5 Mistakes to Avoid When Hiring Employees

Introduction

Hiring employees is a key milestone for any business. However, many proceed with the hiring process without fully understanding their legal obligations as an employer.

For businesses, even small mistakes made as an employer can create significant financial, operational and legal risks in the future. Employment-related disputes are some of the most common issues faced by businesses.

This article outlines 5 common mistakes that businesses make when hiring employees that should be avoided.

1. Hiring employees without a proper contract

A common mistake made by businesses when beginning the hiring process is using poorly drafted employment contracts, generic online templates or relying solely on verbal agreements.

A properly drafted employment contract should clearly set out:

• The employee’s role and responsibilities;
• Remuneration and benefits;
• Hours of work;
• Confidentiality obligations;
• Intellectual property ownership;
• Termination provisions; and
• Post-employment restraint provisions.

Without an employment contract, both parties face uncertainty regarding entitlements and performance expectations.

Another common mistake is using the same template employment contract for all employees. Employment contracts should be tailored to each employee, their position and the specific needs of the business.

Get your employment contracts sorted and avoid problems before they raise with our fixed fee employment contracts package.

2. Misclassifying employees as contractors

Businesses may choose to engage independent contractors rather than engage employees, or use a combination of both, based on their business needs.

Many businesses choose to engage contractors rather than employees on the basis that using contractors can create flexibility and reduce administrative obligations.

However, it is not enough to engage someone and call them a “contractor” to determine their legal status. Recent case law and legislation in Australia has held that the substance of a relationship between an employer and a worker is how the relevant legal status of the worker is determined. This includes looking at factors such as:

• The level of control the employer has over the worker;
• Whether the worker operates through their own business;
• Who provides the tools and equipment;
• Whether the worker can delegate work they receive from the employer; and
• How the worker is paid.

Businesses should be cautious when engaging contractors as incorrectly classifying a worker as a contractor can expose businesses to significant liabilities including paying unpaid employee entitlements, superannuation obligations and penalties.

It is important that businesses ensure workers are engaged using properly structured and well-drafted documentation from the outset.

3. Failing to understand Modern Award coverage

Modern awards are a misunderstood area of employment law that many businesses struggle to understand.

Modern awards apply to most employees in Australia based on their industry and role and impose minimum obligations relating to:

• Minimum pay rates;
• Overtime;
• Penalty rates;
• Allowances;
• Breaks; and
• Rostering requirements.

If a business fails to correctly identify and comply with the obligations imposed by the applicable award this can lead to underpayment claims, significant backpay liabilities and other penalties.

Businesses should seek legal advice regarding the correct award coverage before onboarding an employee.

4. Overlooking policies and procedures

Many businesses do not realise that their obligations as an employer extend beyond simply issuing an employment contract.

In addition to issuing an employment contract, businesses should also ensure that they have appropriate workplace policies and procedures in place to deal with matters such as:

• Workplace conduct;
• Bullying and harassment;
• Leave processes;
• Social media use;
• IT, security and confidentiality obligations; and
• Work health and safety requirements.

Having clear policies and procedures in place sets expectations, manages workplace behaviour and reduces the likelihood of disputes.

Importantly, businesses should also ensure that the relevant policies and procedures are regularly reviewed and updated as the business grows and its needs change.

5. Failing to protect confidential information and intellectual property

In many businesses, employees often have access to sensitive business information including customer data, pricing, systems, trade secrets, financial information and intellectual property.

If confidentiality and intellectual property clauses are not properly included in an employment contract, disputes may arise as to the use of confidential information obtained and the ownership of intellectual property created, during employment.

Employment agreements should be carefully drafted to include clauses dealing with:

• Confidentiality obligations;
• Intellectual property ownership;
• Return of company property; and
• Post-employment restraints.

Protecting intellectual property and confidential information from the outset is particularly important for businesses as they try to grow.

Conclusion

Hiring employees is a key step for any business. However, it comes with significant legal obligations.

It is important that businesses invest in properly drafted employment documentation to ensure compliance with employment laws, reduce risk and avoid disputes.

Preparing the documentation correctly early and taking proactive steps can be significantly more cost-effective than dealing with employment disputes as they arise.

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