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Hiring new employees for your small business is an exciting process. A new employee can bring fresh ideas and skills to your business, which creates an exciting opportunity for the growth of your business. However, you must bear a few legal considerations in mind when hiring new employees. This includes:

  • having a good hiring process;
  • understanding your tax obligations as an employer;
  • ensuring that you are protecting your employees’ minimum rights;
  • paying accurate ACC levies; and
  • correctly using trial periods. 

This article will outline these considerations and how you can account for them when taking on new employees. 

Hiring Process 

There are various steps involved in the hiring process. In particular, someone will need to:

  • write the job description;
  • advertise the job; 
  • liaise with candidates; 
  • run the interview process; and 
  • find the right person for the job.

Likewise, it is important to think about who is recruiting new employees to join your business. Suppose you do not have a person dedicated to hiring new employees within your business. In that case, it may be a good idea to outsource the role to a professional recruiting business. This may be a good option if you do not think that a member of your team would be able to manage this on top of their existing responsibilities. In addition, it may be worth spending that little bit of extra money for the peace of mind knowing that a professional recruiter will appropriately manage your business’ hiring process. 

A good hiring process will also leave a good impression in the minds of your prospective employees. 

Your Tax Obligations as an Employer

Firstly, if you have employees, you will need to register as an employer with Inland Revenue (IRD). Each employee must have an IRD number, which will allow you to pay tax through pay-as-you-earn (PAYE) for them. 

When they join, you should ask them to complete a tax code declaration form (IRD330) to determine their tax code and the amount they should be taxed. You should also enrol your employee with KiwiSaver if they are not already. Otherwise, you should ensure that you know what contribution rate to make for them. 

Legally, you will need to keep tax records for seven years. If you use accounting software to pay your employees, this will typically keep a record for you. 

Your Employees’ Minimum Rights

Importantly, you have to provide certain minimum rights and entitlements for your employees as an employer. It does not matter if you include these rights in your employment agreement or not. Indeed, these are the minimum rights outlined in New Zealand law. 

Additionally, you need to ensure that your employment agreements include details on:

  • paying your employees the minimum wage;
  • sick leave;
  • bereavement leave; and
  • public holiday pay.

You should also create a register to track your employees’ holidays and leave to ensure that you are correctly paying your employees their leave entitlements. Additionally, you need to make sure that you comply with legal requirements to keep your employees safe and free from discrimination. 

ACC Levies

Accident Compensation Corporation (ACC) provides New Zealand’s no-fault accidental injury scheme. Employers and employees put money into a fund that they can use when injuries occur at work. Any person, no matter how they were injured, is covered under the scheme. 

Likewise, the amount you pay as a levy depends on:

  • your type of business;
  • how much you pay your employees; and 
  • your work-related injury claims history. 

For example, your levies may be higher if you engage in work that is more likely to have on-sight injuries. 

Trial Periods

A trial period allows you to let go of an employee within the first few weeks of employment if you find that they do not have the right skills or attitude to work at your business. A trial period can be up to 90 days long. Likewise, if you dismiss the employee within the trial period, they cannot raise a personal grievance against you on the grounds of unfair dismissal

Importantly, you cannot use a trial period if your business has 20 or more employees. However, this would be unlikely if you are a small business. Still, it is worth noting as your business grows.

If you would like to have a trial period for your employees, you must include these details in the employment agreement. Also, both parties must agree and sign the document. Additionally, an employee will need to have all the benefits of a permanent staff member, like holidays and sick leave, even on trial. Finally, the notice period still applies if you dismiss the employee, and they can still raise a grievance against you if you have discriminated against them or harassed them. 

Key Takeaways

Hiring new employees is an exciting time for any small business. However, no matter how small your business is, employment law has essential aspects to consider when you become an employer. For example, you need to make sure that you correctly pay taxes and ACC levies. Likewise, it is crucial to have an efficient hiring process and protect your employees’ rights, including correctly using trial periods. 

If you need help understanding your obligations when hiring new employees, our experienced employment lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0800 005 570 or visit our membership page.

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Frequently Asked Questions

Can I extend a trial period beyond the 90 days if I am still unsure about an employee?

No, a trial period can be a maximum of 90 days. So, you cannot extend the trial period beyond the original agreement between both parties.

Do I need to register as an employer with IRD if I only have one employee?

Yes, you need to make sure that you register with IRD as an employer. This is the case even if you only have one employee. Otherwise, you risk serious penalties.

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