Everyone you employ needs a written employment agreement. Not only are employment agreements required by law, but they are also essential in laying the foundations for the employment relationship. In some cases, employers may use fixed term agreements for certain employees. However, like many aspects of workplace relations, some conditions must be met before employers issue a fixed term agreement.
Definition
A fixed term agreement specifies that an employee’s employment will end on a specified date or when a certain event has occurred. However, employers must have a genuine business reason for hiring a fixed term employee and the reason must be specified in their employment agreement. Reasons could include needing to cover another employee on leave, work during a peak period, or to help complete a particular project.
If the employment agreement does not outline the reason for the fixed term, the employee might be considered a permanent employee by law.
If an employer wants to dismiss a fixed term employee before their employment period ends, they must go through the same formal process as a permanent employee. The reasons for dismissal must also be lawful, for example serious misconduct or performance issues following an appropriate process
Genuine reasons for fixed term employment
Fixed term employment is common in industries like fruit picking or fishing, where seasonality influences the amount of available work. It also satisfies a temporary demand for labour or skill shortages in certain scenarios.
An employer cannot hire a fixed term employee without having a genuine business reason. Accepted reasons for having a specified employment period are:
- To cover for another employee on parental leave. This also means the termination period can be moved forward if the employee on parental leave returns early.
- When a project requires specialist skills that fall outside of the team’s abilities.
- To provide enough labour for work that can only be done during certain seasons e.g. fruit picking.
It is not acceptable to use a fixed term agreement as a means of a trial period (or probationary period) to test the suitability of a new employee. Fixed term agreements should not be used to employ visa holders for the duration of their eligibility to work in New Zealand.
Things to include in a fixed term agreement
Certain conditions separate a fixed term agreement from other employment agreements.
A fixed term contract must specify when the employment period starts and ends. It must also clearly explain why the employee is being hired on a fixed term basis, as well as include the terms and conditions of employment that the employee will be subject to during their employment, just like in a casual employment contract.
Other conditions that must be in a fixed term agreement include:
- The guaranteed number of hours.
- Paid leave conditions.
- Other minimum employment rights (e.g. wage, leave entitlements, and more).
You should always finish the fixed term agreement at the agreed time. If you wish to extend it, it must be done in writing or by creating a fixed term agreement before the original agreement expires.
Do fixed term employees get annual leave?
Fixed term employees may be entitled to annual leave. This depends on the length of their fixed term employment.
If fixed term employment is less than 12 months, an employer may either:
- Pay annual holidays at 8% of gross earnings on a pay-as-you-go basis.
- Allow the employee to accrue annual leave. At the end of employment, the employee will be paid out any annual leave owing.
If fixed term employment is 12 months or more, an employer must let the employee accrue annual leave. The employee will be entitled to 4 weeks annual leave once 12 months of continuous employment has been completed.
Thinking about hiring a fixed term employee? Unsure what is considered a genuine business reason? For free initial advice on fixed term agreements in the workplace, contact Peninsula.