New Government changes Employment legislation: But are your employment agreements primed to take advantage?
Predictably, the incoming National government has made amendments to employment legislation and finally there is some good news for employers. However it is important that you are up to speed so that you can take advantage of the clauses. Your old employment agreements may let you down so it is important that you review them before the changes come into effect to make sure you are not left regretting you didn’t read this article.
Your get out of jail free card
Recruitment mistakes can cost employers a lot of money in recruitment fees, wasted training, and lost profits. If you add to that an unjustified dismissal claim then it was no surprise that employers were left bitter about employment legislation and less eager to employ help.
Up until now, any employee could raise a Personal Grievance if they were dismissed unjustifiably. This led to potentially inequitable situations whereby employees who had only just walked in the door were claiming huge compensation payouts simply because they were not the right fit for the job.
As a result, National campaigned hard on the promise that changes would be made to employment legislation to provide that no employee could raise a Personal Grievance within the first 90 days of employment. These trial periods or get out of jail free cards are designed to give employers and employees an opportunity to work out if the relationship is right for them without the employer getting stung for compensation. Hoorah! I hear you all cry, but there will be some employers that shoot themselves in the foot simply because they forget to change their employment agreement templates.
Probationary Periods vs. Trial periods
Many employment agreement templates contain probationary periods which are very different to the new trial period proposed by new legislation. If you read your employment agreement template carefully you will likely find that your probationary clause requires you to address performance concerns with an employee before giving notice to terminate.
Under new legislation that it is not required, but if you leave that clause in your agreement then you are contractually bound to go through fair process with your employee, irrespective of the new legislation. If you don’t, whilst the employee may not be able to raise a Personal Grievance, he or she can apply to the Employment Relations Authority to fine you for beaching a term of the employment agreement.
Moral: amend your employment agreements to include a trial period (the 90 day “get out of jail free” clause wont apply unless it is written into the agreement) and get rid of your existing probationary period clause. You need to do this before 1 March 2009 when the change comes into effect. It will not apply to employees employed before that date.
KiwiSaver: Don’t end up paying more than you should
The good news with KiwiSaver is that the 4% employer contribution, originally due to be paid in 2011 now disappears. Instead, the legal requirement to contribute to an employee’s scheme is capped at 2% which you will start paying next April. The bad news is that the tax credit disappears.
It remains permissible to negotiate with employees to include your employer contribution as part of a total remuneration package (remember the KiwiSaver Contract Clause?) but of course, any such negotiations must be in good faith.
Difficulties may arise for employers who have already decided to pay more than the minimum 2% contribution. Up to now, employer contributions have been tax free. But from next April, “voluntary” contributions over 2% are taxed. In theory, this means that the employee gets less, but not necessarily: it depends how you have worded your employment agreement.
Employment agreements that require you to pay more
If your agreement says that you will “match” the employee’s contribution then you simply pay the net amount into the scheme and the tax to the IRD. However, if your agreement requires you to pay 4% of your employee’s gross salary into the scheme then you will need to gross up the payments so that the employee receives 4% of their gross salary. That means you are paying 4% plus an additional 33% tax.
Moral: Amend your employment agreement templates to provide that you are only required to pay the minimum contribution required by law. If you want to pay more, then make sure that your agreements do not commit you to paying a grossed up sum to your employees.
Documentation is always the key
As with anything related to employment law, having the right documentation in place is the key to a harmonious and easy to terminate employment relationship. You can get all the documents you will ever need by joining the Approachable Lawyer Secret Library. The only condition of membership is that you have read Employed But Not Engaged: How to break up with your employees and hold onto the ring. To find out more go to http://www.employedbutnotengaged.com/Templates/
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Linda Guirey - Linda Guirey
