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Basics of entering into an employment relationship

i Employment relationship

Employment relationships are primarily governed by the ERA, which imposes a statutory duty of good faith, and parties are unable to contract out of the general rights and obligations it sets out. The ERA requires that the employer should provide the employee with a written employment agreement, of which a signed copy must be retained by the employer.

Employment agreements can be entered into between an employer and individual employees, or agreed collectively. Collective agreements are between an employer and a registered union.

Employment agreements must contain, as a minimum, the names of the parties, the hours of work expected, a description of the role of the employee, a description of where the work is to be performed, the wages or salary payable to the employee, and a plain language explanation of the services available for the resolution of employment relationship problems, including a reference to the 90-day limit for raising a personal grievance.3

Parties may agree to vary individual employment agreements. It is best practice for any variation to an individual employment agreement to be agreed in writing by the parties. For a collective agreement, any variation must be ratified in accordance with the ERA.

Employment agreements can take many forms, including full-time, permanent, part-time, fixed-term or casual. Fixed-term employment agreements are permissible provided that the employer has genuine business reasons based on reasonable grounds for the fixed term and that those reasons are communicated to the employee.4 If these requirements are not met, the employer will not be able to rely on the fixed-term provision to terminate the employee's employment.

Casual employment engagements can come to an end without formality and with less risk of claims of unjustified dismissal, but must be genuinely casual, meaning that the employee has no guaranteed hours of work, no regular pattern of work and no continuing expectation of employment.

ii Probationary periods and trial periods

Employment law in New Zealand provides for both statutory trial periods and probationary periods.

Trial periods allow an employer to dismiss an employee within the first 90 days of employment for any business or performance-related reason. The employee subject to a valid trial period will be prevented from raising a personal grievance (legal claim) in relation to the termination of employment. Trial periods are available only to employers with fewer than 20 employees and must be agreed in writing prior to the employee commencing employment.5

Probationary periods may be used by employers of any size and provide the framework for an employer to respond to performance concerns in respect of new employees or employees in a new role. Unlike with 90-day trial periods, if employment is terminated within a probationary period, the employee remains entitled to bring a personal grievance in relation to the termination.

iii Establishing a presence

There is no general bar against foreign entities employing staff in New Zealand. However, foreign employers are required to be registered on the Companies Office Overseas Register if they are carrying out business in New Zealand and intend to hire employees to carry out that business. The use of intermediary employment businesses is also permitted but may not avoid the need for registration, or individual employees having direct rights against their ultimate employer.

Additionally, there is no restriction on foreign entities engaging an independent contractor in New Zealand under a contract for services. Independent contractors will be responsible for their own tax obligations and not entitled to the protections provided by employment law.

Foreign companies need to be aware that activities in New Zealand could lead to their classification as a permanent establishment (PE). Having a PE in New Zealand requires the employer to meet business tax obligations relating to the income-earning activity.

Minimum entitlements are set by law in New Zealand for employees, which include:

  1. a minimum wage (see Section VI);
  2. a minimum of four weeks of paid holiday per year;
  3. 11 public holidays, each being a day off on full pay;
  4. five days of paid sick leave per year (expected to increase to 10 days later in 2021);
  5. on completion of six months of continuous employment, entitlement to bereavement leave and 10 days of family violence leave per year;
  6. paid parental leave; and
  7. certain procedural requirements that govern the employment relationship and its termination.

Employers must deduct income tax (pay as you earn) from employee source income and are responsible for reporting to New Zealand's Inland Revenue.