What Are Enterprise Agreements In Australia? Practical Guide For Employers

If you’re hiring (or planning to hire) staff, you’ve probably come across the phrase “enterprise agreement” and wondered whether it applies to your business.

For small businesses and startups, enterprise agreements can feel like something only large employers deal with. But depending on your industry, growth plans and workforce structure, an enterprise agreement can be a powerful tool to set clear workplace rules that suit how you actually operate.

This guide explains what enterprise agreements are, how they work in Australia, and what you should think about before you start bargaining or signing on to one.

What Are Enterprise Agreements (And Why Do They Matter For Employers)?

So, what is an enterprise agreement?

An enterprise agreement (often shortened to “EA”) is a formal, legally enforceable agreement made between an employer and its employees (and sometimes a union) about workplace terms and conditions.

In plain English: it’s a customised set of employment rules for your business (or part of your business), covering things like pay rates, hours, penalties, allowances, flexibility arrangements and dispute processes.

Enterprise agreements sit within Australia’s workplace relations framework (including the Fair Work Act 2009 (Cth)). Many enterprise agreements need to be approved by the Fair Work Commission (FWC) before they can start operating.

Enterprise Agreement Definition (How It Fits In With Awards And Contracts)

If you’re trying to pin down an enterprise agreement definition, it helps to see where it fits compared to other workplace documents:

• Modern Award: an industry or occupation-based “default rulebook” with minimum pay rates and conditions.
• Employment Contract: an individual agreement between you and an employee (it can add terms, but generally can’t undercut legal minimums).
• Enterprise Agreement: a collective agreement that can operate alongside or, in some cases, effectively replace award terms for employees it covers (but it must still meet key legal tests).

In practice, many small businesses start with award coverage plus strong contracts and policies. As you scale, you might decide an enterprise agreement better reflects your roster patterns, incentive structures, or operational requirements.

If you’re setting up your employment paperwork, an appropriately drafted Employment Contract is often part of the foundation whether you’re award-covered or operating under an enterprise agreement.

Why Would A Small Business Use An Enterprise Agreement?

Small businesses and startups often look at enterprise agreements when:

• your award is complex or doesn’t match how you roster and staff your operations
• you want to introduce flexible working patterns that still protect employees
• you want to simplify payroll administration by setting clearer rates/structures
• you’re competing for talent and want to offer stronger benefits in a structured way
• you’re growing quickly and want a consistent approach across teams or sites

That said, enterprise agreements are not “set and forget”. They take time to bargain, approve, and manage. The key is working out whether the benefits outweigh the effort and compliance obligations for your business.

How Do Enterprise Agreements Work In Australia?

Enterprise agreements typically involve bargaining between you and your employees (and sometimes bargaining representatives such as unions).

While there are different types of enterprise agreements, the most common for small businesses is a single-enterprise agreement (covering one employer). There are also multi-enterprise agreements (covering more than one employer), but these are usually more complex.

What Can An Enterprise Agreement Cover?

An enterprise agreement can include a wide range of employment-related terms. Common examples include:

• base rates of pay
• ordinary hours and rostering arrangements
• overtime and penalty rates
• allowances (e.g. travel, tools, uniforms)
• leave arrangements (sometimes with extra benefits beyond minimums)
• consultation requirements (for major workplace change)
• dispute resolution processes
• flexibility terms (how the business can agree variations with individuals)

Importantly, an enterprise agreement must also include certain required terms (for example, a dispute resolution procedure and a flexibility term). Getting the structure right matters because it affects whether the agreement is approved and how enforceable it is later.

What Must An Enterprise Agreement Not Do?

Even though enterprise agreements are “customisable”, they’re not a free-for-all.

There are legal limits. For example:

• you generally can’t exclude or undercut the National Employment Standards (NES)
• you can’t include unlawful terms (e.g. discriminatory terms)
• you must comply with the approval requirements, including how voting is run

This is one reason businesses often seek advice early: a single drafting problem or process mistake can delay approval (or mean you need to start again).

Does An Enterprise Agreement Override The Award?

Often, yes for the employees it covers, but it depends on the circumstances and the terms being considered.

Where an enterprise agreement applies to certain employees, award terms generally don’t apply to those employees to the extent the agreement deals with the same matters. However, awards can still be relevant in the background, particularly when you’re assessing minimum conditions and ensuring the agreement passes the relevant approval tests (including the Better Off Overall Test where applicable).

For many employers, this is why it’s useful to understand award interpretation and compliance first, including whether your business is applying the right classification levels and pay points. In some situations, an award compliance check is a smart step before you decide whether an enterprise agreement is worth pursuing.

When Should A Startup Consider An Enterprise Agreement?

Not every business needs an enterprise agreement. For many startups, a modern award plus clear contracts and policies is enough in the early stages.

However, there are some common “signals” that it may be time to consider one.

1. Your Rosters And Hours Don’t Fit The Award Well

If you’re constantly working around award rules (split shifts, span of hours, penalty structures, minimum engagement periods), your admin burden and payroll risk can increase.

An enterprise agreement may let you agree on a structure that matches how you operate (while still ensuring employees are better off overall).

2. You’re Scaling And Need Consistency

Startups often go from “everyone wears multiple hats” to structured teams quickly. If you’re opening new locations or hiring across different functions, you may want a single framework that sets consistent rules across the business.

3. You Want A Tailored Incentive Or Flexibility Model

If you’re building performance-based pay, allowances, or more flexible arrangements into your workforce model, enterprise agreements can provide a clearer and more enforceable foundation than trying to manage everything through individual contracts alone.

4. You’ve Had Workplace Disputes Or Confusion About Entitlements

If employees are regularly confused about overtime, allowances, or shift rules, that’s a sign your current approach may not be clear enough. An enterprise agreement can act as a single reference point (but it has to be drafted carefully).

In many cases, you’ll also want your internal policies to line up with the agreement, so staff and managers are working from the same playbook. This is where a Staff Handbook can help bring everything together in a practical way.

How Do You Make An Enterprise Agreement? (Process And Practical Steps)

The enterprise agreement process can feel formal, but it becomes manageable when you break it down into steps.

Step 1: Work Out Who Will Be Covered

Be clear about which employees (or classes of employees) the agreement will apply to.

This is more important than many employers realise. Coverage affects:

• your bargaining group
• your voting cohort
• how payroll and entitlements are applied
• what happens when your workforce changes (new hires, restructures, acquisitions)

Step 2: Prepare A Draft That Reflects Your Operations

Drafting is not just about “legal wording”. It’s about designing workplace rules that match your business reality.

For example, if you rely on weekend trade, extended operating hours, or on-call arrangements, your agreement needs to address those issues clearly and in a way that can actually be implemented by your managers and payroll team.

Step 3: Follow The Bargaining And Notice Requirements

Enterprise agreements usually require you to follow procedural steps, including providing a Notice of Employee Representational Rights (NERR) and ensuring employees have access to the proposed agreement and any incorporated materials.

These process requirements matter. Even if employees are happy with the terms, missing a step can create approval issues later.

Step 4: Run The Employee Vote Properly

Employees must genuinely agree to the agreement. That means your voting process needs to be fair and compliant.

It also means you should be prepared to explain the agreement in plain language, including what changes compared to the award and how employees are better off overall.

Step 5: Apply To The Fair Work Commission For Approval

Many enterprise agreements need Fair Work Commission approval to commence operation.

As part of the approval process, you’ll generally need to provide supporting documents and declarations and show that:

• the agreement meets the Better Off Overall Test (BOOT) (for most agreements)
• the agreement includes required terms and doesn’t include unlawful terms
• employees were properly informed and genuinely agreed

Step 6: Implement It (Payroll, Contracts, Policies, Training)

Approval isn’t the end. Implementation is where many businesses get caught out.

Once an enterprise agreement is in place, you’ll usually need to:

• update payroll settings
• review your contract templates for consistency
• update policies and manager training
• keep proper records (including copies of the agreement and any variations)

It’s also important to keep your compliance systems aligned over time, particularly as you change rosters, restructure teams, or introduce new roles.

Common Risks And Mistakes With Enterprise Agreements (And How To Avoid Them)

Enterprise agreements can be a great tool, but they also come with risk if they’re rushed or treated as a “template exercise”. Here are some of the big issues we see small businesses run into.

1. Assuming An Enterprise Agreement Is Automatically Cheaper

Some employers pursue an enterprise agreement hoping it will reduce labour costs. In reality, the agreement needs to pass legal tests and often includes trade-offs and protections that require careful modelling.

If cost control is your goal, you’ll want to plan your workforce structure, classification levels and rostering strategy before you start bargaining.

2. Vague Rostering Or Overtime Clauses

If your agreement clauses are unclear, you can end up with:

• confusion for managers and payroll
• disputes about interpretation
• unexpected underpayment exposure

Clear drafting matters just as much as legal compliance.

3. Forgetting That The Agreement Has A Life Cycle

Enterprise agreements don’t last forever. They have a nominal expiry date, and there are rules about what happens after that date.

If you’re planning ahead, it helps to understand when an enterprise agreement expires and what that means for your ongoing obligations and bargaining strategy.

4. Not Aligning Your “Day-To-Day” Documents

Your EA is only one part of your employment framework. If your contracts, policies and procedures contradict the enterprise agreement, you can create compliance risk and confusion.

For example, your onboarding documents should make it clear which industrial instrument applies, and your internal processes should reflect the agreement’s rules for consultation and dispute resolution.

5. Treating Performance Issues And Restructures The Same As Before

Enterprise agreements often include consultation obligations and dispute procedures that affect how you manage change.

If you’re managing performance, investigations, or role changes, your approach needs to remain compliant with both the Fair Work Act and your EA. In some cases, it’s worth tightening your internal processes, such as a Performance Management Process, so you’re applying consistent and fair steps.

6. Not Planning For Business Changes (Including Redundancy)

Startups move fast. Funding changes, product pivots happen, and sometimes headcount needs to adjust.

Your agreement may include consultation steps or additional obligations around workplace change. If you’re making roles redundant, you’ll also need to manage the process carefully under the Fair Work Act and any applicable industrial instrument. Where required, redundancy advice can help you plan the consultation, notice, and entitlements side of things properly.

Key Takeaways

• What are enterprise agreements? They’re legally enforceable collective agreements between an employer and employees that set workplace terms and conditions, and many need to be approved by the Fair Work Commission to operate.
• An enterprise agreement can displace relevant award terms for covered employees, but it still must meet minimum legal requirements (including the National Employment Standards) and pass the relevant approval tests.
• For small businesses and startups, enterprise agreements can be useful when award conditions don’t match operational realities, you’re scaling quickly, or you want clearer tailored rules across teams or sites.
• The process matters: drafting, notices, bargaining, voting, and approval steps must be handled correctly to avoid delays and compliance issues.
• Implementation is just as important as approval, so your payroll, contracts, policies and manager training should align with the enterprise agreement.
• Enterprise agreements have a life cycle, so it’s important to plan for expiry, renegotiation, and business changes like restructures and redundancy.

This article is general information only and does not constitute legal advice. If you need advice for your specific circumstances, it’s best to get professional legal advice.

If you’d like help reviewing or putting together an enterprise agreement (or you’re not sure whether you need one), contact Sprintlaw on 1800 730 617 or email team@sprintlaw.com.au for a free, no-obligations chat.