Fact: Everyone you employ needs a written employment agreement.
Fixed-term employees
Employees on fixed-term contracts are not contractors; they are your employees and are entitled to the same benefits as permanent employees. They are hired to perform work that only exists for a specific period, such as a short-term project or covering for parental leave.
What you need to know
When hiring a fixed-term employee, the written employment agreement must:
- Explain why the role is only for a fixed term, providing a genuine reason for the fixed-term employment.
- Specify when the term will end, such as after six months, upon project completion, or at the end of the season, and provide a detailed explanation for the termination timing.
Here are two examples:
- Carter is hired to pick apples in an orchard. His employment agreement states: The reason for it being a fixed term, and finishing at the end of the term, is that the employee is being employed to pick apples at the employer’s orchard for the 2020 season, and there will be no further work available for the employee once all apples are picked.
- Debbie, an accountant, is working at a medical centre as cover for someone on sabbatical. Debbie’s employment agreement states: The reason for it being a fixed term, and finishing at the end of the term, is that the employee is being employed to provide accounting cover while the employer’s accountant is on sabbatical until 23 October 2020. There will be no further work available for the employee once the accountant returns from sabbatical.
Tip: If you don’t meet these criteria, the fixed term may not be valid and you’ll be expected to treat them as a permanent employee.
Here are some important points to know:
- You cannot hire someone on a fixed-term contract to test them out before offering a permanent position. To conduct a trial, you must hire them as a permanent employee and include a trial period in their employment agreement before they start work; otherwise, the trial will be invalid.
- If you decide to offer the fixed-term employee a permanent position after their contract ends, for example, if the person they were covering for does not return from parental leave, they cannot be subjected to a trial period, as these are only for new employees. Regardless of the number of employees, you can use a probationary period if needed.
- If you want to dismiss a fixed-term employee, you must follow the same disciplinary and dismissal processes as you would for other employees.
- Always end the agreement at the specified time. If you need to extend it, do so in writing or create a new fixed-term agreement before the original one expires. You cannot extend a trial period once it ends or use it for someone who has worked for you before.
- Carefully consider if rolling over a fixed-term contract multiple times is necessary; you may need a permanent employee.
- For fixed-term contracts of less than a year, you can mutually agree to pay 8% extra (before tax) instead of providing annual leave.
Minimum employment rights for employees — Employment New Zealand
Minimum leave and holidays entitlements — Employment New Zealand
Case study: Fixed-term done right
David owns a busy painting business that has won a bid to paint two office buildings, a three-person job that will take about two months.
David hires three new workers on two-month contracts, explaining the fixed term due to insufficient staff. He includes this in their agreements, and the workers understand that no permanent contracts or additional work is guaranteed beyond two months.
This is the correct approach:
- The fixed-term contract is for a specific project.
- He has clearly communicated, both in writing and verbally, that the positions are fixed term.
When the work is finished, David can offer them permanent roles if there is enough work to justify it, but he has no legal obligation to keep them on.
Case study: Fixed-term done wrong
Wendy owns a busy mall shop with two assistants and needs one more. Due to past issues with unreliable staff, she considers a three-month contract but knows it’s illegal to use fixed-term contracts to assess suitability. Instead, with fewer than 19 employees, Wendy can offer a permanent contract with a trial period. If she does, she must remember:
- Trial periods are voluntary and must be agreed upon in writing with her employee; otherwise, the trial won’t be legal.
- Trials can last for no more than 90 days and are for new employees only.
- If it’s not working out, she should first discuss any issues with her employee to see if they can be resolved.
Casual employees
A casual employee works for you intermittently or irregularly, such as being called in at short notice to cover for sickness. They are not obligated to accept every offer of work you make.
Casual workers are considered employees and must have an employment agreement, similar to any other staff member.
When creating an employment agreement for casual employees, it’s recommended to include an hours of work clause that outlines:
- The fluctuating nature of their workload.
- How you will communicate work opportunities to them.
- Their freedom to decline work offers without obligation.
Additionally, include indications of specific days and time periods when they might be asked to work.
Tips: Employers often mistake part-timers for casual workers.
If a casual employee consistently works in a regular and ongoing pattern, they should be placed on a permanent part-time contract.
Leave entitlements for casual employees
Casual employees, like all other employees, have entitlements to holidays. Since their hours aren’t fixed, you can agree with them that instead of earning annual leave, they’ll receive an extra 8% of their salary or wage each pay.
After six months of starting work with you, they are also entitled to sick leave and bereavement leave if during that time they have worked:
- An average of at least 10 hours per week, and
- At least one hour per week or 40 hours per month.
Minimum leave and holidays entitlements – Employment New Zealand
Casual agricultural work
Casual workers engaged in agricultural work such as shearing, milking, or fruit picking are subject to a flat rate of tax.
Read about opting in and enrolling temporary and casual workers— Inland Revenue
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