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Employment Contracts: Written vs Verbal

Employment Contracts

9 June 2025 (Last updated 13 Jan 2026)

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Employment Contracts

Every time an employee enters into a work agreement, a contract is set in place. Even if you haven’t signed anything yourself, it might surprise you to know that a discussion and a shake of the hand could be as legally binding as a signed document.

Whether it has been written or verbalised, any contract needs to be based on the following criteria:

  1. Offer
  2. Acceptance of the offer
  3. Agreement of all terms
  4. Intention to be legally bound
  5. A transaction – something is exchanged (eg, services for money)

So, what are the key differences between verbal and written contracts, and which should you be using in your business?

Verbal Agreements

Also known as Handshake Contracts, verbal agreements are often used by small business owners because they are convenient. Many small business owners want their staff to trust them, and as such, they feel that a documented contract is unnecessary (or too formal). What many small business owners don’t realise is that these verbal contracts are legally binding and if a dispute arises, it may cause a plethora of legal issues.

Written Contracts

In New Zealand it is a legal requirement that every employee is covered by a collective agreement or has a written individual employment agreement.

These documents ensure that employees know what to expect, what their obligations are, and protects both the employer and employee. If a dispute does arise then both employer and employee can refer to the applicable agreement

Written contracts frame the relationship between employer and employee which help to keep the framework of the business intact and shapes how the employee fits into the business itself.

There are certain requirements that all employment agreements must contain, including:

  • The employer and employee’s names
  • Position / role
  • Place of work
  • Any guaranteed hours of work
  • Type of Pay
  • Rate of pay
  • Public Holidays
  • Restructuring
  • Resolving employment relationship problems

Employment agreements can also set out additional rights and obligations of the parties over and above the minimum requirements. Examples of such optional clauses are those pertaining to intellectual property and copyright, bonus schemes and additional benefits such as the use of a company phone or motor vehicle.

If an employer wishes to change an aspect of an employee’s employment agreement, for example, an employee’s hours of work, the employer will need to have a genuine business reason and go through a consultation process with the employee.

What should small business owners do?

Verbal contracts might be easier and less time consuming, but they don’t come without problems and they can be extremely difficult to prove. They also do not meet your legal record keeping obligations as an employer. 

If you do not have a written contract in place, not only will you be liable for a penalty, but you will be required to provide evidence to support your version of the truth. You not only need to prove that the agreement exists, but also the actual terms agreed to. In the case of a verbal agreement, this could include any emails or text messages that have been exchanged, pay slips, and so on. In the case of a dispute, failure to have a signed written agreement in place can make proceedings in the Authority or Court complex and messy.

Having it all on paper provides proof of the agreement if a problem should ever arise. You can easily outline the terms of the employment and any expectations of the employee relationship.

Ways a written contract can help small business owners

A written contract is one of the most proactive steps Kiwi business owners can take to ensure their staff know what is expected of them. Without a doubt, during the course of employment, there will be a question of the hours to work, agreed allowances or wages. Written contracts provide all of this from the outset so there is no confusion.

Legally, it allows business owners a safety net, providing them a point of reference that they can refer back to if they ever need to double check the specifics of an agreement. This means they can easily resolve any queries or disagreements about rights, duties and promises made by either party.

Essentially, a written agreement allows a small business owner to protect themselves and their business.

Get support with Peninsula

Peninsula has worked with Kiwi business owners, supporting them in employment relations and workplace health and safety. Our team provides help and answers to matters of contracts, employment, and employee management. If you’re feeling confused and want some advice, get in touch with the Peninsula team on 0800 675 700.

This article is for general information purposes only and does not constitute as business or legal advice and should not be relied upon as such. It does not take into consideration your specific business, industry or circumstances. You should seek legal or other professional advice regarding matters as they relate to you or your business. To the maximum extent permitted by law, Peninsula Group disclaim all liability for any errors or omissions contained in this information or any failure to update or correct this information. It is your responsibility to assess and verify the accuracy, completeness, and reliability of the information in this article.

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