The 4 Types of Employment Agreements: What You Need to Know

If you’re an employer, it’s important to understand the different types of employment agreements that exist in New Zealand. This will help you to choose the right agreement for your workers, and ensure that you comply with the Employment Relations Act 2000.

The three main types of employment agreements are: permanent employment, fixed-term employment, and casual employment. There are also agreements for independent contractors. Each type of agreement is best suited to different situations and engagements with individuals, so it can be helpful to discuss the true nature of the engagement with an NZ employment lawyer. Let’s look at how each type of agreement differs.

edwards law blog The 4 Types of Employment Agreement What You Need to Know

Permanent Employment

Out of the four different types of agreements, permanent employment agreements are the most common agreements. Employees who are on permanent agreements are those whose jobs last indefinitely unless either they or their employer decide to end it.

Permanent employees can work full-time or part-time, but regardless of how many hours they work a week, they’re entitled to similar benefits. Permanent employees will get sick leave, bereavement leave, and annual leave as long as they work continuously and meet the requirements of the Holidays Act 2003. Permanent employees also have a minimum of four weeks of annual leave, calculated pro rata for part-timers.

A permanent employment agreement should include terms and conditions to explain these entitlements.

Fixed-Term Employment

Meanwhile, a fixed-term employment agreement is a temporary agreement that doesn’t last for an indefinite period of time. It has to end on a specified date or when a specific event happens.

For a fixed term employee’s employment to be effective, the parties must sign a fixed term employment agreement which states when, how, and why their employment will end. Employers must have “a genuine reason” for employing an employee for a fixed term, which must be based on reasonable grounds.

For example, it is reasonable for an employee to be employed on a fixed term to cover another employee’s parental leave or to cover a busy period like Christmas, but it is not reasonable to employ an employee on a fixed term to test their suitability to a role.

Casual Employment

Most of us know what a casual employee is – it is someone who works on an “as and when needed” basis. As casual employees don’t have set hours, they are usually paid holiday pay on a pay-as-you-go basis(equating to 8% of their wages) instead of receiving any entitlement to take annual leave.

It can often be quite easy for a casual employee to unintentionally become a part-time permanent employee, sometimes over time. Is your employee being wrongly classified as a casual employee? Here are some of the criteria that must be met in order for an employee to be classified as ‘casual’:

  1. there is engagement for short periods of time for specific purposes;
  2. the employment relationship lacks any regular work pattern whatsoever (i.e. they do not work on a weekly or fortnightly basis);
  3. the employee’s employment is dependent on the availability of work demands;
  4. there is no guarantee of work from one week to the next;
  5. there is no obligation on the employee to accept another offer of work – so the employee can turn down work on offer; and
  6. employees are only engaged for the specific term of each period of employment.

If you think that a casual employee is not meeting the criteria anymore, it is time to update their employment agreement. If you do not and a casual employee’s employment ends suddenly, they can argue that they were actually performing the role of a permanent employee. This is likely to give rise to an unjustified dismissal grievance.

Independent Contractors

Lastly, we have self-employed independent contractors. A self-employed contractor is someone your business hires to provide services pursuant to an independent contractor agreement.

For a contractor to be considered as working as an independent contractor instead of an employee, they must be operating a business on their own account and earn their income by invoicing your business for their services.

Independent contractors are not covered by most employment-related legislation, so they do not have the same entitlements to, for example, annual or sick leave or employment benefits, and they must pay their own tax. This means it’s very important to define the working relationship at the beginning, to prevent the contractor from claiming that they’re an employee and arguing that they deserve to be paid holiday pay, etc..

It might seem unnecessary to draw up an agreement for an independent contractor, particularly if you have a good relationship with them, but relationships can change and problems can arise – even with people that you’d least expect it.

Independent contractor agreements should therefore explain why the parties consider the nature of their relationship is that of a contractor and principal, rather than an employer and employee. It should also include essential provisions to protect your business, such as confidentiality and intellectual property terms, and should explain what processes the party will follow in the event of a dispute.

A well-drafted independent contractors agreement will give the parties clarity on the services that will be provided, how the relationship will operate, and in which manner it may be terminated.

Edwards Law - Your Experienced Employment Lawyers

After looking at different types of agreements, it’s clear that no matter what type of engagement you have, a well drafted agreement is necessary to ensure that all rights and obligations between the parties are clear. This will help to minimise workplace problems, make things run more smoothly and could prevent your business from getting into some serious legal trouble.

If you need help drawing up any of these agreements or are after any advice, the expert team of NZ employment lawyers at Edwards Law is here to help. Edwards Law has Individual Employment Agreements, Collective Employment Agreements, and Contractor Agreements available and ready to customise for your business. If you want to dive deeper into each type of employment engagement, read Edwards Law’s ‘The Ultimate Guide To Employment Law’ blog post.

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