Hiring pitfalls and how to avoid them
Hiring the right people at the right time is a great investment for a growing business. But it’s important to follow the rules and avoid pitfalls that can lead to long-term headaches.
Trial periods help employers see if new employees will perform well and fit into the workplace. But there are rules to abide by.
Both employer and employee must agree to a trial, which can last no longer than 90 days and can’t be rolled over. The employment agreement – which is required for all employees – must contain details of the trial and a notice period. There's no legal minimum notice period for trial periods, but one week is common.
If you’re an employer who wants to have trial periods, you must:
- only offer trials to new employees, not existing ones
- offer the job in good faith and intend to keep the employee on
- tell employees they can seek independent advice — and give them time to get it
- respond to any questions
- make sure the agreement is signed before they start work
- give the employee regular feedback during a trial
- tell the employee if they’re unsuitable and dismiss them with notice before the trial ends.
There are common mistakes employers make when it comes to trial periods. These include:
- Not signing before an employee starts: If the employment agreement is signed after they have started working the trail period can’t be applied. It’s too late as the person is already considered an employee.
- Having no intention to keep the employee on: If proven, this can lead to an employment dispute.
- Offering a fixed-term contract instead: It’s illegal to do this to see if someone fits in.
- Not paying your employee: Employees working during a trial period must be paid at least the minimum wage. It is illegal to ask them to work for free.
- Extending a trial: Trial periods can’t run for longer than 90 days and can’t be extended.
Tip: Business.govt.nz’s Employment Agreement Builder tool helps employers create legally sound contracts tailored to a business and employee.
Hiring staff on fixed-term contracts can be an effective way to solve a short-term staff shortage, e.g. covering for maternity leave or boosting a project team. However, setting out contract details can be tricky.
It’s important to remember a fixed-term employee works for a business — whereas a contractor works for themselves — and has the same benefits as other employees. Like all employees, they must have an employment agreement.
The agreement must include a genuine reason for the fixed-term, an end date and a reason why the contract finishes then. If an agreement does not meet these criteria, the fixed-term could be invalid and the employer may find they’ve hired a permanent employee.
You are able to extend a fixed-term contract. Contract extensions must be made in writing or by creating a new contract before the original one expires. Rolling over a contract more than once could be a sign there’s a need for a permanent employee and that the fixed term might not be genuine.
Lastly, remember you can’t hire someone on a fixed-term basis as a try-out before hiring them permanently. If you want to do this, you need to include a trial period in their employment agreement.
Case study: Fixed-term contract done wrong
Sarah owns a small but busy shop. She’s found some of her assistants unreliable, so she’s wary of taking on permanent staff. Sarah decides to offer her new employee a three-month contract in case things don’t work out.
Sarah has made a mistake here – it’s illegal to use a fixed-term contract to decide if someone is suitable for a role. Sarah should have offered a permanent contract that included a 90 day trial period.