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90-day trial periods - Changes are coming.

Jason Ennor, Co-founder and CEO at MyHR
by, Jason Ennor, Co-founder and CEO at MyHR

This topic has had a lot of coverage recently, however I continue to receive many questions about it, so here’s another update on the law that won’t sit still.

The article I wrote last year regarding the government’s initial proposal for 90-day trial periods is now largely irrelevant, as these changes have been scrapped – a good outcome.

The latest round of proposed changes are now before Select Committee and, while they have not yet been passed into law, it is very likely they will get through.

Next steps are: Second Reading | Committee of whole house | Third Reading | Royal Assent.

From here the government has said the 90-day trial period changes will “come into force 4 months after the date of Royal Assent.” Probably later this year or early next year.

As you may have heard, the change splits the application of the 90-day trial period based on number of employees. If you employ 19 or less people, you can still use trial periods in the same way you do currently. If you employ 20 or more, you cannot.

The amendment states: “Employer means an employer who employs fewer than 20 employees at the beginning of the day on which the employment agreement is entered into.”

This fairly clear-cut for many employers.

If you employ 19 or less people carry on as before. Just continue to be aware of the very strict rules that apply to 90-day trial periods. You can get some guidance from our previous articles or ask an expert for help, if you’re not sure. Be careful, employers frequently make mistakes which invalidate the trial period and remove the protection it provides.

Read our guidance on managing trial period exits.

If you employ 20 or more people, you need to start thinking about making changes. Firstly, don’t panic, you can continue to use trial periods for now. Once the law changes, any trial period entered into before the date of the law change will remain in effect until the expiry of the 90 days. But you will need to be ready for the change, I recommend:

  1.    Ensuring your recruitment process is very robust.
  2.    Return to the use of probationary periods.
  3.    Implement a thorough, high-quality induction and onboarding process.

A good recruitment process will decrease your chances of employing somebody who is not a good fit for the job or your organisation. 

Once a new person is employed, set-up a structured onboarding process. Provide support and training, catch-up regularly and give feedback. Address any issues (even minor ones) early so new people know where they stand. Give them clear direction and the opportunity to demonstrate improvements. If, after all this, they do not improve, using the probationary period may be the best outcome.

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In this situation, you will not be protected against grievances the way a trial period would have protected you, however if the process is well-run, a grievance becomes more difficult.

I believe the new law will be most awkward for those employers at the limit of 19 staff.

In a situation where employee number 19 resigns and the business finds a replacement quickly (which allows the benefit of a handover) the new person becomes employee number 20 and therefore does not have a trial period. Even though, once the resigning person leaves, the business will only have 19 people again.

Strategies to combat this might include: increasing reliance on agency temp labour to avoid employment relationships or increasing casual workers, who may be more easily terminated. Both would have the effect of keeping an employer below the 20 person threshold.

This law change could provide a real benefit for the outsourcing industry as businesses may choose to use external agencies for support services, rather than employing people in-house. Such work could include: human resources, administration, accounts, telemarketing, telesales, payroll, IT, logistics and marketing. Many employers already outsource some or all of these functions and this new law may just see a rise in such services.

Critics of the new law have suggested it will stop businesses wanting to grow, but I am reluctant to agree with this as a blanket outcome. I can imagine a business of 19 people thinking twice about hiring person number 20, if future growth wasn’t expected, it would be easy enough to absorb the work across the existing workforce. However, if a business has significant potential growth opportunities and expects to grow from 19 to 20 then 30 or more staff, refusing to grow because of a trial period law is hardly a clever approach for ambitious business owners.

In the end, good quality and fair employment practice remains the best solution. The classic Kiwi DIY approach to employment is becoming harder to justify, employers need to treat the employing people with the same rigour, process and respect as other regulatory obligations. When it’s done properly and when people are treated well, employing staff is a positive experience.

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