Permanent employment contract clauses: what every Australian employer needs to include

You've made an offer, the candidate has accepted, and now someone has dropped a contract template on your desk. Maybe it's a document your accountant found online, a form a previous owner used, or something your HR platform auto-generated. Whatever the source, the question is the same: does this actually say what it needs to say — and will it hold up?

A permanent employment contract records the agreed terms of the working relationship — hours, pay, role, location — and allocates risk between you and the employee for everything that can go wrong over what may be a long tenure. It operates against a mandatory legislative floor: the National Employment Standards (NES) under the Fair Work Act 2009 (Cth) and, where applicable, a modern award. Anything below those minimums is unenforceable. Where there's a conflict between the contract and the law, the higher standard applies.

How the role is defined

The position clause identifies the job title, core duties, primary work location, and reporting line. Done well, it gives you a defensible foundation for managing performance and — if it comes to that — redundancy. A few drafting choices matter:

• Scope of duties: many templates include a catch-all such as "and such other duties as reasonably directed." That's fine, but be careful that the core description isn't so narrow that any request outside it looks like a unilateral variation of the contract.
• Location: if the role requires travel between sites, or you want to reserve the right to ask the employee to work from a different location, say so. A clause that names a single street address without any flexibility can become an issue if you relocate or restructure.
• Reporting line: naming a position rather than an individual means the clause stays accurate when people move on.

If the role is covered by a modern award, the position clause is also where you anchor the classification level. The Fair Work Ombudsman lists the more than 120 modern awards currently in force. Getting the classification right is not just an administrative step — it sets the minimum pay rate and determines which penalty and overtime provisions apply.

How pay is set and what it covers

The remuneration clause records the base salary or hourly rate, the pay cycle, and superannuation. From 1 July 2025, the Superannuation Guarantee rate is 12% of ordinary time earnings — confirm this in the contract and ensure your payroll settings match.

Where the salary is intended to absorb award entitlements such as overtime, penalties, or loadings, the contract needs a carefully drafted set-off clause:

• A general statement that the salary is "above award" is not enough — the clause must identify which specific entitlements it is intended to cover.
• Without accurate time records and regular reconciliation, the clause is unlikely to hold up against a wage claim.
• The consequence of a poorly drafted or unsupported set-off is back-pay liability for the entitlements that weren't actually absorbed.

If bonuses or incentives apply, make clear whether they are discretionary or formula-based. A discretionary bonus gives you flexibility; a formula-based one is a contractual entitlement. Ambiguity here generates disputes when employment ends.

Hours of work and the 38-hour week

Under s 62 of the Fair Work Act 2009 (Cth), an employer must not require a full-time employee to work more than 38 ordinary hours in a week plus reasonable additional hours, where reasonableness depends on health and safety, the nature of the role, and compensation.

For part-time employees, specify the agreed regular pattern — days, and ideally start and finish times. A vague arrangement ("approximately 24 hours per week") creates compliance exposure: without a defined pattern it is difficult to calculate penalty rates, leave accruals, and whether extra hours are ordinary or overtime.

The hours clause should also address:

• Overtime and time off in lieu (TOIL): if the business expects occasional extra hours, set out how those hours will be approved and whether they attract extra pay or equivalent time off. If an award applies, check whether it prescribes an overtime rate before building TOIL into the contract.
• Breaks: most modern awards include minimum break entitlements. Where they do, the contract doesn't need to repeat them — but your managers need to know they exist.
• Flexible working: the NES gives certain employees a right to request flexible working arrangements. The contract doesn't need to grant the request, but it shouldn't try to exclude the right to make one.

Leave entitlements

Leave is where many contracts are weakest — either by restating the NES minimums without adding anything, or by attempting to restrict entitlements below what the law requires. Both are problems.

The NES provides permanent employees with:

• Annual leave: 4 weeks' paid leave per year of service, accruing progressively (5 weeks for defined shift workers). See the Fair Work Ombudsman's annual leave page for how accrual and cashing out works.
• Personal/carer's leave: 10 days' paid leave per year for full-time employees, pro rata for part-time, covering illness and caring responsibilities, plus 2 days' unpaid carer's leave per occasion where paid leave is exhausted.
• Compassionate and bereavement leave: 2 days per occasion of a death or serious illness of an immediate family or household member.
• Parental leave: unpaid leave entitlements apply once an employee meets the eligibility criteria; government-funded parental pay may also apply.
• Community service leave: for jury duty and eligible emergency management activities.

What the contract can usefully do is set out operational requirements alongside these entitlements — notice for annual leave requests, blackout periods during peak trading, and the approval process. Those rules must be consistent with the NES and any applicable award; they cannot limit the quantum of leave or withhold accrued entitlements.

Probation and performance management

The probation clause sets a trial period — typically three or six months — during which both sides can assess fit. It should state the duration, how performance will be reviewed (check-ins, written feedback), and that NES minimum notice periods still apply if employment ends during probation.

One important drafting distinction: the probation period in the contract is not the same as the minimum employment period for unfair dismissal. Under the Fair Work Act 2009 (Cth), that period is six months for most employers and 12 months for small businesses (fewer than 15 employees). Setting a probation period longer than six months does not extend the unfair dismissal window — that threshold is fixed by the legislation.

Performance management detail — what triggers a formal process, how warnings work, what a performance improvement plan involves — belongs in policy documents referenced by the contract, not in the contract itself.

Confidentiality and intellectual property

These two clauses protect different things and are often conflated in template contracts.

Confidentiality covers information the employee learns in the course of employment — client lists, pricing, business strategy, technical processes. A well-drawn confidentiality clause:

• Defines what is confidential (specifically enough to be enforceable, not so broadly that it covers publicly available material).
• Applies during employment and survives termination.
• Includes carve-outs for information that becomes publicly known through no fault of the employee.

Intellectual property assignment covers work the employee creates in the role. Without an express clause, ownership of IP created outside ordinary working hours or on personal equipment may be unclear. The clause should assign to the employer all IP created in connection with the employee's duties — software, written materials, designs, and relevant inventions. For senior roles or those with access to sensitive commercial information, add an obligation to return or destroy confidential material on exit.

Post-employment restraints

Restraint clauses — non-compete and non-solicitation provisions — limit what an employee can do after they leave. They are enforceable in Australia, but courts will not enforce a restraint that is wider than reasonably necessary to protect a legitimate business interest.

The drafting choices that determine enforceability:

• Duration: shorter periods are more likely to be upheld. Three to twelve months is a common range depending on seniority; multi-year restraints for non-senior roles are routinely set aside.
• Geographic scope: a restraint covering all of Australia will be very difficult to enforce for a role that only operated in one state.
• Activity restricted: a non-compete that prevents the employee working in any capacity in the industry is broader than one that prevents soliciting specific clients or working for direct competitors.

A cascade provision — where the clause sets out multiple combinations of duration and geography, and asks the court to enforce the broadest combination that is reasonable — is standard practice for roles where restraints genuinely matter. For most non-senior roles, a narrowly drafted non-solicitation of clients and employees will achieve more practically than a sweeping non-compete that a court will reduce or discard.

Termination, notice, and redundancy

The termination clause must at a minimum replicate the NES notice scale. Under the NES, minimum notice periods based on continuous service are:

Employees over 45 who have completed at least 2 years of continuous service receive one additional week. Contracts can provide longer notice periods than these minimums — and often should for senior or hard-to-replace roles — but cannot contract out of them.

For serious misconduct — fraud, assault, wilful destruction of property, serious safety breaches — the Fair Work Act 2009 (Cth) permits summary dismissal without notice. Even so, a fair process is required before the decision is made, particularly given the risk of an unfair dismissal claim once the minimum employment period is served.

Redundancy provisions should address:

• The definition of genuine redundancy (the role is no longer required due to operational changes).
• Consultation obligations, which for award-covered employees are usually prescribed in the award itself.
• Redeployment: the obligation to consider whether the employee can be placed in another suitable role before making a redundancy decision.
• Statutory redundancy pay, which applies to employees with at least 12 months of continuous service and whose employer is not a small business.

Keep records throughout: documented evidence of genuine operational need, consultation steps, and redeployment options explored will be the first things requested if a redundancy is challenged.

Policies: incorporated by reference, not by reproduction

Workplace policies — codes of conduct, leave management procedures, IT and social media use, WHS obligations — should not be reproduced verbatim in the contract. The reason is practical: if a policy is contractual, you need the employee's consent to change it. If the business is growing or evolving, that creates friction every time you want to update the way things work.

The better approach is a clause that:

• Requires the employee to comply with the company's policies as amended from time to time.
• States that policies are not terms of the employment contract and do not form part of it.
• Acknowledges that the employee has received, or been given access to, the relevant policies on commencement.

Done this way, you can update policies without needing fresh signatures — as long as the change doesn't cut across an NES entitlement or an award term.

Optional and situational clauses

Some clauses are worth including in specific circumstances rather than by default:

• Garden leave: if the business needs to protect client relationships or sensitive information during a notice period, a garden leave provision allows you to put the employee on paid leave rather than have them work out their notice. Relevant for sales, client-facing, or senior roles.
• Payment in lieu of notice: allows either party to end the employment relationship immediately by paying out the notice period rather than working through it. Useful operationally, but confirm the approach is consistent with any applicable award.
• Annualised salary clause: for award-covered employees, an annualised salary arrangement must comply with the applicable award's annualised salary provisions and be accompanied by records of actual hours.
• Claw-back provisions: for roles with signing bonuses or upfront training investment, a time-proportionate repayment obligation if the employee resigns within a defined period may be appropriate.
• Dispute resolution: an internal escalation pathway (direct management, then HR, then senior leadership) before external proceedings may reduce the cost of minor disputes. It doesn't affect statutory rights to go to the Fair Work Commission.

Where Artificer Legal can help

The clauses most likely to require professional attention are the ones where standard templates fall shortest: set-off and annualised salary arrangements, post-employment restraints, and the intersection between your contract and any applicable modern award.

When Artificer Legal reviews or drafts a permanent employment contract, we work through the award coverage question first — because everything from minimum pay to the enforceability of TOIL arrangements depends on getting it right. We look closely at how the remuneration clause is structured against actual working patterns, whether the restraint provisions are calibrated to the role and likely to be enforced, and whether the policy incorporation approach leaves you enough flexibility to manage the business as it changes.

For businesses at the point of hiring their first permanent employees, or expanding into a new state or award coverage area, an upfront review is typically more cost-effective than untangling compliance problems after the relationship is established.

The hours and remuneration clause

If one provision determines the outcome of more employment disputes than any other, it is the hours and remuneration architecture — the relationship between the base salary, the ordinary hours the role actually requires, and what the applicable award would have paid for those hours. A salary that looks generous can silently accumulate underpayment liability when additional hours, evening work, or weekend rostering aren't properly accounted for. The fix requires accurate time records, a correctly structured set-off clause, and a regular reconciliation — not just a contract that says the salary is "above award."

A permanent employment contract is fundamentally a risk document. The clauses described above — from the role definition through to the termination provisions — are the framework within which you'll make decisions about performance, pay, restructuring, and exits. Gaps and ambiguities in that framework don't stay abstract: they surface at the moment of conflict, usually at the worst possible time. Getting the document right at the start, tailored to the award coverage and the actual conditions of the role, is significantly less expensive than resolving disputes after the fact.