Employment Law

New Zealand Employment Contracts

In New Zealand, it is standard practice to have written employment agreements with workers. There are two types of employment agreements that cover all employees: individual employment agreements and collective agreements.

The employer may specify a trial period of up to 90 days. If the employee has not worked for the employer before, they can agree to this trial. During the probation period, the employer may terminate the employee's labor contract without reason. Furthermore, an employee cannot claim unfair dismissal unless the employer has breached the law. Please note that probationary periods can only be used by employers with fewer than 20 employees.

For employers with larger staff (20 or more employees), a probationary period (which is different from a probationary period) is available. The existence of such a period must also be detailed in the employment contract and (unlike a probationary period) the employer can claim unfair/unreasonable dismissal.  

Under New Zealand employment law, there are certain mandatory terms that must be included in all employment contracts.

Remoly's New Zealand PEOs provide clients with employment contract templates ensuring full compliance with workplace regulations.

Fixed Term

Indefinite

Operating Hours

The standard working week in New Zealand is Monday to Friday. An eight-hour day is typical.

Tax and Social Security

New Zealand has specific rules regarding wages and taxes, depending on whether your business employs locals or foreigners. The country also has a progressive income tax, with higher rates on higher incomes, capped at 30%.

New Zealand has a comprehensive social security system that provides benefits for illness, unemployment, disability and retirement. It is essentially non-contributory and funded by general taxation. Most benefits are available to all residents regardless of employment history. However, the Accident Compensation Corporation requires all employees and self-employed residents to pay a premium. This fund provides benefits to workers injured on the job.

Most Social Security benefits have strict residency requirements. The state pension fund pays out to citizens and permanent residents aged 65 and over. These people need to have lived in New Zealand for at least 10 years, 5 of which must be over 50 years old.

Citizens and permanent residents who have lived in the country for at least two years may receive unemployment benefits.

For foreign companies doing business in New Zealand, it is vital to have a solid understanding of:

• Personal Income Tax
• social security expenses
• payroll tax
• withholding tax
• business tax
• sale tax

Health Insurance

In New Zealand, individuals may be eligible for health subsidies if they:

• New Zealand citizen or permanent resident (exceptions apply if you are an Australian citizen or permanent resident - please check the Department of Health website)
• Work visa holders who are allowed to work in New Zealand for two years or more
• Hold a work visa that allows them to work in New Zealand for two years or more - plus any time spent in New Zealand before getting their current work visa. For example, if a person had a visa that allowed them to stay in New Zealand for one year, and they now have a work visa that allowed them to stay for another year, they would be eligible.
• Temporary visa holders who are eligible before being granted a temporary visa

The government does not subsidize private health services, such as private hospitals or clinics. Individuals and, in some cases, employers are required to pay for these services. There are two main types of private health insurance policies:

• A ' comprehensive cover' policy covers all medical expenses, including GP visits and prescription drugs
• A policy that provides coverage for a combination of specialist care and elective (non-urgent) surgery

Holiday Policy

Annual Leave

Under New Zealand law, almost all employees are entitled to at least four weeks of paid annual leave every year after one year of employment. However, many employers allow workers to use annual leave before completing one year of service with the company. This is called "early departure." The employment agreement must set out the amount of annual leave to which the employee is entitled.

To be eligible for minimum annual leave, workers must be regularly employed in a full-time or part-time position. If the employee does not have fixed working hours, the employer and employee can agree on a set number of annual leave days. Workers on short-term fixed-term contracts may receive additional pay instead of being granted time off. However, this must be agreed and specified in the employment contract. In these cases, the employee's salary must be increased by at least 8%.

Workers continue to accrue annual leave while on parental leave. When they return to work after parental leave, they are still entitled to four weeks of annual leave each year.

If an employee does not take accrued leave in one year, the leave can be carried over to the next year. Employers can set rules about how much time can be carried forward. In some cases, employees may also be able to cash in part of their unused vacation time.

Sick Leave

Most New Zealanders take at least five days of sick leave each year. When sick leave is used, employees are typically paid at their regular pay rates. Employees can carry over some unpaid sick leave to the next year.

Parental Leave

Eligible employees can take parental leave to care for their children. During this time, they may be able to receive payments from the government. Parental leave can include special leave before the baby is born, or negotiated leave after the birth to care for the child. Prematurity payments are paid when a baby is born before the mother's due date.

Paid parental leave is a government-funded payment an employee receives when they stop working to care for a child under the age of six. Employees can receive up to $585.80 per week before taxes. Employees are entitled to 26 weeks of paid parental leave after the birth of a child.

It is possible for spouses to share parental leave if one spouse can transfer a portion of the unpaid parental leave to his or her spouse. This amount comes from the other parent's 52 weeks of unpaid parental leave.

If a parent is the primary carer and is eligible for parental leave payments, they can transfer the payments to their spouse. The amount they can transfer depends on parental leave requirements and the spouse's working hours.

Termination and Severance

Severance or severance pay should be specified in the employment agreement. New Zealand law does not provide for severance or redundancy pay schemes.

Employees will usually receive notice before termination. However, no specific notice period is mandated. Permanent employment and probationary periods may have different notice periods. Many employment contracts provide for a four-week notice of termination. For trial periods, two weeks' notice is usually given.

For companies expanding overseas for the first time, dealing with employee layoffs and dealing with severance packages can be complicated. Horizons' New Zealand PEOs can reduce risk for foreign companies and provide guidance during the process.  

• If the employee is over 45 years old and has worked for the employer for at least two years, the notice period will be increased by an additional week.
• Employers may choose to pay in lieu of notice period
• Employment contracts may require longer notice periods. In some cases, this notice period can be up to one year

An employee may be eligible to make an unfair dismissal claim if they comply with the National Industrial Relations System and have served the minimum period of employment. If the employer is a small business with fewer than 15 employees, the minimum employment period is one year. Otherwise, the minimum period of employment is six months. Employees must be protected by an enterprise agreement or award. Additionally, the employee's annual income must be below the income threshold.

If the application is successful, the employee may be reinstated. If reinstatement is inappropriate, compensation of up to six months' wages may be claimed.

If an employer lays off workers, severance may be paid. A job becomes redundant if the employer decides it no longer wants the employee to perform the job and terminates the employment relationship. When a layoff occurs, severance pay may be required. Redundancy occurs when:

• New technology replaces the need for humans to perform jobs
• A merger or acquisition means the job is no longer needed
• The company is restructured and this job is no longer needed
• Employer becomes bankrupt or insolvent
• Business downturn leads to staff reductions

The amount of severance pay depends on the period of continuous employment of the employee with the employer. Severance pay is not mandatory in the following circumstances :

• The employer has less than 15 employees
• The employee has worked continuously for less than one year
• The employee is an apprentice or temporary worker
• The employee was dismissed for serious misconduct
• If the employee has been employed for a specified period of time and the termination of the contract ends at that time
• If the employee works under an enterprise agreement or an industry-specific redundancy scheme which is detailed in the agreement or included in the award

For companies expanding overseas for the first time, dealing with employee layoffs and dealing with severance packages can be complicated. Remoly's Australian PEOs can reduce risk for foreign companies and provide guidance during the process.

Salary and Benefits

New Zealand Compensation Law

There are three different pay scales in New Zealand, including adult pay, novice pay and training pay. All employees aged 16 and over are eligible for the adult minimum wage - NZ$17.70 an hour before tax. Starting wages in New Zealand are NZ$13.20 per hour (before tax). Starting salary includes:

• 16 and 17 year olds who have worked for one employer for less than six months
• 18 and 19 year olds who meet specified specifications
• Young people aged 16 to 19, with an employment agreement, require 40 industry training credits per year

For training employees, the minimum wage is NZ$13.20 per hour. Trainees must be over 20 years old and sign an employment contract stipulating that they receive at least 60 credits of industry training per year.

Guaranteed Benefits in New Zealand

New Zealand employees are entitled to at least four weeks of annual leave each year. They have the option of exchanging a week's annual leave for cash.

New Zealand has 11 public holidays each year. Employees are entitled to one day off each of these days. When evaluating benefits administration plans, employers need to be mindful of providing employees with statutory minimum leave entitlements.

Employees are also entitled to parental leave benefits. For employees with children, they can use sick leave (called family leave) to care for a sick child or other dependent family member.

New Zealand Welfare Management

Businesses looking to expand into New Zealand will need to budget for supplementary benefits. These benefits can influence an employee to accept a position and stay with the employer. For example, an employer may choose to provide employees with a private healthcare subsidiary as an additional benefit.

Remoly's New Zealand PEO can provide expert guidance to help streamline the process of expanding into the country.

Benefits and Compensation Limitations

Although collective bargaining agreements (CBAs) are not common in New Zealand, employers should check whether their employees are covered by a collective bargaining agreement. If this is the case, then the employer will need to meet the terms of the CBA rather than the statutory minimum requirements.