Knowledge Our series “The Life cycle of Employment,” looks into the key stages of employment and provides a guideline for employers as to what their legal obligations are during each stage.
Preparing a legally compliant individual employment agreement to provide to a successful candidate following the completion of a recruitment process is the key component in the life cycle of employment.
This article provides a general guideline for employers on what is required and sets out the implications for employers who fail to adhere to these legal requirements.
Why individual employment agreements are essential
A written employment agreement is a legal requirement and is crucial to a successful employment relationship, because it ensures that both the employer and employee are clear on:
- the employer and employee’s obligations;
- the employee’s entitlements; and
- how to address or resolve employment related issues.
Key terms that must be included in an individual employment agreement
Under employment legislation an individual employment agreement must include the following:
- Names: name of employer and employee.
- Role: a description of the work the employee will do.
- Nature: the type of employment e.g. fixed term, casual, permanent.
- Location: an indication of where the employee is to perform their work.
- Hours: agreed hours of work and when they will be worked.
- Pay: specifying the salary or wages the employee will receive. This must be equal to, or above the minimum wage.
- Resolutions for problems: explanations for how employment relationship problems will be resolved and the time limits for raising a personal grievance.
- Public Holiday rates: provision stating that if the employee works on a public holiday, they will be paid at least time and a half, and may be entitled to an alternative holiday (day in lieu).
- Restructure: the process and protections for an employee if the employer commences a restructure.
Other terms that can be included
Many statutory minimum entitlements do not have to be included in writing in an employment agreement, but they still apply by law. Many employers include them for clarity, to demonstrate compliance and to give certainty to the employment relationship. Employment agreements cannot reduce or remove these statutory entitlements. Anything less than the minimum will be invalid. However, employers aiming for best practice or to be an employer of choice often offer conditions above minimum entitlements. See our article, here, for more information on minimum entitlements. The current minimum entitlements are:
- Pay: Employees must be paid at least the minimum wage entitlement.
- Annual leave: Full time employees are entitled to be paid four weeks annual paid leave after 12 months of continuous employment.
- Public holidays: employees who would normally work on the days that fall on a public holiday are entitled to be paid their normal daily rate of pay for that day if they do not work on that day or, if they work they are entitled to time and a half for time worked and potentially a day in lieu.
- Sick leave: After 6 months of continuous employment, employees are entitled to 10 days of sick leave.
- Bereavement leave: After 6 months of continuous employment, employees are entitled to 3 days bereavement leave for immediate family members. The employee may also be entitled to 1 day in the event of a bereavement of another person if the employer accepts they have had a bereavement.
- Parental/Maternity/Paternity/Partner/Extended leave: Employers are required to provide particular protections for parental leave, including statutory time off. There are government payments available to employees taking parental leave. However, there is no statutory requirement for employers to contribute to an employee’s pay during their leave (unless they are utilising other leave during the time).
Often employers will have policies regarding ‘top up’ payments to the government contributions. See more in the Parental Leave and Employment Protection Act 1987.
- KiwiSaver: Employers have several obligations including enrolling their eligible employees in KiwiSaver, as well as making compulsory contributions.
Additional terms frequently agreed upon by employers and employees include
- Trial periods.
- Notice requirements for resignation or dismissal.
- Grounds and process for ending employment.
- Abandonment of employment.
- Confidentiality and intellectual property: these clauses are usually included to protect proprietary information and trade secrets.
- Compensation and Benefits: Specify salary, bonuses, and benefits such as health insurance, retirement plans, and paid time off.
- Health and safety obligations.
- Deductions from wages.
- Reference to company policies and procedures.
- Flexible or remote work arrangements.
- Restraint of trade: Non-Compete and Non-Solicitation are usually included to impose restrictions on post-employment activities to safeguard business interests.
- Close down period.
- Method of variation of the individual employment agreement.
Obligations after an individual employment agreement has been drafted
Once the employment agreement has been drafted and offered to the employee, the employer must advise the employee they have the right to independent legal advice on the agreement. The employee must be given adequate time (three days, recommended) to consider the agreement. If the employer makes any changes to the agreement, they must notify the employee and give them sufficient time to respond.
We recommend that a letter is provided with the employment agreement advising any conditions of the offer such as references or preemployment checks and noting how the offer can be accepted or when it will expire.
Before the agreement is signed, both parties may negotiate the terms in good faith. This could include discussing the benefits the employer offers above the minimum entitlements such as KiwiSaver contributions, annual leave, hours of work, working overtime or a trail period.
Once the agreement is signed, it is the employer’s responsibility to retain a copy of the agreement for their records. Equally important, the employer must provide a copy to the employee. This practice of transparency and accessibility ensures that both parties have a clear understanding of the agreed terms.
Legal implications if you fail to comply with mandatory requirements
If an employer fails to include the mandatory terms noted above or contradicts minimum entitlements, the employee or Labour Inspectorate can file a claim in the Employment Relations Authority for a penalty.
Under the Act, employers who fail to meet the requirements can be issued with an instant infringement notice carrying a $1,000 fine and further penalties up to up to $10,000 for an individual employer and up to $20,000 for a corporate body.
Considering the above, we strongly recommend seeking legal advice during the drafting process of an individual employment agreement to an employee. Get in touch with the team at Black Door Law if you would like some assistance with drafting an individual employment agreement or if you want to update your employment agreements to ensure they are legally compliant.
Disclaimer: This information is intended as general legal information and does not constitute legal advice. If you have a specific issue and wish to discuss it, get in contact with the Black Door Law team.