You have decided to hire. The role is clear, the budget is set, and the advertisement is drafted. What is left is the contract, and that is where many small business owners stall, because an employment contract is not one document but several different arrangements that carry different costs, entitlements and risks.
The contract you offer should follow from what the work actually involves, not the other way around. If you choose a template first and fit the role to it, you can end up with an arrangement the law does not recognise, and that is where underpayment claims, unfair dismissal applications and regulator attention begin. This article sets out the decision in the order it should be made: what the work is, what award coverage applies, what floor the National Employment Standards set, and how the permanent and temporary options compare.
The options, and the question hiding behind them
Australian employers have five common contract arrangements to choose from:
- Full-time: a permanent employee working around 38 hours a week on a continuing basis.
- Part-time: a permanent employee working fewer than 38 hours a week, usually on regular, predictable hours.
- Casual: an employee with no firm advance commitment to continuing and indefinite work, paid a casual loading instead of leave entitlements.
- Fixed-term: a contract that ends on a set date or at an identifiable event, such as the return of an employee on parental leave.
- Maximum-term: a contract with an outer limit that either party can end earlier by giving notice.
The decision that matters is not which template to download. It is what kind of employment relationship the role genuinely requires, because the law classifies employees by the real substance of the arrangement, not by the label on the contract. Two assumptions trip employers up here. The first is that calling someone a "casual" makes them casual. Section 15A of the Fair Work Act 2009 (Cth) defines a casual employee by the absence of a firm advance commitment to continuing and indefinite work, assessed on the real substance of the relationship. The second is that fixed-term and maximum-term contracts are different species. Since December 2023 they sit under the same limits on how long a temporary contract can run. Both points are worked through below.
Five factors to weigh before you draft
What the work actually is
The nature of the work is the first and most important factor. Ask whether the work is ongoing, time-limited, or irregular.
- Ongoing work: if you will need the work done indefinitely, a permanent arrangement, full-time or part-time, is the fit.
- Time-limited work: covering parental leave, a project with a defined end, or a seasonal peak points to a fixed-term or maximum-term contract.
- Irregular work: unpredictable shifts can genuinely suit a casual arrangement, provided the relationship really does lack a firm advance commitment.
If the answer is unclear, the safe course is permanent. A business that uses a casual or temporary label to manage a role that is in truth ongoing is carrying risk, because the label will not survive scrutiny if the arrangement is challenged.
Whether a modern award or enterprise agreement covers the role
Modern awards set the minimum wages and conditions for employees in a particular industry or occupation. The Fair Work Commission makes and reviews them, and they operate alongside the National Employment Standards. For most hires the first practical step is to run the role through the Fair Work Ombudsman's Find My Award tool to see whether an award covers it and which classification applies.
If an award covers the employee, record three things before drafting: the award itself, the classification level, and the minimum rate of pay for that classification, including any casual loading. The contract can pay more, but not less. Where an enterprise agreement covers the employee, its terms generally displace the award, though an agreement must pass the better off overall test before the Fair Work Commission approves it. Note that an award can also permit fixed-term arrangements that would otherwise breach the general limits, so award coverage is relevant to temporary contracts as well as permanent ones.
The National Employment Standards floor
Whatever contract type you choose, the National Employment Standards (NES) in Part 2-2 of the Fair Work Act 2009 (Cth) set a floor that applies to almost all employees and cannot be contracted out of. The standards cover maximum weekly hours, annual leave, personal and carers leave, parental leave, long service leave, public holidays, notice of termination and redundancy pay, and the requirement to give new employees a Fair Work Information Statement.
The 38-hour benchmark matters for classification. Section 62 of the Act provides that a full-time employee must not be required to work more than 38 hours a week unless the additional hours are reasonable. An employee working an average of 38 hours is therefore a full-time employee in the ordinary case, and an employee working fewer hours on a permanent basis is part-time. The NES does not vary with the label on the contract: a fixed-term employee accrues annual leave during the term, and a casual employee receives the NES entitlements that apply to casuals, such as unpaid family and domestic violence leave.
Full-time, part-time or casual
The choice between permanent and casual employment is where the cost differences and the compliance risk concentrate. The comparison looks like this:
- Full-time: an average of 38 hours a week, four weeks of paid annual leave, 10 days of paid personal and carers leave each year, and notice of termination and potential redundancy pay under the NES.
- Part-time: fewer than 38 hours a week with regular hours, and the same entitlements as full-time on a pro-rata basis.
- Casual: no firm advance commitment to continuing and indefinite work under s 15A, a casual loading in place of paid leave (typically 25% under most awards), no paid annual or personal leave, and no entitlement to notice of termination.
Misclassification is the expensive mistake. If an employee meets the definition of a permanent employee, they are entitled to the leave and notice entitlements of a permanent employee, and a business that treated them as casual can face back-pay claims, penalties and interest years after the fact. The Fair Work Act 2009 (Cth) also gives casual employees a path to permanency: after 6 months of employment, or 12 months for small business employers, a casual who considers they no longer meet the casual definition can notify the employer and require conversion to full-time or part-time employment under the employee choice provisions in Division 4A of Part 2-2. Choosing "casual" is not a permanent cost decision, and it should never be used as a way around leave entitlements; it should reflect genuinely irregular work.
Whether the engagement is genuinely temporary
Fixed-term and maximum-term contracts are for work that has a real end point. A fixed-term contract ends on a set date or at an identifiable event, such as the return of the employee you are covering. A maximum-term contract fixes an outer limit but allows either party to end the employment earlier by giving notice, which is useful when the end date is uncertain and you do not want to be locked in.
Since 6 December 2023 the Fair Work Act 2009 (Cth) has limited how these contracts can be used, and the limits apply to any contract that terminates at the end of an identifiable period. Under s 333E:
- Two-year cap: a fixed-term or maximum-term contract cannot run for more than 2 years, including any extension or renewal.
- One renewal option: the contract cannot contain more than one option to extend or renew, even if the total period stays under 2 years.
- No rolling chains: an employee cannot be moved through consecutive contracts for the same or substantially similar work, with substantial continuity, where the total period exceeds 2 years or the later contract carries a renewal option.
These are civil remedy provisions, so breaching them can expose the business to penalties. The Fair Work Ombudsman sets out exceptions for arrangements such as work on a specific task requiring specialised skills, formal apprenticeships and traineeships, peak demand periods, replacing an employee who is temporarily away, and employees paid above the high income threshold ($190,100 from 1 July 2026). The exceptions are narrow, and an award can also permit arrangements that would otherwise breach the limits, so it is worth checking whether an exception genuinely applies before relying on one.
Two compliance points go with any fixed-term or maximum-term hire. First, the employee must be given a Fixed Term Contract Information Statement before or as soon as practicable after entering the contract, under s 333K, in addition to the Fair Work Information Statement that every new employee receives. Second, ending a temporary contract early can still attract unfair dismissal or redundancy claims in the right circumstances, so the notice mechanics matter even though the contract has an end date.
How an Artificer Legal employment lawyer can help you choose
The choice described above looks like paperwork, but it is really a classification decision with a legal test at its centre, and the consequences of getting it wrong arrive late and compound. An employment lawyer at Artificer Legal can help in three ways.
First, stress-test the assumptions. Before you commit to a contract type, a lawyer can review the role, the roster and the way you intend to manage the employee, and tell you whether the arrangement will hold up under s 15A and the award coverage rules. Second, model the downside. Where a business has already used casual or temporary contracts for ongoing work, a lawyer can quantify the exposure in leave entitlements, loading and penalties, and set out the options for correcting it, including the safe ways to move employees to the right status. Third, draft the documents the chosen path needs. A contract that reflects the employee's true status, sets out the award classification and rate, and handles the fixed-term limits and information statement obligations properly is far cheaper than defending a claim later.
If you are weighing a hire, reviewing existing contracts, or responding to a demand from an employee or regulator, speak to an Artificer Legal employment lawyer about your specific circumstances before you commit to a template.
Make the contract match the work
The misstep that costs the most in this area is choosing the label first. Businesses reach for "casual" or "fixed-term" because of the cost or flexibility they appear to offer, and then stretch the role to fit. The Fair Work Act 2009 (Cth) does not work that way: s 15A, the NES and the fixed-term limits all look at what the work actually is, and a contract is judged by the real substance of the relationship. The order of the decision matters more than the template: work out what the role genuinely requires, check the award and the NES floor, and only then choose the contract.
In summary, modern awards and enterprise agreements set the minimum rates and conditions that apply to the role, and the NES provides a floor that applies to almost all employees. Full-time, part-time and casual employees carry different entitlements, and the casual label is a legal test rather than a choice. Temporary engagements are capped at two years with strict renewal and consecutive-contract limits, and a Fixed Term Contract Information Statement is required. A well-matched contract protects both sides and is far cheaper than defending a classification dispute.