Back to Basics: The Different Types of Employment

As was examined in our first publication of the Employment Law: Back to Basics Series, the first crucial part to understanding the employment relationship is understanding who an employee is. The next step to understanding the employment relationship is to understand the different types of employment relationships that can exist.

Therefore, this client alert will focus on the types of employment.

TYPES OF EMPLOYMENT

There are a variety of different types of employment relationships that can exist between an employer and an employee. There are four main types of employment arrangements being: part-time employees, full-time employees, casual employees, and fixed-term/project specific employees.

While these types of employment might seem simple to understand at a first glance, there are many nuances that are specific to each type of employment arrangement. It is essential that each of these types of employment are understood because each of these arrangements give rise to different rights and responsibilities between the employer and the employee. By taking the time to properly understand the subtleties, you can ensure that you enter into an employee arrangement that will best suit a specific business need and protect the business if things go wrong.

PART-TIME AND FULL-TIME EMPLOYMENT

Traditionally, most employment arrangements are permanent arrangements where the employee either works part-time or full-time hours. The Fair Work Act 2009 (Cth) (“FWA”) defines a full-time employee as a permanent employee who works an average of 38 hours each week. Meanwhile, a part-time employee is an employee who is employed on a permanent basis, and who has predictable hours which are less than 38 hours a week.

While part-time employment and full-time employment may appear to be completely different, from a legal perspective, these types of employment are very similar.

Some of the similarities between part-time and full-time employees include:

1. The engagement is one of permanency;
2. Working hours are fixed;
3. The employee is entitled to paid leave entitlements except that the part-time employee accrues such entitlements on a pro-rata basis;
4. There is an ability to ask for flexible working arrangements;
5. Entitlement to a minimum notice period upon termination of employment;
6. Entitlement to superannuation payments; and
7. Entitlement to redundancy pay (depending on the circumstances).

There are two main differences between part-time and full-time employees. Firstly, full-time employees work at an average of 38 hours per week whereas part-time employees work less than 38 hours a week. The second key difference is the manner in which entitlements to leave accrue. Since part-time employees work less than a full work week, unlike full-time employees, their entitlements will be pro-rated based on the number of hours they work each week. In the case of Mondelez v AMWU [2019] FCAFC 138 the issue of accrual of leave entitlements was examined in circumstances where the employees worked an average of 12 hour days. At first instance it was argued that because the employees worked 12 hour days they should receive a day of leave being 12 hours. However, on appeal to the High Court, the Court confirmed that part-time employees accrue leave on a pro rata basis calculated on ordinary hours each week and not working days.

Many modern awards have prescriptive provisions regarding the engagement of part-time workers, including the requirement to specify in writing the days and times the employee will work. Other awards require the employer to guarantee a minimum number of hours in each week. In circumstances where the employee works less than the guaranteed minimum they will still be entitled to payment for the guaranteed hours. In addition, in may awards, part-time employees are entitled to overtime rates for hours worked in excess of the agreed part-time hours even if this is still less than 38 hours each week.

If you choose to engage part-time employees, care should be taken to ensure the business has identified whether a modern award applies to that employee and whether there are specific requirements applicable to part-time work.

Both part-time and full-time employees will have access to the unfair dismissal jurisdiction assuming they meet the necessary statutory criteria.

CASUAL EMPLOYMENT

The FWA defines a casual employee as an individual who accepts a job offer without having a firm advanced commitment of ongoing work. Unlike part-time and full-time employment, casual employment consists of an employment relationship where the employer is not required to provide the employee with set hours of work, and the employee has no expectation of ongoing work. Instead, the employee works on an ad hoc basis, contingent on the employer’s operational needs.

Casual employment can be beneficial for a business in instances where a business has a temporary need for labour, when a business only needs employees for short periods of time or other situations such as when the business is unsure of how long a project may last.

From an employee’s perspective, a casual employment relationship can also be beneficial because this type of arrangement gives the individual flexibility to decide whether to accept certain work. However, casual employment also has various downsides for both businesses and employees.

Firstly, under a casual employment, there is very little job security for an employee. An employer is not required to give the employee any certainty about hours they wish the employee to work. Additionally, for casual employees, an employer is not required to give any notice of the termination of the arrangement and therefore the business is able to let go of a casual employee almost instantly.

Casual employees also do not have the same access to entitlements enjoyed by permanent employees. For example, casual employees do not have access to paid leave entitlements such as paid annual leave, personal leave, compassionate leave, community service leave and long service leave. While casual employees are entitled to two days unpaid carer’s leave, two days unpaid compassionate leave and unpaid community service leave if they wish to take it, these entitlements are minimal as compared to what a part-time or full-time employee enjoy.

To compensate casual employees for the lack of certainty and benefits that they are not entitled to receive, employers who wish to employ casual employees must pay what is called a “casual loading”. A casual loading is essentially an additional amount that employers must pay, on top of the minimum wage, to compensate casual employees for the lack of certainty and the uncertainty of these arrangements.

The amount of casual loading that an employer is required to pay is determined by either the FWA, or a modern award or an enterprise agreement. Casual employees covered by the national minimum wage must be paid an additional 25% than the minimum hourly rate. However, casual employment rates vary based on the modern award that applies.

The issue of casual employment has come under significant scrutiny both by the Courts and subsequently the Federal Government in the last 24 months. In April 2021, the FWA was amended to address the issue of casual employment. We wrote a substantial article discussing these changes at that time which is available on our website.

FIXED TERM EMPLOYMENT

A fixed term employment arrangement is where an employer and an employee agree that an individual will be employed for a specific amount of time or for a specific task, and at the end of that period, or the completion of the task, their employment will come to an end.

A fixed term employment arrangement may be beneficial for businesses that are undertaking project work and only need an employee for a fixed amount of time. Unlike casual employment arrangements, this type of arrangement provides the employer and the employee certainty about the duration of the employment and the hours that are required to be worked over a certain period.

Additionally, fixed term employees are also entitled to almost the same benefits that part-time and full-time employees enjoy. The difference is that the benefits are granted on a pro-rated basis based on the fixed term employment agreement. A traditional fixed term/project-based contract does not allow for termination during the term, and as such there is no need for notice of termination as the contract and employment terminates automatically at the end of the term or task the individual was hired to complete. The FWA provides that fixed term employees do not have access to the unfair dismissal regime. They are also not entitled to redundancy payments.

However, most fixed term contracts are actually what are known as maximum term contracts. In other words, they set an outer limit for the duration of the employment relationship but can be brought to an end by the provision of written notice. These types of employment relationships are no different from permanent employment discussed above, but the employee and employer understand that the employment is for a defined maximum period. As they are not true fixed term contracts, the employee will have the same rights as permanent employees.

INDEPENDENT CONTRACTORS

Although the relationship between an employer and an independent contractor is often confused, and misidentified, if done appropriately such relationships fall outside of the employment laws applicable to employees. As was mentioned in our preceding client alert, an independent contractor is an individual who works for their own business and provides services to other businesses. Discussion of this topic is beyond the scope of this article, however if you wish to read more about this topic, please refer to our website.

This article and the recommendations set out herein, is not intended to constitute, and should not be treated as, legal advice.

We regularly advise clients on all matters touching upon the employment relationship. Please contact us should you require any such advice or assistance.