Why DIY Employment Contracts are risky…
Employment contracts are one of the most important documents a business owner will ever encounter – so it pays to do them right.
New Zealand law requires that every employee has an employment contract that meets minimum legal standard. This contract ensures your business is protected and employees have a clear understanding of their role and your expectations of them.
For a busy employer, it may be tempting to use an online employment agreement builder that allows you to quickly create a contract online. However, this ‘DIY’ approach may fall short – and lead to penalties of up to $40,000!
Even if a DIY contract meets the minimum legal standards, it may fail to reflect the nuances of your business or any unique situations that may arise.
Here’s how…
HOW DIY CONTRACTS ARE RISKY…..
Too generic
DIY contracts tend to provide a broad overview of each clause rather than specific details. Although it may seem like most employment contract templates will be broadly the same for all employees, generic clauses may not account for role-specific requirements.
Template contracts may also be specific in places that a business wouldn’t want or need them to be, and in other places not robust enough.
It’s important to tailor each employment agreement to your specific requirements for the role. Otherwise, you run the risk of not complying with employment law. If the employment agreement is missing important elements and isn’t legally binding, a serious employment dispute can result.
Ambiguity
Contradictory or confusing information in a contract can lead to disputes or misunderstandings between employers and employees. An employment agreement should be clearly understood by both parties. If your employee isn’t sure of their obligations and duties, they may make mistakes that can harm the business as a whole. They must be able to understand the business operations and how their working environment operates.
For example, agreements such as a 90-day trial period, a certain number of working hours, on-call availability, or procedure for shift changes need to be clearly set out in clauses in the contract.
If the employee doesn’t understand a particular clause in their contract, the Employment Relations Authority and the employment court will side with them.
One size doesn’t fit all
A new employee’s contract will set the tone for their working relationship in a company, as well as clarify the expectations of both parties. Each employment contract template should be reviewed and amended where necessary before being presented to a new employee. Specific clauses should be removed or included as needed.
Using the same templates for different employees within the company can cause an employer to miss clauses or commit to benefits they had not intended to offer. Copying a contract can even result in personal information of another employee being disclosed. Remember: an administrative error that caused you to reuse an old template will be no defence in court!
HOW TO AVOID PROBLEMS
Every business is completely different. For an employment contract to be truly effective, it should be tailored to the unique requirements of your business.
A well-written contract should provide your employees with clear direction regarding the expectations of their role. It should also cover what benefits the employee is entitled to.
Regularly reviewing your contracts will keep them compliant with laws and regulations. Changes to legislation can mean that your employees’ contracts no longer meet minimum standards. Any changes to the terms of the job that result from new legislation should be reflected in the employee’s contract by the time the law comes into effect.
The employment agreement should also reflect any changes to the terms of the job that arise from changes in your own business requirements. After all, businesses change from year to year and your employee expectations likely will, too. How you operate when you have three staff is totally different from how you operate when you have ten.
Personalising the employment agreement is the best way to safeguard yourself from legal risk. It will also ensure the contract is specific to the position, the person, and the needs and goals of your business.
Remember: employment law is weighted towards the employee!
HOW TO MAKE CONTRACTS THAT WORK
Alice McQuilkan from AIM Altitude realised her company had to update their employment contracts after the April employment law changes. They also needed to amend some documents after downsizing their company. “Many of our contracts were out of date, so we needed to bring them in line with legislation changes,” she says.
Core HR not only updated AIM Altitude’s employment contracts and Contract for Services but also updated their Code of Conduct and their Performance Management, Complaints & Grievances, and Intellectual Property policies. Core HR were also able to explain how to cover certain policies around equipment provided to staff and add clauses about the use of laptops and phones.
“Core provided us with a sheet of variable clauses that we could add and remove as needed,” says Alice. “This meant we could add in things like life insurance or overtime payments that we don’t necessarily need in every contract. We were also able to include the clauses we wanted about phones and laptops.”
Alice says Core HR’s advice was invaluable when it came to creating contracts that reflected the unique aspects of their business. “When you’re an employer, it’s easy to think oh, we won’t need to mention that,” she says. “But Core were able to show us situations where we would need to mention something.”
HOW CORE HR WILL SAVE TIME, MONEY AND STRESS
As experts in human resources and employment relations, Core HR take the stress and confusion out of creating employment contracts for small business owners.
Core HR will draft up an employment agreement that provides clarity and protection for both employers and employees. Unlike a template contract, this agreement will reflect the nuances of your business in a way that makes sense.
If you wish, you can go to an employment lawyer to draft up a ‘foolproof’ contract, but this is rarely necessary. A lawyer may charge several thousand dollars to create a new employment contract from scratch (depending on your existing contract). You’ll also have to move all your old employees onto the new contract, which may cost even more.
The process
Core HR will meet with you for an interview to identify the needs of your business and all possible scenarios in your workplace. They’ll explain each section of the contract in detail. If you’re not sure which clauses to choose, they’ll provide explanations of each clause to help you understand them fully.
Core HR will then draft a template contract. To make the administration process as efficient as possible, the contract will include different clauses for you to choose as applicable to the employee, along with explanations. This means the process of amending each template for an employee takes around 15 minutes – rather than the hours that may be required for starting from scratch.
Core HR will be available for advice and information at any time. They will also take care of any future amendments that need to be made to your contracts, such as legislation or role changes.
Read how our full success story on AIM’s employment contracts here
Want an expert to sort out your employment contract headaches? Contact Core HR
Need more information? Check out these resources:
· THE 18 ADDITIONAL CLAUSES YOU SHOULD INCLUDE IN YOUR EMPLOYMENT CONTRACTS TO PROTECT YOUR BUSINESS
· COMMON MISTAKES IN DRAFING EMPLOYMENT CONTRACTS (AND HOW TO AVOID THEM)