DIY Employment Agreements - A Guide

Employment agreements are extremely important and can seem a bit daunting – but it is possible to create your own without shooting yourself in the foot.

First things first, you must have a written employment agreement with each of your employees. Not only has this been a legal requirement since the ERA came into force in 2000, but it’s just the best thing you can do to protect yourself and your employees and prevent misunderstandings in future.

The next most important thing is to put some effort into customising your employment agreements now and save yourself potential qualms later. Employment relationship issues are almost always caused by unclear expectations. Ensuring you and your employee understand what the agreement is actually doing and the obligations it creates starts the relationship off on the right foot.

It’s easy enough to create an effective agreement, it’s just a matter of understanding what is required of you beforehand.

Absolute musts:

• Names of the employer and employee

• Position or job title/ a description of the work to be done

• Location of work

• Agreed hours or an indication of the work arrangement

  • For casual contract workers, the hours should be “as required”

  • You can offer a minimum number of hours but you don’t have to

• How much they’ll be paid

• What the process will be if there’s a problem in the employment relationship and a mention that personal grievance claims must be lodged within 90 days

• Public holiday policy

  • Whether they are required to work

  • How much they’ll be paid (must be at least time and a half)

Along with these compulsory terms you’re also legally obliged to:

• Give the employee a reasonable opportunity to seek independent advice about the agreement

• Consider and respond to anything the employee raises

• Ensure you both have a copy of the agreement

Annual Leave clause:

For employees with no set work pattern we strongly advise including a clause in their employment agreement that makes it clear how their leave entitlements will be calculated, for the avoidance of doubt.

Under section 21 of the Holidays Act 2003, to determine payment for annual holidays, the portion of the annual holiday entitlement taken must be agreed. This must be determined in relation to the employee’s work pattern at the time the holiday is taken. Employers and employees are strongly advised to discuss the issue of how the entitlement is to be provided in good faith at the start of employment (or when work patterns change) and agree up front as much detail as possible.

Ideally, this should be recorded in the employment agreement. For employees whose work pattern is not predictable upfront, what genuinely constitutes a working week at the time annual holidays are taken will need to be determined by agreement with reference to the employee’s recent work pattern.

We recommend that you include a clause in the employment agreement describing how the portion of entitlement taken will be determined. In this example we use a Work Pattern Review Period of 8 weeks e.g.

1.1 Determining portion of entitlement taken

The employee and employer agree that the employee’s leave entitlement is apportioned in weeks, and the portion of leave taken will be paid and determined in accordance with the employee’s recent work pattern over the past 8 weeks.

For the purpose of determining the portion of the employee’s entitlement to annual leave that has been taken it is agreed that the following calculation will be used:

Number of days taken as annual leave / Average days per week from recent work pattern over past 8 weeks

You can automate these calculations in PayHero. For more info see our support article - Annual Leave and Holiday Pay in PayHero.

Including your own terms:

You don’t have to include terms about legal minimum entitlements i.e. five days’ sick leave unless you are extending them. But it’s useful to include them anyway as that makes it clear to employees what they are entitled to.

Other clauses you’ll want to include where relevant are those about trial or probationary periods, notice periods for resignation, the length and timing of paid and unpaid breaks, overtime payments, anything about using work vehicles, dress code, particular confidentiality expectations, how you want to handle variations to the agreement, provisions for study leave or drug testing.

General legal obligations to be aware of:

There’s a legal obligation for employment relationships to be conducted in good faith. This is essentially a ‘be nice’ clause and it applies to you and your employees from the get-go. It’s a broad concept that calls for things like acting reasonably, actively communicating, being honest, working together constructively and positively.

• For example, it would be contrary to good faith to…

  • As an employer: Terminate an employee after a trial period due to poor performance if that employee was never notified of their poor performance during the trial.

  • As an employee: Refuse to return an employment agreement and then dispute its validity after months of coming to work and benefitting from the relationship (i.e. being paid).

Updating existing agreements:

The ERA doesn’t specify variation procedure – other than requiring it to be done in accordance with good faith.

Generally, it’s not too much hassle to modify an existing agreement. The starting point is to check what you’ve already agreed to, hopefully a clause like: “This agreement may be varied by agreement in writing signed by both parties.” Then you just need to follow that procedure.

If there’s no such clause, you can vary it as you like – in accordance with good faith and with the employee’s agreement – but written is always best.

• ‘In accordance with good faith’ in relation to a variation might mean things like…

  • As an employer: advising the employee of the change, having a valid reason for it, giving them time to consider the variation and get advice.

  • As an employee: considering the variation and not unreasonably withholding agreement.

Building your own agreement:

This Employment New Zealand Employment Agreement Builder is a useful tool for setting up your own agreement.

But you should proceed with caution. Be careful what you are / aren’t including.

If you think you need something particularly complicated, you should be getting professional advice.