Eastern Payroll Solutions Ltd  
  • The importance of Employment Agreements

    22 April at 15:26 from atlas

    When we're on site consulting with clients, the subject of Employment Agreements often comes up. We're either looking for one to check a particular employee's requirements, looking for notes on company policy, or trying to work out how to deal with a situation when there isn't an agreement in place.

    In July 2011, it became compulsory to have an employee agreement in place for each individual employee. At the time, many businesses viewed the requirement as just another example of bureaucratic red tape, and while we don't deny there is a fair bit of work involved - it's actually vitally important to have these agreements in place.

    An employment agreement safeguards the employee and the employer, ensuring both are getting a fair deal. And that's exactly what employing someone is - a deal. It's agreed money for agreed labour. The employment agreement dictates all the rules around that deal and provides a contract that both parties have to abide by.

    Important inclusions to employment agreements

    • Job title, description of duties, location of work and expected hours (including whether full time, part time or casual).
    • Remuneration details including when and how it's to be paid. Fun Fact - one law that hasn't changed in decades is that you must pay in cash! So if you Direct Credit an employee's pay you have to state this on your agreement.
    • Terms of the 90 day trial period (if you wish to utilise a trial period). The employee needs to accept and sign the full employment agreement BEFORE they commence employment to ensure the 90 day trial period is legitimate.
    • Your company's leave policies - including both statutory minimums and additional entitlements to leave (if your company provides for this). Closedowns are important to note if they apply, as are rules around working on public holidays and cashing up annual leave.
    • KiwiSaver and Superannuation information.
    • Termination information and redundancy clauses.
    • Any requirement for background and police checks.
    • Information on how disputes between parties can be resolved, including the process for raising a personal grievance. If your agreement is clear (and more importantly in place!) hopefully you won't need this one.

    As you work through the recruitment process, it's important to provide the letter of offer and employment agreement to your new starter as early as possible. They need time to absorb the information, seek advice if they wish and ask questions if they are unsure about anything, BEFORE they commit to it by starting work with you.

    Once the employee is comfortable with the agreement, ask them to sign it and either send it to you before they start, or bring the signed copy with them on the morning they arrive for work. This is especially important for the 90 day clause mentioned earlier, as once the employee has started (even if it's just a day) they are seen as an existing employee and an existing employee cannot sign a 90 day clause. This has been tested in an employment court before!

    Building your employment agreement might seem like a daunting task, but there are lots of resources available to help you. The Ministry of Business, Innovation & Employment (MBIE) has an agreement builder that will step you through the process, and often your accountant will be able to provide a similar service.

    What can you do if you have an existing staff member that does not have an agreement in place?

    Very simple - create one.

    Have a conversation with the employee about the fact that this is now a legal requirement and you need to put it in place. Explain that this is to the benefit of both parties and cements the working relationship you already have.

    Go through the agreement with your employee and give them time to read and understand what they are agreeing to, before asking them to the sign it.

    Keep the original on file and give the employee a copy for their reference.

    As always, if you're unsure please seek legal advice.