Common employment agreement mistakes
Every employee in NZ must have a signed, written employment agreement, whether they are full-time, part-time or casual.
As the fundamental legal document between an employer and an employee, the employment agreement sets out the terms and conditions of employment, establishes entitlements and expectations, and provides a reference if there are any issues down the track.
While they're not hard to get right, there are some common errors that every business wants to avoid:
Not having an agreement at all - In the eyes of the law, the workplace isn't the Wild West and while it may be tempting to think you can get someone to work at your company without drawing up an employment agreement (EA) that you both sign, don't give in to temptation.
The employment agreement forms the legal basis for employment, and if a Labour Inspector finds you don't have one for every single employee, no matter when they started, you could be in hot water. Fines can run into the tens of thousands of dollars.
If you are in the process of hiring a new team member, or have staff that have been with you for a long time, you should absolutely guarantee you have a written employment agreement for each of your employees.
That includes your casual and part-time workers.
Not getting the right type of agreement - Under employment law, there are three types of employees: permanent, fixed-term, or casual, and each person's employment agreement must match the type of work they do, the hours and frequency of their work, and other terms and conditions.
From the outset, it is crucial to get each employee on the right type of employment agreement. This may seem reasonably straightforward, but there are some mistakes that businesses commonly make:
Using a casual employment agreement for part-time workers. As soon as a person is required to work regular hours, no matter how few, they are not a casual.
Using fixed-terms to try people out. Fixed-term employment must be for genuine commercial reasons, e.g. the work is seasonal, for a short-term project, or cover for parental leave.
Hiring contractors who are actually employees. Contractors are self-employed and aren’t covered by most employment-related laws.
Having an employee on a type of agreement that does not match the reality of their work could mean you face an employment dispute or other costs, including outstanding wages, holiday pay, or PAYE tax.
So before you hire someone, it's essential to consider what work needs to be done, how often, and for how long. That will make it easier to choose whether a permanent, fixed-term, or casual employee is the best fit.
Not complying with employment legislation - At its most basic, every employment agreement must have a number of clauses that are legally required. These are:
The names of the employer and the employee.
A description of the work to be performed (keep a copy of the job description with the employment agreement).
An indication of the place of work.
The agreed hours.
The wage rate or salary payable and how it will be paid.
A plain explanation of how to help resolve employment relationship problems.
A statement that the employee will get (at least) time-and-a-half payment for working on a public holiday.
An employment protection provision to apply if the employer’s business is sold or transferred, or if the employee’s work is contracted out.
The nature of the employment - for example, if the employment is fixed-term or permanent.
As you can see, the mandatory clauses aren’t extensive and it's reasonably easy to ensure your employment agreements comply with the law. Because of this, Labour Inspectors can get pretty frustrated with businesses whose agreements don't meet the basic requirements.
Also, if you ever found yourself in an employment dispute, an agreement without all the mandatory clauses may not provide the necessary legal protection.
Shortchanging workers’ rights - In New Zealand, every employee enjoys the protection of minimum rights, such as minimum wage rates, paid annual and public holidays, paid rest and unpaid meal breaks.
These minimum entitlements are the responsibility of the employer and, by law, all employment agreements must provide them to all employees.
As an employer, you can't ask your employees to agree to less than the basic rights and an employee could make a claim for disadvantage, breach of good faith, or unfair bargaining if they believe they were significantly disadvantaged during negotiations or during their employment.
Even if you don't include them in an employment agreement or have terms in the agreement that don't comply with the law, the minimum rights are still legally binding and if a Labour Inspector finds you have breached them, you could owe your employee(s) unpaid wages or back pay for leave. You could also be fined.
Remember, the employment agreement is the basis of the relationship between you and your employee. Having a watertight agreement will get you off to a good start and provide an honest foundation to build on.
Not following the provisions - Once you’ve created an employment agreement and you and your employee have signed it, you both must follow the obligations within it.
It may be tempting to take shortcuts in the workplace - for disciplinary reasons or if you feel your team should be more productive - but it's not good practice.
One of the guiding principles of the Employment Relations Act is that the employer and the employee must act in good faith. That means if an employee comes to management with a concern, you must listen, investigate, and take any necessary action to resolve the issue.
Likewise, if you have a problem with an employee you must handle it promptly and fairly. A mandatory part of the employment agreement is an explanation of how to resolve problems in the employment relationship, and that process should be followed. If you've also included a disciplinary process, you must follow the steps that have been agreed to.
Failure to adhere to the provisions of an employment agreement and act in good faith could mean an employee could successfully challenge you with a grievance. Labour Inspectors may also fine you.
It's much better to see the agreement as a building block for quality employment relationships, and a building block for a workplace culture of cooperation, trust, and excellence.
Remember, the employment agreement is the basis of the employment relationship, so having a watertight agreement will get you off to a good start and provide an honest foundation to build on.