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Publications

Employment update

17 December 2008

The new National Government has introduced the 90-day trial employment period for small business and made sweeping changes to KiwiSaver as part of its first 100 days policy programme.

Trial periods

For small business only

The new trial period is available only to employers with fewer than 20 employees and enables them to dismiss new hires within the first 90 days of the employee’s employment.

The dismissed “trial” employee cannot bring an unjustified dismissal claim, and the employer will not be required to provide a statement of reasons for the termination.

The amendment only relates to termination processes. Protections against discrimination and harassment remain, and trial employees can still bring disadvantage claims. We may therefore see some novel attempts by employees to challenge their treatment during a trial period.

Written provision required

To take advantage of the new law, employers must include a written trial period provision in the employment agreement. Small employers will therefore need to amend their template agreements, as existing trial period clauses are unlikely to be sufficient to invoke the protection offered by the new law.

Employers who expect the legislation to automatically apply to any new employee could find themselves in an uncomfortable, and potentially costly, position if an employment agreement does not include a trial period provision.

Probationary v trial periods

Prior to the amendment, the law allowed “probationary” periods, which were interchangeably called trial periods. Now, the language has changed.

National’s new trial period applies only to small businesses, and dismissals during that period cannot be challenged.

On the other hand, employers with 20 or more staff are restricted to using probationary periods. These are certainly still worth having, and must also be recorded in the employment agreement.

Dismissals during a probationary period can still be challenged, but any disciplinary or performance process can be condensed, and termination is significantly easier for employers. Probationary periods therefore lower, but don’t remove, the “bar” that an employer must cross to justify a dismissal.

The slight anomaly the amendment will produce is that small employers can include both a trial period and a probationary period in employment agreements.

A good thing

This amendment will assist small employers to develop and maintain a workable and competent employee complement. It should also provide those employers with an incentive to increase establishment numbers, and to test growth in productivity from greater labour capacity, without becoming committed to unsupportable overheads.

The potential for abuse, in serial less-than-three-month employments, seems limited and counterproductive. Given the previous expansion of employment protection to all employees, this measure recognises that the labour market also requires flexibility.

KiwiSaver changes

The Government’s KiwiSaver changes were also passed into law last week. These changes were summarised in a more detailed update sent out earlier this week click here.

Total rem is back

Importantly, National has reintroduced total remuneration. This was surprising, given its pre-election policy, but it’s a useful change for employers.

“Total remuneration” allows an employer and employee to agree on a total package value that doesn’t change, whether or not the employee enters KiwiSaver. If the employee joins the scheme, the cost of both the employee and employer contributions comes out of the employee’s wages or salary.

This approach gives employers certainty about their remuneration costs, and allows non-KiwiSaver members to take what would have been their KiwiSaver employer contribution as cash.

Check your total remuneration agreements

Employers wanting to continue with a total remuneration approach should check that their contractual arrangements fit with National’s legislation.  

In most cases they will. However, the legislative wording is now slightly different, and some clauses designed to fit with the older wording may need to be revisited.