 weeks for more than 1 year and up to 3 years, 3 weeks for more than 3 years and up to 5 years, and 4 weeks for more than 5 years. An extra week applies if the employee is over 45 and has completed at least 2 years of service.

When Does A Casual Employment Contract Make Sense?

A casual employment contract makes sense when you don't have a firm advance commitment to ongoing work and the person will be offered shifts as your business needs them.

Casuals can be useful when demand changes week to week. Common examples include hospitality shifts, event staff, retail Christmas cover, seasonal admin support and extra labour for a short busy period.

The key is that casual employment isn't just part-time work with a different label. If the person has a regular roster, works predictable hours for months and is expected to keep accepting those shifts, you should pause and ask whether part-time employment is more accurate.

Casual employees don't receive paid annual leave or paid personal/carer's leave. Instead, they're usually paid a casual loading, often 25% under many modern awards, to compensate for the lack of those entitlements. You should check the applicable award or enterprise agreement because the exact rate and penalty rules can differ.

Recent casual employment changes under the Fair Work Act have also made the real working arrangement more important. Since 26 August 2024, the law looks at whether there's a firm advance commitment to continuing and indefinite work, having regard to the practical reality of the relationship.

Eligible casual employees can also use the employee choice pathway to request a move to permanent employment if they believe they no longer meet the casual definition. In general, this can happen after 6 months for many employers, or after 12 months if you're a small business employer.

What To Put In A Casual Contract

• State that each shift is a separate offer of work, where that reflects the reality.
• Explain the casual loading and what it compensates for.
• Set out how shifts are offered, accepted, cancelled or changed.
• Refer to the applicable award, if one applies.
• Keep rosters, timesheets and pay records accurate from day one.

If your casual arrangement starts to look permanent, review it early. Fixing the contract type before a dispute is much easier than trying to explain a mismatch later.

Can You Use A Fixed-Term Employment Contract In Australia?

Yes, you can use a fixed-term employment contract in Australia, but there are strict limits on when and how long you can use one.

A fixed-term employment contract is useful where the role genuinely has a clear end point. For example, you might hire someone to cover parental leave, deliver a 9-month client project, run a grant-funded program or help during a defined product launch period.

From 6 December 2023, the Fair Work Act limits many fixed-term contracts. In broad terms, you usually can't use a fixed-term contract that runs for more than 2 years, includes more than one extension or renewal, or creates a pattern of consecutive fixed-term contracts for the same or substantially similar work.

There are exceptions, including some training arrangements, high-income employees, governance roles, government-funded roles and other categories set out in the legislation and regulations. Because the exceptions can be technical, it's worth getting tailored advice if your fixed-term arrangement is longer, repeated or tied to funding.

You also need to give employees a Fixed Term Contract Information Statement before, or as soon as practicable after, they enter into the fixed-term contract. This sits alongside the Fair Work Information Statement.

Fixed-Term Versus Maximum-Term

A fixed-term contract usually ends automatically on a set date or event. A maximum-term contract has an end date but may also allow earlier termination with notice.

For many businesses, a maximum-term contract is more practical because it gives you a planned end date without removing flexibility if the project changes. However, maximum-term contracts can still be captured by the Fair Work Act fixed-term contract rules, so you should check the 2-year, renewal and consecutive contract limits before using one. Your contract needs clear wording, because unclear end dates can create confusion around notice, redundancy and whether the employment was actually ongoing.

Is The Worker Really A Contractor Instead?

It depends on the whole working arrangement, not just what the contract says. If the person is really working in your business under your direction, calling them a contractor won't necessarily make them one.

Independent contractors can be a good fit where you're engaging another business to achieve a result. Think of a graphic designer delivering a rebrand package, an IT consultant setting up systems, or a bookkeeper providing services to several clients.

Contractor risk usually increases when the person:

• works only or mainly for your business
• uses your equipment and email address
• must work set hours set by you
• can't subcontract or delegate the work
• is paid like an employee, such as by the hour each week
• is presented to customers as part of your internal team

The Fair Work Act includes sham contracting rules. That means you shouldn't represent an employment relationship as an independent contracting arrangement. Practical consequences can include backpay claims for employee entitlements, penalties, superannuation issues and scrutiny from the Fair Work Ombudsman.

Employment status rules have also shifted in recent years. From 26 August 2024, the Fair Work Act includes a statutory approach for deciding whether someone is an employee or contractor for workplace law purposes, looking at the real substance, practical reality and true nature of the relationship.

A contractor agreement is still very useful when the arrangement is genuinely independent. It should cover scope, fees, invoices, GST if relevant, intellectual property ownership, confidentiality, insurance, liability and termination. Just make sure the contract matches what will actually happen day to day.

What Should Your Employment Contract Include?

Your employment contract should include the practical details of the role, the legal minimums that apply and the protections your business needs if things change.

Templates can be a helpful starting point, but they often miss award-specific rules, casual conversion wording, fixed-term limits, restraint clauses or IP ownership. A lawyer should tailor the contract before you use it with a real hire.

Employment Contract Outline

1. Parties And Start Date: Write the legal name of your business, the employee's name and the start date.
2. Position And Duties: Describe the role, reporting line and key responsibilities without making the duties too narrow.
3. Employment Type: State whether the role is full-time, part-time, casual, fixed-term or maximum-term.
4. Hours And Location: Set ordinary hours, work location, remote work rules and any roster process.
5. Pay And Benefits: Record salary or hourly rate, casual loading if relevant, superannuation and payment frequency.
6. Award Or Agreement: Identify any modern award or enterprise agreement that applies, or record why you think none applies.
7. Leave And Public Holidays: Refer to National Employment Standards entitlements and any extra benefits you offer.
8. Policies: List workplace policies, such as conduct, work health and safety, privacy, IT use and social media.
9. Confidentiality And IP: Protect business information, customer lists, systems, content, inventions and other intellectual property.
10. Termination: Set notice, serious misconduct rights, return of property and final pay process.
11. Restraints: Include any post-employment restrictions only where they're reasonable and tailored to the role.

Before sending the contract, check the correct award classification, minimum pay rate, overtime and penalty rules. This is where many hiring mistakes happen. The contract should make your obligations easier to manage, not hide them.

How Do You Choose The Right Contract Before You Hire?

You choose the right contract by working backwards from how the role will actually operate, then checking the legal rules that attach to that arrangement.

Use this checklist before you make the offer:

• Is the work ongoing or temporary? Ongoing work usually points to full-time, part-time or casual. A genuine end date may point to fixed-term or maximum-term employment.
• How predictable are the hours? Regular weekly hours often point to full-time or part-time. Irregular shifts with no firm commitment may point to casual.
• Do you need control over how the work is done? If yes, employment may be safer than a contractor arrangement.
• Does a modern award apply? Awards can set minimum pay, classifications, breaks, overtime, penalty rates and casual loading.
• Will the person create IP or access confidential information? Make sure ownership and confidentiality are clearly covered.
• Could the role grow? If you're hoping a casual or contractor role will become permanent, plan how you'll review and update the arrangement.

Here's a simple way to think about it. If you need someone 38 hours every week for an indefinite period, start with full-time. If you need 2 set days every week, start with part-time. If you need extra help only when bookings spike, casual may fit. If you need someone until a project ends in 10 months, consider fixed-term or maximum-term. If you're buying a defined service from someone who runs their own business, a contractor agreement may be appropriate.

The right contract won't solve every employment issue, but it gives you a strong foundation. It sets expectations early, helps you comply with the Fair Work Act and gives you a clearer path if the role changes.

Key Takeaways

• The main types of employment contracts are full-time, part-time, casual and fixed-term, with contractor agreements sitting outside employment.
• Full-time and part-time employees get paid leave under the National Employment Standards, while casuals are usually paid a casual loading instead.
• Casual employment rules changed from 26 August 2024, so the real working arrangement matters more than the label in the contract.
• Fixed-term contracts are restricted, including a general 2-year limit and limits on renewals, unless an exception applies.
• Contractor arrangements can create risk if the person is really working like an employee in your business.
• Your contract should be tailored to the role, the award and the way your business actually operates.

If you'd like help with choosing the right contract type, preparing your employment contracts, reviewing casual or fixed-term arrangements, or checking contractor risk, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.