An employment agreement is a written contract between an employer and an employee. Every employee must have an employment agreement that sets out terms and conditions that govern the employment relationship.
An employee agreement must provide at least the same minimum terms and conditions and minimum wage contained in employment legislation. Both the employer and employee must agree to any changes to the employment agreement.
Things to remember
An employment agreement is the most effective way to clarify the terms and conditions of the employment relationship. It should outline fundamental aspects including employment status, (particularly if the employee is engaged on a part-time or casual basis), remuneration and obligations.
Setting out the conditions of employment in writing is likely to reduce the risk of misunderstanding or confusion. It is important to note that employment contracts in New Zealand are binding, whether verbal or written.
When drafting a letter offering employment together with an employment agreement it is useful to have them professionally reviewed to ensure the terms are sufficiently clear and compliant with current legislation. Doing so will also mitigate the risk of inadvertently incorporating unlawful terms.
Every employment agreement is unique and needs to reflect the specific employment relationship between the employer and the employee. However, there are specific conditions of employment that should be included in an employment agreement, regardless of your company size or industry.
Even if not listed in the employment agreement, the employee must still be given the minimum employment rights set by the law. These include their right to at least the minimum wage and leave entitlements such as annual leave, sick leave and bereavement leave.
If you do not give an employee a written employment agreement, you can face an infringement fee of $1,000. Additionally, the Employment Relations Authority can order penalties of up to $10,000 for an individual employer and up to $20,000 for a corporate entity.
Are verbal employment agreements legal?
The Employment Relations Act 2000 requires all employers to provide written employment agreements to their employees. However, many business owners and employers tend to rely on verbal agreements. While risky, verbal agreements are still subject to the same legal challenges as written employment agreements in New Zealand.
An Employment Agreement Must Include:
- The names of the employer and the employee.
- Their position or job title/a description of the work they’ll do.
- Where they’ll work.
- What their agreed hours of work will be — or if there are no agreed hours, an indication of working time arrangements.
- How much they’ll be paid.
- That they will be paid (at least) time and a half for working on a public holiday.
- That the employee will be required to work on a public holiday (if this is a requirement).
- What will happen if you decide to restructure or sell the company.
- What to do if there’s a problem in the employment relationship – including a clause that personal grievances must be raised within 90 days, and sexual harassment personal grievances must be raised within 12 months.
Also consider provisions to deal with potential changes in the employee’s role or their scope of duties (i.e. will the same agreement still apply if the employee changes locations, roles, or duties?).
Depending on the employee’s position, clauses preventing them from setting up a similar business close to their former employer for a period of time and/or stealing their clients are often included in employment agreements.
Types of employment agreements
How to engage workers in a manner that is right for your business will depend on your specific business needs. You should also consider the industry standards of each role and how the arrangement will affect your business financially.
Below are the most common types of engaging workers:
Full-time employment agreements
Full-time employees have ongoing employment and generally work 37 to 40 ordinary hours per week. They are entitled to paid leave and are required to be given notice of termination.
Part-time employment agreements
Part-time employees have ongoing employment and typically work less than 37 hours a week. They usually work regular hours each week and are entitled to the same minimum employment entitlements as full-time staff.
Casual employment agreements
Casual employees work for an employer on a demand-only basis. Unlike a permanent agreement, casual employees have no firm commitment in advance of ongoing employment and generally work on an ad hoc basis (so the work hours are irregular). Genuine casual employees are paid for the hours they work, and they can refuse shifts. There is no obligation on the employer to offer a casual employee any shifts.
Fixed-term employment agreements
This is when an employee is hired for a specified period of time or to complete a specific task or project. Typically, the agreement ends either when a project is complete, or an event has passed (e.g. a peak season). Fixed-term agreements clearly outline the length of the employment period from start to end. Although this type of arrangement is often short-term, fixed-term workers still receive the same entitlements as permanent employees though notice is not required if the employment agreement ends at the end of the fixed-term. The fact that the agreement is on a fixed term (as opposed to ongoing employment) must be based on a genuine business reason.
Independent contractor
Independent contractors are typically self-employed workers who contract their services out to other companies. Contractors negotiate their own fees and working arrangements and they have the freedom to work for multiple employers at once. It’s important for an employer to clearly define whether the person they hire is a permanent employee or independent contractor as there may be risks to the business if the contractor turns out to be an employee.
Termination of an employment agreement
An employment agreement can be terminated by either the employee (i.e. through a resignation) or the employer.
Regardless of what triggered the termination, the correct procedure must be followed to ensure the process is fair and carried out in accordance with the workplace procedures.
Depending on the circumstances, if an employee is dismissed or resigns, they may be entitled to be paid notice, and must be given their final payment, which includes any entitlements owed to them e.g. accrued but untaken annual leave.
Make sure you clearly outline the terms relating to ending employment in your employment agreement and employee handbook.
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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.