Category Archives: Employment Agreements

CASE STUDY

We got a phone call from an employee whose new Australian boss had called to say “I hear your husband is working for a competitor, pack your bags, and p$%&** off”. Just to be clear, we are not paraphrasing!

After we had pealed the employee off the ceiling, she said “I am going to go him for everything I can”.

The employee had been employed for ten years as a ‘casual’ employee, being paid the 8% uplift instead of accruing annual leave. She enjoyed flexibility over the summer months, but apart from that she was a full-time employee and not a genuine casual employee by legal definition.

The first item on her claim was ten years of  back holiday pay, which she won. Her annual leave alone cost the Australia company in excess of $20,000. A very expensive phone call from her new Australian boss.

This cost could have been avoided if her employer had understood the employees legal status, and used the HRtoolkit Employment Agreements to change it whilst they were still in negotiation.

Don’t risk your profits by using the wrong type of employment agreement. Its easier and more cost effective to get it right first time, let HRtoolkit show you how.

“its easier to engage them as contractors than to direct employ them as staff”… It’s a common catch cry, but it is not reality.  Whatever you have in writing can be overturned by the courts and you can become liable for the tax grossed up on what you have paid them, plus holiday pay etc… which can be an additional 69% over and above what you have already paid.  And, to make matters worse, these kind of arguments don’t come to light until they have been with you at least a year!!

The good news is that the courts do look at the whole reality, and the person has to show that they genuinely believed they were an employee.

In a recent case the “alleged employee” was working full time for one company, not GST registered, but providing invoices.  When it came down to it, the key piece of information was that the “alleged employee” knew the law which brought her employee/contractor status into question.  As such it was ruled that she knew what engagement relationship she had entered into, and therefore was a genuine contractor.

A good rule of thumb is that “if it looks like an employee, quacks like and employee and waddles like an employee, then it probably is an employee”… if you are unsure, or you think that you may be at risk, talk to the person.  Check that they understand they are responsible for their own tax, ACC, insurance etc.  And if there is doubt, then discuss with them changing their status to employee with a finite change date.

Just don’t forget, as part of your discussions, make sure you remove the costs from their take home pay that you will now have to pay… ACC, Holidays, Sick, Kiwisaver, Stat days.. these all add up to 19%

As a minimum make sure you have an agreement in writing.  HRtoolkit has all the right agreements for you to DIY.

Don’t risk $10,000’s out of YOUR OWN pocket

… click here to do it right!

It is a legal requirement for all employees to have a written employment agreement that clearly outlines the terms and conditions that will govern an employment relationship. An employment agreement must be signed before your employees commencement date.

Types of employment agreements

Employment relationships vary widely from one to another, however there are essentially three main types of agreements.

• Casual employment – on an ‘as and when required basis’ only
• Fixed term employment – for a clearly specified temporary period only
• Permanent employment – could be on a full-time or part-time basis

Flexibility

Although employment law was changed in April 2016, you can still build flexibility into employment arrangements if you have a genuine business reason. But you need to be aware of the following:

• You can’t require employees to be available outside normal hours without a genuine business reason
• You can’t have unreasonable expectations on the availability of employees compared to the amount of work you are offering
• You can’t cancel shifts at the last minute or send employees home without either payment for the hours they would have worked, or mutual agreement to work those hours at another time.

Quick tips

• Check to make sure that your team is rostered to be at work when your customers want to use the business
• Review your roster regularly and notify your team of when you want them to work on a weekly basis
• Use a mixture of employment contracts with your team to allow flexibility

HRtoolkit has legally compliant, plain English documents covering all aspects of your employment relationship, subscribe to our Employment toolkit here.

There are many great reasons for employing contractors in small businesses. As an employer however, you need to be aware that independent contractors may be considered employees in the eyes of the law.

If one of your team-members is employed as an independent contractor, but fits the description of a permanent employee, they are entitled to extra benefits including holiday pay and Kiwi Saver over and above their hourly or daily rate.

You can protect yourself and your business by answering the following key questions, and addressing any issues that may arise:

Does your team-member work regular hours and are they able to be flexible with their working hours?
Yes. They are likely to be a contractor
No. Your team member may legally be considered an employee

Is your team-member able to work for other people?
Yes. They are likely to be a contractor
No. Your team member may legally be considered an employee

Do they earn less than 80% of their income from working for your organisation?
Yes. They are likely to be a contractor
No. Your team member may legally be considered an employee

 If your team-member can’t work, are they able to contract a third-party to work on their behalf?
Yes. They are likely to be a contractor
No. Your team member may legally be considered an employee

Can you discipline or terminate their contract if your team-member’s work isn’t of a high-enough standard?
Terminate. They are likely to be a contractor
Discipine. Your team-member may legally be considered an employee

How long has your team-member been working for you?
As a rule of thumb, if you anticipate that they will be working for you for more than 12 months (particularly if they are working full-time), then it may be worth considering an alternative arrangement. 

Is your team-member set up to take advantage of being a contractor? Are they registered for GST, or claiming home-office expenses?
There is a risk that Inland Revenue (IRD) may bring a claim against you if your team-member fails to pay their tax. If your team-member is claiming the advantages of being a contractor, they would be hard-pushed to argue that they did not understand tax law.

Employment law can be complex, but don’t resort to expensive lawyers, at HRtoolkit you can download plain English documents covering every aspect of your employment relationships. Subscribe to our Employment Toolkit here.

We had a huge response to our recent email about key changes to employment law in New Zealand, with a number of requests for more information. With that in mind, we’ve written a more detailed review of the changes.

The Government has made key changes to employment Law in New Zealand and we have updated our entire Employment Toolkit to ensure you have legally compliant documents and templates covering all aspects of your employment relationship. You can download the new documents here.

The Employment Standards Legislation Bill introduces changes to zero-hour contracts and helps enforce minimum employment standards to help protect vulnerable workers. These include a new infringement notice regime, clearer record-keeping requirements and tougher sanctions for the most serious breaches.

These changes will help prevent unfair employment practices and strengthen minimum wage and holiday entitlements including:

• When hiring, employers must guarantee to give employee’s agreed hours of work
• Employers won’t be able to expect employee’s to be available to work with no guarantee of hours without paying reasonable compensation
• Employers won’t be able to cancel a shift without giving employee’s reasonable notice or compensation, both of which must be set out in an employment agreement
• Employers won’t be able to make unreasonable deductions from wages
• Employers won’t be able to unreasonably restrict an employee’s secondary employment
• Employers will be publicly named if the Employment Relations Authority or Employment Court finds they have breached minimum standards
• Individuals can be banned as a manager if they commit serious or persistent breaches of employment standards
• Directors, senior managers and legal advisors can also be held accountable for breaches of employment standards
• Labour inspectors can now share information with other regulators such as Immigration NZ, IRD and the Companies Office
• Labour inspectors can now request financial or bank records from employers

How much money will these changes cost me?

For most businesses there won’t be any increase in compliance costs with these changes in legislation, the focus is on businesses not currently meeting their obligations. These businesses need to become compliant or risk facing financial penalties.

For more information on compliance, give us a call on 0800 HRtoolkit (0800 47 86 65).We don’t charge for those quick questions, and often a few minutes with our experts is all you will need.

What are the penalties for breaches of the new legislation?

• Businesses found guilty of moderate breaches will be fined $10,000 for an individual and $20,000 for a company

• Businesses found guilty of serious breaches will be fined up to $50,000 for an individual and up to $100,000 for a company

What records will I need to keep?

An important section of the new legislation deals with clearer record keeping requirements for wages, time, holidays and leave. Employers now need to keep a record of the hours each of  their employees work each day, and the pay they receive for those hours. Additional hours worked by employees on salaries doesn’t generally need to be recorded, but minimum employment entitlements still need to be met.

Learn more

For more information about these changes to employment Law, give us a call on 0800 HRtoolkit (0800 47 86 65). We don’t charge for those quick questions, and often a few minutes with our experts is all you will need.

Changes to the document library include:

Fixed-term, full-time, salary (hours as required) employment agreement
Fixed-term, full-time, salary (overtime or time in lieu payable) employment agreement
Fixed-term, part-time, salary (overtime or time in lieu payable) employment agreement
Fixed-term, part-time (hourly paid) employment agreement
Fixed-term (hours variable week to week) employment agreement
Full-time, salary (hours as required) employment agreement
Independent contractor employment agreement
Lower guaranteed hours employment agreement
Permanent, full-time (hours variable week to week) employment agreement
Permanent, full-time, salary (overtime or time in lieu payable) employment agreement
Permanent, part-time (hourly paid) employment agreement
Permanent, part-time, salary (overtime or time in lieu payable) employment agreement
Offer cover letter
Quick guide to employment agreements
Universal casual employment agreement
Universal fixed-term employment agreement
Universal permanent employment agreement

You can download the new documents here, or chat with our experts on 0800 HRtoolkit (0800 47 86 65) during business hours.

The Employment Relations Act is the central piece of legislation governing employment relationships. It provides a structure for employers, employees and unions to negotiate employment agreements.

The Act also outlines the legal process for resolving employment problems including a free mediation service, and avenues for employee’s to take a case to both the Employment Relations Authority and the Employment Court.

The aim of the Act is to help build productive employment relationships, and ‘good faith’ is central to this process. It requires employers, employees and unions to deal with each other openly, honestly and constructively.

Good faith

The good faith provisions require both employers and employees to actively and constructively participate in establishing and maintaining a productive employment relationship.

Good faith provisions are also enacted in the process of negotiating contracts, dealing with such matters as  employee misconduct, or when an employer is proposing changes that may impact the employee’s role for example when there is a potential restructure.

In these situations The Act outlines the obligations of each party to act in good faith during these processes, The Act aims to clarify what information employees are entitled to during these processes.

Good faith includes the following three elements

• Parties must not act in a misleading or deceptive way
• Parties must be responsive and communicative
• Before making a decision, which may result in employees losing their job, the employer must give the affected employees sufficient information to be able to understand the proposal and then give them a proper opportunity to comment

Good faith is also wider than this. It is more than just following the letter of the law. It involves treating others fairly using common sense. Broadly, good faith requires employers, employees and unions to:

• Act honestly, openly, and without hidden motives
• Raise issues in a fair and timely way
• Work constructively and positively together
• Give each other relevant information ahead of when it is needed and as soon as possible, all information given should be carefully considered
• Be fully honest with each other
• Raise concerns or issues as soon as possible and respond to these quickly
• Keep an open mind, listen to each other and be prepared to change opinion about a particular situation or behaviour
• Treat each other with respect

Flexible work

Flexible working arrangements aim to improve people’s participation in the labour market and to better reflect modern lifestyles. Flexible working arrangements have been broadened to include all workers, not just caregivers, in order to assist employees find the right work-life balance for them and their employer including:

• Extending the statutory right to all employees to request flexible working arrangements
• There is no limit on the number of requests an employee can make in a year
• The employer must respond in writing to a request for flexible working within 1 month, with an explanation of any refusal

Rest and meal breaks

Rest and meal break rules are also flexible to balance the importance of these breaks with the needs of business continuity. The Bill says employees are entitled to reasonable rest and meal breaks to rest, eat, drink and take care of personal matters. The Bill enables employers and employees to negotiate, in good faith, rest and meal breaks that meet legal requirements and allow the business to work.

The Act allows reasonable limits to be agreed or imposed as to when rest breaks and meal breaks can be taken and it gives employers the ability to dictate when breaks will be taken, if they cannot agree with employees. It gives employees the right to be reasonably compensated where the employer cannot reasonably give the employee rest and meal breaks, however the Act still:

• Requires employers to pay employees for rest breaks
• Stops people contracting out of legal rest and meal breaks or the requirement to give compensation instead of breaks
• Does not overrule any other law that makes an employee take rest and meal breaks in a certain way

Continuity of employment and protection of vulnerable workers

The Bill gives more certainty and clarity to employers while keeping key benefits for affected employees including:

• Exemptions to SMEs employing 19 or fewer employees from having to take on employees affected by the work changing hands
• Timeframes for employees to choose whether or not to move to a new employer (elect to transfer) during a restructure involving vulnerable workers
• The current employer must provide the new employer with detailed information on each employee that is transferring. It also introduces a mechanism for apportioning liabilities for service-related entitlements between employers where the parties are unable to agree between themselves
• Provides the new employer protection from unjustified increases in employee costs or changes to terms and conditions of employment

Collective bargaining

The structure for employers and unions to negotiate and enter into collective agreements is bound by the duty of good faith during collective bargaining but does not require parties to reach a collective agreement. The parties can ask the Authority to declare that bargaining has ended and negotiate individual agreements.

• Employers are allowed to opt out of a multi-employer collective agreement (MECA) bargaining from the start if they have decided not to be a party to that MECA
• Employers don’t have to offer new employees, who are not union members, the same terms and conditions of the collective agreement for their first 30 days of employment
• Proportionate pay reductions are allowed as a response to partial strikes
• Advanced written notice of any proposed strikes and lockouts must be given in all sectors

Mediation

Mediation is a free service from the Ministry of Business, Innovation and Employment (MIBE), where an independent person sits down with both parties and tries to help them resolve employment issues. Mediations are held in a semi-formal, confidential environment. If employment relationship problems can’t be resolved by a mediator, an employee may take their case to the Employment Relations Authority.

Employment Relations Authority

The Employment Relations Authority helps resolve employment relationship problems. It does this by looking into the facts and making a decision based on the merits of the case, not on technicalities. At an investigation meeting’s conclusion, the Authority must (where practical):

• Give an oral determination, and a written record of that determination within 1 month or give an oral indication of the Authority’s preliminary findings to the parties (unless extra evidence is provided) and deliver a written determination within 3 months of the investigation meeting or when extra evidence is provided, whichever is later
• The Authority can only reserve its determination if there are good reasons why it is not practical to give either an oral determination or indication of preliminary findings. A reserved determination must be delivered within 3 months of either the investigation meeting or any extra evidence being provided, whichever is later.
• The Authority can also decide matters without holding an investigation meeting. In these situations, the Authority must give a written determination within 3 months of receiving evidence from the parties.

 Employment Court

The Employment Court hears and determines cases relating to employment disputes. These include challenges to the determinations of the Employment Relations Authority, questions of interpretation of law, and disputes over strikes and lockouts. An employee may raise a personal grievance with an employer with the Employment Court.

Personal grievances – If you receive a personal grievance letter don’t ignore it

Begin the process by having a HR professional assist you in assessing the personal grievance against you. Questions asked may include:

• Is the grievance raised within 90 days of when the employment issue arose, or if the employee has been dismissed, they have 90 days from the date of the end of the employment to raise their personal grievance?
• Did you follow good legal process during your dispute and or upon termination?
• Did you act in good faith during your process?
• Were matters discussed and dealt with in a fair and reasonable manner?

Your HR advisor will assist you to weigh up the risk associated with the claim, and this will often determine whether an employer decides refute the claim, fight the claim or come to a settlement agreement – often referred to as a full and final settlement agreement between the two parties.

If an agreement cannot be reached a party may elect to use the MBIE free mediation service to help resolve the matter.

What happens at mediation?

• A date will be agreed by the parties and you will be allocated a morning or afternoon session (allow at least 4 hours)
• Both parties will arrive at the mediation department and will be put into separate rooms
• The mediator will brief both parties on the process and then bring them into the room together
• Without interruption both parties will state their case, the mediator will ask some questions, and questions can be asked across the table
• Once discussions are no longer being productive the mediator will break you back into separate rooms and go over the strengths and weaknesses of your cases and the possible liabilities. Most do this by going through your worst case and best case scenario.
• The mediator will attempt to negotiate a settlement between the parties. You don’t have to reach a settlement, but the reality is that in most cases you will end up paying over some money in order to make sure the personal grievance claim doesn’t go any further. The average award for an employee to win in court is three months pay plus $7,ooo for hurt and humiliation
• If no settlement is agreed the employee then has two years to decide to take the matter further with the Employment Court.

Call us on 0800 HRtoolkit and we will talk you through the most cost effective ways to defend a personal grievance.

Employers only have a couple of weeks to get the employment agreements up to date or risk large fines. All existing employees contracts are expected to be updated by 31 March 2017.  Companies found in breach may incur fines from visiting inspectorate if their agreements do not comply with the current legislation.

Visit https://www.hrtoolkit.co.nz/product-category/employment-agreements/ to download legally compliant employment agreements, and if you have any questions, give us a call on 09 302 9935. We don’t change for those 10 minute questions and often a few moments with our experts is all you need.

“Direct employment is too difficult, I’ll just put them on an independent contractor agreement”.

This assertion is one I hear frequently in the Salon industry, but it is a belief that is fraught with danger for two major reasons:

1. The Independent contractor claiming they are actually an employee and therefore due holiday pay etc.
2. The IRD claiming that they are actually an employee and therefore the employer is liable for their tax.

Sadly, in both cases, an employer will not realise they have a problem until there is already a significant financial liability accrued against them.

The claim that they are an employee

Whilst everyone is happy and getting along the chances of this type of claim arising are minimal.

However, in a recent case I dealt with, the employee had been on the wrong agreement for 10 years, but she was happy with the flexibility it afforded her.  Out of the blue she got a call from her boss saying “clear your desk, you’re out”.  After the initial shock she, unsurprisingly, decided to get her own back.  Item 1 on her claim was 10 years of back holiday pay… she won.

When the IRD wants to be paid

Death and taxes are the only two certainties in life, and whether we like it or not the IRD likes to get paid.   So if it gets to the end of the year and “employee/contractor” gets a tax demand from the IRD which they can’t pay, there is a significant risk to employers that they take the line that “I thought my employer had been paying my tax”.

Admittedly, it is certainly not so simple that the IRD will immediately turn to the employer for the tax payment.  The employee/contractor and the IRD both have an onus of proof, but if they can prove the case then the employer will be liable for the tax, and this will generally be calculated on the basis that what has been paid to the “employee/contractor” is NETT and therefore the tax liability is the grossed up amount of that value.

Myth Buster about Employee status

The tax rules are such that, if you get more than 80% of your revenue from one source then you pay tax based on the lower “Company” tax rates, you pay the same tax as the “employee” rates.  However, this does NOT mean the person is automatically an employee just because they do more than 80% for one company, the ONLY automatic change is to their tax status.

How do I protect myself?

Firstly, you need to review the current situation, and take action as necessary:

1. Do you have independant contractor agreements in place for all people you engage?
2. Are you 100% certain that everyone has the same understanding as you?

How to rectify the situation?

If you are in any doubt about the peoples understanding of their status then open discussions with them, and keep notes of those discussions.

If their response is “no, totally happy and fully understand that I am a contractor”, then make sure you have a written agreement in place, and ensure that you have, in writing (e-mail or in the cover letter of an agreement) that they have acknowledged their understanding of the status.  In the event of things going badly, this will be a very important piece of your defence if they try to say they genuinely believed they were an employee.

If their response is one of shock or uncertainty about the implications of being a contractor or employee, then give us a call on 0800 HRTOOLKIT (0800 47 86 65) to discuss how to proceed.  Often it can be resolved quite readily when everyone is talking but can cause huge issues if it comes up in a dispute.

Help is available

Call the HRtoolkit team on 0800 HRTOOLKIT (0800 47 86 65) for more help and advice, NB we don’t charge for the 10-minute issues, and in the vast majority of cases, 10 minutes is all it will take our specialists to solve the issue with you.

NB, we also have a Salon specific H&S Kit to ensure you are compliant with the new H&S legislation