Fair Work System and National Employment Standards Summary:
- We strongly recommend that employers be familiar with the relevant award's requirements for their industry and their business - for many businesses there is more than one applicable award, because an Award can apply to an industry or a particular occupation.
- Modern Awards outline the minimum pay rates and conditions of employment and they are legally binding for businesses that are operated through a company (including a trust with corporate trustee), and are administered by the Fair Work Commission, a body of the Australian Commonwealth government.
- All states, except Victoria, also have their own Awards system which apply to businesses that are operated as sole traders, unincorporated partnerships, unincorporated trusts, and some not-for-profit organisations.
- This page refers to the requirements of the Commonwealth government system.
- In addition to the modern awards system, there are also National Employment Standards, which are minimum employment entitlements that must be provided to all employees.
The legal framework for employment conditions
For companies, including trusts with a corporate trustee, and incorporated associations, employment law in Australia is mainly governed by the Fair Work Act, 2009, the National Employment Standards, registered agreements and industry/occupational awards.
The Fair Work Act 2009 sets out minimum terms and conditions of employment, defines the legal rights and responsibilities of employees and employers, and provides the framework for dispute resolution and compliance and enforcement through the Fair Work Ombudsman and the Fair Work Commission.
There are over 100 industry or occupation awards, which cover most people who work in Australia. A useful resource is the Fair Work Ombudsman website, which provides information about award coverage, help to find relevant awards, and other information.
Within each Award there are clauses that outline the coverage of the Award, and the classifications of different types of work and work responsibilities that fall under that coverage. The classifications are also used to determine a pay scale within the award, such that there is a higher minimum pay for those with higher responsibilities and/or technical skills. Awards specify the minimum working conditions that must be applied, including:
Some employers or employees will not be covered by an award, and in such cases the National Minimum Wage and the National Employment Standards will form the minimum terms and conditions of the employment. All employees in the national workplace relations system are covered by the National Employment Standards regardless of the applicability of any award, registered enterprise agreement, or employment contract.
The National Employment Standards apply minimum standards for:
Employers and employees can negotiate an enterprise agreement, which is an agreement negotiated between an employer, employees, and bargaining representatives, and then approved by the Fair Work Commission. To be approved, an agreement must satisfy the "better off overall test" which means that when the conditions in the agreement are compared to the relevant award(s), then an employee is better off than they would have been under that award. For employers, enterprise agreements can provide the benefit of greater consistency across their workforce and less complexity in compliance with multiple awards.
Be aware of employment versus contracting
From 26th August 2024 The Fair Work Legislation Amendment (Closing Loopholes No. 2) Act 2024 overrides the previous common law definition of employment, by requiring that the totality of the working relationship be considered to determine whether a worker is an employee versus an independent contractor. This prioritises the substance of the working relationship over the wording of any contract that may exist between the parties.
Where it is determined that a worker is an employee, and not an independent contractor, then the employer must comply with the Fair Work system and National Employment Standards. This may require an employer to reimburse an employee for back-pay, leave entitlements, and other conditions that they would be entitled to under these laws.
Perceived unfair terms in independent contracting agreements may now be set aside by the Fair Work Commission. An Independent Contractor can apply for an order to set aside the unfair terms. To determine whether to set aside such terms, the Fair Work Commission will consider:
Gig economy workers
The Fair Work Legislation Amendment (Closing Loopholes No. 2) Act 2024 introduced a new 'employee like' category of worker, which will enable the Fair Work Commission to require employers of these workers (regulated businesses) to apply minimum standards, make collective agreements, and to protect them from unfair deactivation such that they have similar protections to the unfair dismissal of an employee.
How do employment contracts fit in?
All employees are covered by the National Employment Standards (NES) irrespective of whether they have signed an employment contract. In addition, an employment contract can not specify employment conditions that are less than would apply under an applicable award, and there are restrictions for fixed term arrangements. Terms in an employment contract that enable employment conditions that are less than those specified by NES, Fair Work legislation, and/or modern awards are typically excluded when a case arises, without necessarily excluding the entire contract. If the case involves termination of employment due t such a clause, then the termination will be found to have been unfair and the employer may potentially be found liable for penalties, damages, arrears of pay, reinstatement of conditions, and/or reinstatement of employment.
An employment contract is a useful document because it confirms the nature and classification of the employment, the employment start date, and it also enables employers and employees to document other conditions such as additional benefits, specify requirements for commercial confidentiality and/or conflicts of interest, and the requirement for parties to apply company policies and procedures. Employment contracts can include provisions for disciplinary action in certain situations, These terms often provide important legally binding protections for employers and employees.
Record Keeping
The Fair Work Act has requirements for employers to keep records. Employers can be fined for not keeping the required records for the required time period.
The Fair Work Act 2009 sets out minimum terms and conditions of employment, defines the legal rights and responsibilities of employees and employers, and provides the framework for dispute resolution and compliance and enforcement through the Fair Work Ombudsman and the Fair Work Commission.
There are over 100 industry or occupation awards, which cover most people who work in Australia. A useful resource is the Fair Work Ombudsman website, which provides information about award coverage, help to find relevant awards, and other information.
Within each Award there are clauses that outline the coverage of the Award, and the classifications of different types of work and work responsibilities that fall under that coverage. The classifications are also used to determine a pay scale within the award, such that there is a higher minimum pay for those with higher responsibilities and/or technical skills. Awards specify the minimum working conditions that must be applied, including:
- The normal hours of work.
- Penalty rates for hours worked in addition to, or outside of, the normal hours of work.
- Rates of pay, allowances, and working conditions.
- Shifts, roster requirements, and leave obligations.
- Notice and payment of termination.
Some employers or employees will not be covered by an award, and in such cases the National Minimum Wage and the National Employment Standards will form the minimum terms and conditions of the employment. All employees in the national workplace relations system are covered by the National Employment Standards regardless of the applicability of any award, registered enterprise agreement, or employment contract.
The National Employment Standards apply minimum standards for:
- Maximum weekly working hours.
- Requests for flexible working arrangements.
- Offers and requests to convert from casual to permanent employment.
- Parental leave and related entitlements.
- Annual leave.
- Personal/Carers leave, compassionate leave, and unpaid family and domestic violence leave.
- Community service leave.
- Long service leave.
- Public holidays.
- Notice of termination and redundancy pay.
- Fair Work Information Statement and Casual Employment Information Statement.
Employers and employees can negotiate an enterprise agreement, which is an agreement negotiated between an employer, employees, and bargaining representatives, and then approved by the Fair Work Commission. To be approved, an agreement must satisfy the "better off overall test" which means that when the conditions in the agreement are compared to the relevant award(s), then an employee is better off than they would have been under that award. For employers, enterprise agreements can provide the benefit of greater consistency across their workforce and less complexity in compliance with multiple awards.
Be aware of employment versus contracting
From 26th August 2024 The Fair Work Legislation Amendment (Closing Loopholes No. 2) Act 2024 overrides the previous common law definition of employment, by requiring that the totality of the working relationship be considered to determine whether a worker is an employee versus an independent contractor. This prioritises the substance of the working relationship over the wording of any contract that may exist between the parties.
Where it is determined that a worker is an employee, and not an independent contractor, then the employer must comply with the Fair Work system and National Employment Standards. This may require an employer to reimburse an employee for back-pay, leave entitlements, and other conditions that they would be entitled to under these laws.
Perceived unfair terms in independent contracting agreements may now be set aside by the Fair Work Commission. An Independent Contractor can apply for an order to set aside the unfair terms. To determine whether to set aside such terms, the Fair Work Commission will consider:
- The comparative bargaining power of each party.
- Whether the contract demonstrates a clear imbalance in the power between the parties.
- Whether the term is reasonable to protect the interests of any party.
- A comparison between the renumeration under the contract and that of an employee who engages in similar work.
Gig economy workers
The Fair Work Legislation Amendment (Closing Loopholes No. 2) Act 2024 introduced a new 'employee like' category of worker, which will enable the Fair Work Commission to require employers of these workers (regulated businesses) to apply minimum standards, make collective agreements, and to protect them from unfair deactivation such that they have similar protections to the unfair dismissal of an employee.
How do employment contracts fit in?
All employees are covered by the National Employment Standards (NES) irrespective of whether they have signed an employment contract. In addition, an employment contract can not specify employment conditions that are less than would apply under an applicable award, and there are restrictions for fixed term arrangements. Terms in an employment contract that enable employment conditions that are less than those specified by NES, Fair Work legislation, and/or modern awards are typically excluded when a case arises, without necessarily excluding the entire contract. If the case involves termination of employment due t such a clause, then the termination will be found to have been unfair and the employer may potentially be found liable for penalties, damages, arrears of pay, reinstatement of conditions, and/or reinstatement of employment.
An employment contract is a useful document because it confirms the nature and classification of the employment, the employment start date, and it also enables employers and employees to document other conditions such as additional benefits, specify requirements for commercial confidentiality and/or conflicts of interest, and the requirement for parties to apply company policies and procedures. Employment contracts can include provisions for disciplinary action in certain situations, These terms often provide important legally binding protections for employers and employees.
Record Keeping
The Fair Work Act has requirements for employers to keep records. Employers can be fined for not keeping the required records for the required time period.
