By the Awelle Legal Team — practising Australian lawyers.
Scope and application
This practice note addresses the core Fair Work Act obligations that an SME employer must satisfy when engaging staff in Australia, from role and pay decisions through to onboarding documentation, work health and safety, and recruitment-related risk factors.
Key legal principles
The National Employment Standards set the minimum compliance
The National Employment Standards (or ‘NES’) under the Fair Work Act 2009 (Cth) set the minimum entitlements that apply to every national system employee. An employment contract, award or enterprise agreement can improve on these standards but cannot reduce them.
Award or agreement coverage must be checked, not assumed
Most employees are covered by a modern award or an enterprise agreement that sets minimum pay and conditions for their industry or role. An employer should not assume that a workplace is award-free. Before an offer is made, you should:
- Confirm the appropriate coverage using the Fair Work Ombudsman’s Find My Award tool; and
- Check the pay rates using the Pay and Conditions Tool (P.A.C.T).
Employment status must be decided and documented from the outset
Before hiring, the employer must decide whether the role is full-time, part-time, casual or fixed-term. This is because each type of role carries different National Employment Standards entitlements. For example, a casual employee has no entitlement to paid annual or personal leave but receives a casual loading. Fixed-term contracts are subject to legal limitations on length (no longer than two years) and on renewal and consecutive contracts.
New starters must receive the correct information statement
Every new employee must be given the Fair Work Information Statement. A casual employee must also receive the Casual Employment Information Statement, and a small business must give it again after 12 months of the casual’s employment. A fixed-term employee must receive the Fixed Term Contract Information Statement.
Job advertisements cannot offer below the legal minimum
A job advertisement must not state a pay rate that would breach the Fair Work Act or the applicable award or enterprise agreement.
The employment contract should reflect at least the legal minimum, and standard tools have limits
A written employment contract should record duties, hours, pay, leave and termination terms consistent with the National Employment Standards and any applicable award or agreement. The business.gov.au Employment Contract Tool can generate a compliant contract, but note that this is only for an employee paid an hourly or weekly wage under an award. It cannot be used for a salaried employee, an apprentice, a trainee, a seasonal worker, an independent contractor, or an employee covered by a registered agreement.
Employee and contractor status must reflect the true relationship
Engaging a worker as an independent contractor is only appropriate where the relationship genuinely operates as contracting. Misclassifying an employee as a contractor, including what is known as ‘sham contracting’, exposes the business to backpay, superannuation shortfalls and penalties.
Employees have a right to disconnect
An employee may refuse to monitor, read or respond to employer contact outside their working hours, unless the refusal is unreasonable (Fair Work Act 2009 (Cth) s 333M). This is relevant to how an employer sets availability expectations from the point of hire.
Time and wage records, and pay slips, are mandatory from day one
An employer must keep time and wage records for 7 years and give each employee a pay slip within 1 working day of payment (Fair Work Act 2009 (Cth) ss 535–536AA).
Intentional underpayment is now a criminal offence
From 1 January 2025, intentionally underpaying an employee is a criminal offence. Honest mistakes are not captured. A small business employer, being one with fewer than 15 employees, will not be referred for criminal prosecution if it has taken steps consistent with the Voluntary Small Business Wage Compliance Code, although civil penalties may still apply.
Superannuation guarantee obligations arise from engagement
An employer must make superannuation guarantee contributions for eligible employees. Rates and thresholds are updated periodically, so confirm the current position with the Australian Taxation Office before finalising a remuneration package.
Work health and safety duties, including psychosocial hazards, begin at engagement
An employer must provide a safe workplace and safe systems of work, give adequate information, training, instruction and supervision, and consult workers on safety. Psychosocial hazard duties — covering risks such as excessive workload, unclear roles, bullying and poor communication — are the subject of increasing regulatory attention across Australian states and territories, and businesses should check the current position with their state or territory WHS regulator.
Recruitment must not be discriminatory
Recruitment and selection should be conducted on merit and free from unlawful discrimination on protected attributes. Further guidance is available from the Australian Human Rights Commission.
Migrant workers and labour hire engagement carry recruitment-related risk
Where an SME employs migrant workers or engages a labour hire agency, it should confirm the limitations attached to any temporary visa, ensure line managers understand how indicators of labour exploitation can present, and ensure any labour hire agency used is reputable, does not require workers to pay recruitment fees, and does not withhold workers’ identity documents.
Small business status changes the risk profile of decisions made at hiring
A small business employer, being one with fewer than 15 employees, is generally not required to pay redundancy pay, and an employee can only bring an unfair dismissal claim after 12 months of employment with a small business employer, compared with 6 months for other employers. A small business employer can rely on the Small Business Fair Dismissal Code as a defence to an unfair dismissal claim. General protections and unlawful termination claims are not subject to these small business exemptions.
Practical drafting and onboarding considerations
How the principles above should be reflected in the contracts, policies and onboarding documents an SME employer actually uses.
- Confirm award or enterprise agreement coverage using the Find My Award tool before the pay rate is set in an offer letter or contract, and build in a mechanism to review the rate after each annual wage review.
- Draft the contract to state the employment type expressly (full-time, part-time, casual or fixed-term) and, for a fixed-term contract, check the term and any renewal clause against the statutory limits before it is included.
- Treat the information statements as an onboarding step separate from the contract. Issue the correct statement or statements (Fair Work Information Statement, and Casual or Fixed Term Contract Information Statement as applicable) and retain a signed or system-generated acknowledgment.
- Where the business.gov.au Employment Contract Tool is used, confirm the role falls within its scope (hourly or weekly wage, award covered, not salaried, not an apprentice, trainee, seasonal worker, contractor or registered agreement employee) before relying on its output.
- Where a probation clause is used, note that probation does not itself alter the statutory minimum employment period for unfair dismissal purposes. Align internal review dates with the 6 or 12 month thresholds rather than the probation period alone.
- For a genuine contractor engagement, draft the agreement to reflect the substance of the relationship (control, delegation, equipment, exclusivity) rather than relying on the contractor label, to reduce sham contracting exposure.
- Build a short WHS induction step into the onboarding process, including an initial discussion of workload, role clarity and reporting lines, reflecting the psychosocial hazard duties flagged above.
- Where the business uses a labour hire agency or is considering sponsoring a visa holder, add supplier due diligence questions to the engagement process (fee-charging practices, document retention, contract transparency).
- Maintain a standing record-keeping procedure covering the 7-year retention period and same-day or next-day pay slip issue, and cross-reference it to the Voluntary Small Business Wage Compliance Code.
Common pitfalls
Recurring mistakes and non-compliance patterns SME employers should watch for when hiring.
- Assuming a role or workplace is award-free without checking coverage. Award coverage depends on industry and occupation, not on the size of the business.
- Relying on the business.gov.au Employment Contract Tool for a hire it was not designed for, such as a salaried employee, an apprentice or trainee, a seasonal worker, a contractor or an employee covered by a registered agreement.
- Labelling a worker a contractor for administrative convenience while directing their work as though they were an employee.
- Overlooking the statutory limits on fixed-term contract length and renewal, or omitting the Fixed Term Contract Information Statement.
- Failing to update pay rates after the annual wage review, or relying on an outdated printed copy of an award.
- Treating the small business redundancy and 12-month unfair dismissal exemptions as removing exposure to dismissal risk generally. They do not affect general protections or unlawful termination claims.
- Engaging migrant workers or a labour hire agency without checking visa work condition limits or the agency’s fee and documentation practices.
- Treating psychosocial safety as a policy document exercise rather than an ongoing process of hazard identification, risk assessment, consultation and review.
Resources
For further information, refer to:
- Small business and the Fair Work Act best practice guide (Fair Work Ombudsman)
- Find My Award tool (Fair Work Ombudsman)
- Pay and Conditions Tool (P.A.C.T) (Fair Work Ombudsman)
- Voluntary Small Business Wage Compliance Code (Fair Work Ombudsman)
This practice note is prepared for general guidance and comment only, and neither purports nor is intended to be advice on any particular matter.