Fair work obligations for small business, awards, the NES and dismissal rules

If you employ staff in Australia, you are almost certainly covered by the Fair Work Act 2009 (Cth) (the Fair Work Act), the national law that sets the baseline for how employees must be paid and treated. Together with the modern awards and regulations made under it, the Act creates a web of obligations that applies to nearly every private-sector employer, from a sole trader with one casual worker to a company with hundreds of staff.

The Fair Work Ombudsman (the FWO), the regulator that enforces the system, publishes a best practice checklist for small business that condenses those obligations into the questions that actually matter: which awards cover your employees, whether you meet the National Employment Standards, whether your records and pay slips are in order, and whether you can handle a dismissal lawfully.

This guide works through each of those duties, who they apply to, the thresholds that bring you within scope, and what happens if you fall short.

Who these obligations apply to

The Fair Work Act applies to national system employers. In practice that means most businesses operating in Australia: companies, sole traders, partnerships and trusts that employ staff. The main exceptions are state government bodies and some state-based industries.

One threshold matters more than any other: whether you are a small business employer. Under s 23 of the Act, you are a small business employer if you employ fewer than 15 employees at a given time. For that headcount:

All employees count: including full-time and part-time staff.
Regular casuals count: but only if they are employed on a regular and systematic basis.
Associated entities are counted together: so a group of two companies with eight staff each is not a small business.

The label matters because it changes your obligations in two significant ways. Small business employers follow the Small Business Fair Dismissal Code rather than the general unfair dismissal rules, and they are generally exempt from NES redundancy pay. The FWO's checklist is written for small business, but the core duties it covers, awards, the NES, records and pay slips, apply to every employer.

Modern awards: know which ones cover your employees

More than 120 modern awards set the minimum wages and conditions for particular industries and occupations across Australia. An award is a legally binding document covering pay rates, hours of work, rosters, breaks, leave, allowances, penalty rates and overtime. If your business is in an industry or occupation covered by an award, you must pay at least the award rates and provide at least the award conditions to the employees it covers, on top of the National Employment Standards.

A workplace can be covered by more than one award depending on the jobs people do. A cafe with a kitchen hand, a barista and an accountant in the office might touch three different awards. The FWO's Find my award tool and its pay guides are the practical way to work out which awards apply and what each one currently pays.

Awards also contain flexibility terms. An individual flexibility arrangement allows you and an employee to agree in writing to vary the effect of an award term, for example to trade a higher salary for reduced penalty rates, so long as the arrangement meets the genuine needs of both sides, is genuinely agreed rather than imposed, and leaves the employee better off overall than they would have been under the award (s 144). If the employee is under 18, a parent or guardian must also sign. The arrangement must be in writing and a copy given to the employee.

The National Employment Standards

The National Employment Standards (the NES) are the irreducible floor of the system. Section 61 of the Fair Work Act provides that they are minimum standards that cannot be displaced, even by an enterprise agreement. The NES currently covers:

Hours of work: a maximum 38-hour week for full-time employees, with additional hours required to be reasonable.
Flexible work: the right to request flexible working arrangements.
Casual employment: including the employee choice pathway to move to full-time or part-time work in some circumstances.
Parental leave: and related entitlements.
Annual leave: four weeks of paid leave per year for most employees, more for some shift workers.
Personal, carer's and compassionate leave: 10 days of paid personal leave per year, two days of paid compassionate leave per occasion, and 10 days of paid family and domestic violence leave per year.
Community service leave: including jury service and voluntary emergency management activities.
Long service leave: under the NES, an enterprise agreement or state and territory law, depending on the situation.
Public holidays: a paid day off for employees who would normally work, with a right to refuse unreasonable requests to work.
Superannuation: contributions to an eligible employee's fund, which is now also a NES entitlement.
Notice and redundancy: notice of termination of one to five weeks based on length of service and age, and redundancy pay of up to 16 weeks, with exclusions for small business employers.
Information statements: the Fair Work Information Statement for new employees.

Most of these entitlements apply to full-time and part-time employees. Casuals receive a smaller set: unpaid carer's leave, unpaid compassionate leave, the 10 days of paid family and domestic violence leave, unpaid community service leave and the information statements, but no paid annual leave, paid personal leave or notice of termination. Long service leave for casuals depends on the applicable state or territory law.

You must also give every new employee the Fair Work Information Statement, and casual employees the Casual Employment Information Statement, before or as soon as practicable after they start. New employees on fixed-term contracts must also receive the Fixed Term Contract Information Statement.

Records and pay slips

The Act treats records and pay slips seriously, because missing records are treated as evidence of missing payments.

Records

Section 535 requires you to make and keep employee records for seven years. The regulations prescribe the content in detail: your business name and ABN, the employee's name, whether the employee is full-time, part-time or casual, the date work began, hours worked, pay rates and superannuation contributions, among other things. Records must be accurate; making or keeping a record you know to be false or misleading is itself a contravention. Critically, if you fail to keep proper records, the burden of proof reverses: in underpayment proceedings the employer must disprove the employee's allegations, rather than the employee proving them (s 557C).

Pay slips

Section 536 requires you to give each employee a pay slip within one working day of paying them, whether on paper or electronically. The regulations prescribe what a pay slip must contain, which in practice means the employer's name and ABN, the employee's name, the payment date and the period it covers, gross and net amounts, the hourly or salary rate, allowances and other amounts, deductions, and superannuation contributions.

Enterprise agreements and good faith bargaining

An enterprise agreement is a collective document setting the terms and conditions for a particular business, negotiated between the employer, employees and their bargaining representatives, and approved by the Fair Work Commission. An agreement can replace award terms for your workplace, but it cannot undercut the NES, and it must pass the better off overall test (s 193): the Commission must be satisfied that each award-covered employee would be better off overall under the agreement than under the relevant award. The base rate of pay under the agreement also cannot be less than the award base rate (s 206).

For most small businesses an enterprise agreement is a distraction rather than a priority, and the checklist treats it that way. You mainly need to know the option exists and when it becomes relevant, which is usually once your workforce is large enough to make bargaining worthwhile.

If you do bargain, the Act imposes good faith bargaining requirements on every bargaining representative (s 228):

Meetings: attend and participate in meetings at reasonable times.
Information: disclose relevant information in a timely manner, other than confidential or commercially sensitive information.
Proposals: respond to proposals in a timely manner, give them genuine consideration and give reasons for your responses.
Conduct: refrain from capricious or unfair conduct that undermines freedom of association or collective bargaining.
Recognition: recognise and bargain with the other bargaining representatives for the agreement.

Good faith bargaining does not require anyone to make concessions or reach agreement. If a representative breaches the requirements, the Fair Work Commission can make a bargaining order to get the process back on track.

Dismissals: the Small Business Fair Dismissal Code and adverse action

Termination is where employers most often trip over the law, and the rules differ depending on your headcount.

Small business dismissals

If you employ fewer than 15 people, a dismissal is not unfair if it is consistent with the Small Business Fair Dismissal Code (s 388). The Code sets out a practical process:

Serious misconduct: for conduct such as theft, fraud, violence or a serious safety breach, you can dismiss without notice or warning if you believe on reasonable grounds that the conduct is serious enough to justify immediate dismissal.
Other dismissals: you must give the employee the reason they are at risk of dismissal, allow them to respond, and give them a genuine chance to rectify the problem before dismissing.
Overall fairness: the dismissal must not be harsh, unjust or unreasonable, and you must still meet your notice of termination and other obligations.

Employees of small businesses also need 12 months' continuous service before they can bring an unfair dismissal claim, double the six months that applies to larger employers (s 383).

Adverse action

Separately, the general protections in Part 3-1 prohibit taking adverse action against an employee because they have a workplace right, have exercised one, or propose to exercise one (s 340). Dismissing, demoting or otherwise disadvantaging an employee for asking about their entitlements, complaining about pay, or joining a union can breach the general protections even if the dismissal would otherwise be defensible. The same protections cover adverse action for discriminatory reasons such as race, sex or disability.

What happens if you get it wrong

The Fair Work Ombudsman can investigate complaints, issue compliance notices and infringement notices, accept enforceable undertakings, and take matters to court. The courts can order back-pay and compensation and impose pecuniary penalties. The maximum penalty for most contraventions of a civil remedy provision is 60 penalty units per contravention, with five times that for a body corporate (ss 539 and 546). With the penalty unit now set at $330, that is up to $19,800 per contravention for an individual and $99,000 for a company. For serious contraventions, where the employer knowingly contravenes the law, the maximum is ten times those amounts: up to $198,000 for an individual and $990,000 for a company. Where a company that is not a small business underpaid employees, the court can instead set the penalty as the greater of 1,500 penalty units ($495,000) or three times the underpayment amount (s 546).

Criminal wage theft offences now also apply: deliberately and dishonestly failing to pay an employee their entitlements is an offence under s 327A. Small businesses that disclose and correct an underpayment in line with the Voluntary Small Business Wage Compliance Code can avoid criminal referral, but the civil consequences remain.

A working compliance checklist

Run through this list at least once a year, and again whenever you hire:

Awards: identify every modern award covering your roles and check current pay rates with the FWO's Find my award tool.
NES: confirm your pay and leave arrangements meet the National Employment Standards, and give new employees the right information statements.
Records: keep complete employee records for seven years, accurate and unaltered.
Pay slips: issue a pay slip within one working day of each pay, with all prescribed details.
Salaries: if you pay annualised salaries, check they cover the award entitlements in practice, including overtime and penalty rates.
Flexibility arrangements: keep any individual flexibility arrangement in writing and check the better off overall result.
Dismissals: before any termination, work out whether you are a small business employer and follow the Small Business Fair Dismissal Code or the general unfair dismissal process.
Protections: never dismiss or disadvantage an employee for raising a concern about their entitlements.

When a lawyer should be involved

An employment lawyer adds the most value at the decision points rather than the routine ones: checking whether a pay structure actually meets award minimums before it is rolled out, advising on a dismissal or redundancy before it happens, responding to a Fair Work Ombudsman investigation, or defending an unfair dismissal or adverse action claim. A lawyer can also audit your records and pay slips, review individual flexibility arrangements, and advise on whether an enterprise agreement is worth pursuing. The cost of advice is usually a fraction of a single penalty, let alone an underpayment order.

Start with your awards and your records

The obligation small businesses miss most often is not the NES, which most employers broadly meet, but award classification: paying a flat salary that does not stack up against the award minimums once overtime, penalty rates and allowances are added in, with no records to prove otherwise. The 15-employee line is the second trap, because counting associated entities together can push a business past the threshold without anyone noticing. This week, run the Fair Work Ombudsman's best practice checklist, identify the awards that cover your staff, and pull your records into a state you could defend. That single pass will close most of the gap between your business and full compliance.