MUST haves in a New Zealand Employment Agreement

By On Your Terms co-founder Claire Bodle
September 2024

What is an individual employment agreement?

An individual employment agreement is a contract between an employer and an employee that covers the key terms of the employment relationship. It is called an ‘individual employment agreement’ to distinguish it from a ‘collective employment agreement’, which is between a union and an employer (or group of employers).

An employer can be a business or a person, an employee must be a person. If a business is providing services to another business, you will need an independent contractor or services agreement rather than an employment agreement.

What does an employment agreement need to include?

An employment agreement must include the following minimum requirements (set out in s 65 of the Employment Relations Act 2000 (ERA)):

• The employer and employee’s names – use the full legal names.
• A description of the work – sufficient detail of the employee’s duties for both sides to have a clear understanding of the employee’s responsibilities.
• Location of work – where the employee’s duties will be carried out.
• Hours of work – any agreed hours or work, including number of guaranteed hours, days of the week to be worked, start and finish times (and any related flexibility). If hours aren’t agreed, the agreement must reference the arrangements regarding how hours will determined.
• The wages or salary payable.
• Disputes and grievances – services available to resolve employment relationship problems.

To comply with other legal obligations, and as good practice, an employment agreement should also cover:

• The nature of employment – permanent, fixed term or casual (please note fixed term can only be used in certain circumstances).
• Any trial or probationary periods – whether the employee will be subject to a trial or probationary period at the start of their employment.
• Annual leave entitlements and public holidays – whether annual holidays or 8% pay-as-you-go holiday pay applies, total leave entitlements and how public holidays are treated.
• Sick leave entitlements – number of days of sick leave your employee is entitled to.
• Terminations and redundancy terms – the amount of notice that must be given, processes to be followed and any redundancy amounts that will be paid.
• Employee protection – what happens to the employee if the business is sold or a restructuring takes place.
• Kiwisaver – how the employer’s compulsory contributions are covered.

Do I need a lawyer to prepare an employment agreement?

You do not necessarily need a lawyer to prepare an employment agreement. While it is essential to include the correct and relevant terms in any employment agreement you use, there are some great online tools that enable you to create an employment agreement that is fully compliant with New Zealand law.

The On Your Terms Individual Employment Agreement is an online tool that asks you a series of questions about your employee and their role. Once you have answered these questions, it will produce a customised Individual Employment Agreement for you. It has been written by experienced New Zealand employment lawyers Edwards Sluiters, and is tailored for your purposes based on your answers to the questions.

As you proceed through the questionnaire, you will be advised if there are any issues you need to discuss with a lawyer. 

What is the difference between an employment agreement contract template and an employment agreement builder?

You can prepare a legally compliant and binding employment agreement using an employment agreement template or an employment agreement ‘builder’ (or automated tool).

With an agreement template, typically the various text options will be set out in the document and you will need to choose the correct text for your circumstances (e.g., by deleting irrelevant text). The template will normally include instructions (known as drafting notes) to help you decide. With an employment agreement, there can be quite a few variables depending on whether the employee is going to be permanent, fixed term or casual, their leave or redundancy entitlements, how they’ll be paid, whether they’ll be subject to a trial period etc. This means a template is likely to include a lot of instructions and optional text that is contingent on options you chose elsewhere in the document. This can lead to a slightly confusing process for an end user.

An employment agreement ‘builder’ or an automated legal product, instead normally asks the user questions, and will flow through the questionnaire according to the answers you provide (i.e., there will be a decision tree in the background so that if you answer ‘yes’ to Q1 you’ll then be asked Q2, if you answer ‘no’ you’ll move on to Q4). This is generally much more user-friendly as the answers result in the correct sections of test being automatically chosen (or changed) based on the user’s answers.  

The On Your Terms Individual Employment Agreement is very user-friendly and balanced, uses limited legalese and takes into consideration the rights and requirements of both the employer and the employee. This contrasts with other free employment builder tools available, where the technology is less user-friendly, the terms favour one side of the agreement more strongly and there are less options available.

Key points

Legally, you must have a written employment agreement with any employee you hire. To comply with employment legislation, there are a number of key terms that must be covered in your agreement. Now, online tools such as the On Your Terms Individual Employment Agreement provide you with an option to conveniently create legally compliant and binding employment agreements.