first employee sparks new ideas

Your First Employee

So you’ve decided to take the plunge and hire your first employee.

Ideally, your employees should make your business life easier. Good staff can really help spread the load.

You should also know that employing others comes with certain responsibilities. After all, it’s called an employment relationship. You’re making a serious commitment to someone.

What are the essential things you need to know to make sure this relationship starts off on the right foot?

EMPLOYMENT AGREEMENT FOR YOUR FIRST EMPLOYEE

Employment agreements are mandatory. You must have a signed agreement in place for all staff.

The first thing to note is that one size does not fit all. There are different types of employment agreements. The agreement you give to your employees will depend on what you expect of them. Will they be a part-time, full-time, fixed-term, casual, or permanent employee?

Getting the right type of agreement is the first step. The next is ensuring the agreement contains all the right terms. There are some terms that you must include as a matter of law. There are others that are useful to have.

Where can you go to get an agreement? There is a free service provided by the Ministry of Business, Innovation and Employment. Use this, but be aware that there are some extra clauses I recommend you consider.

When making an offer of employment, there are certain things you must tell your new employee. Ensure that you set this out in an offer letter or email.

When they return the signed agreement (before starting work), keep a copy of it under lock and key. Take a digital copy too, as you can never be too careful.

KIWISAVER

KiwiSaver is the government-mandated savings scheme. There are a couple of obligations that come with it:

  • You must give certain information at the outset.
  • You have to pay at least 3% on top of the employee’s pay. So when setting their salary or wages, remember that you’ll be paying 3% in addition.

You can agree not to pay extra. The employee’s total remuneration can account for your contribution to their KiwiSaver account. But it’s best to do that in the employment agreements from the outset, otherwise it can be hard to get them to agree later.

PAYROLL AND TAX

In New Zealand, employers are obliged to pay their staff’s tax on their behalf. This is known as PAYE (pay as you earn).

You must report and pay PAYE, along with KiwiSaver contributions, to Inland Revenue monthly.

Taking time to understand what Inland Revenue requires, and setting up good payroll practices, is well worth your while.

You may even consider engaging a payroll provider to make this easier for you.

HOLIDAYS

You need to know something about when employees can take breaks from work.

The most obvious is when they go on holiday. They’re allowed up to four weeks’ worth of holidays each year. This leave does not get allocated to them until they have worked with you for a year. If they leave before one year, then you have to pay them for the pro rata portion of accrued leave. This is at 8% of their gross pay.

You can’t just pay all your staff 8% with their pay and expect that to take care of their holidays. You can only do that in two instances: with temporary staff or those who are on fixed terms of less than 12 months.

Employees can ask you to cash up one week’s leave each year. While you must respond to such a request, you don’t have to agree to it.

There are other mandatory leave entitlements you should be aware of. If your employee, or someone they care for, is sick or injured, they can take sick leave. You must pay them for up to five days of sick leave per year, but only if they have worked for you at least six months.

Paid bereavement leave also accrues after they have worked at least six months for you. If someone close to them dies, like an immediate family member, you must allow them three paid days’ leave. If they want time to grieve for someone other than a close relative, you must pay them one day’s leave.

Of course, you can choose to be more generous with leave if you wish.

POLICIES

It’s helpful to set out clearly to your staff what your expectations are.

Policy documents set out those expectations. They can include a code of conduct (the standard of behaviour you expect) or a disciplinary policy (processes for dealing with work problems).

The sorts of policies you could have might relate to:

  • Use of work resources, including email and computers
  • A style guide for communications
  • How to deal with health and safety matters
  • An explanation of how employees will be disciplined

When starting out, it’s best to keep policies to just those that you require for your particular business.

WHEN IT HITS THE FAN

No one expects employment relationships to sour. If you did, you would never enter into them.

But unfortunately, difficulties often arise in employment relationships. And when they do, you need to know how to handle them.

When confronted by a problem with one of your staff, don’t sit on your hands. Address the issue fairly.

That means confronting the employee with your concerns. It also means giving them a chance to change your mind before you make a final decision.

Know also that there are specific types of issues that regularly arise. These include misbehaviour, poor performance, redundancy, and incompatibility. Don’t confuse them.

Follow a clear plan to deal with each of them. These guides on my website can help.

CONCLUSION

Don’t let all the information above overwhelm you. Yes, there are duties you have as an employer, and you should take them seriously and learn about them.

But know that plenty of people have done this before you and done so successfully.

The overriding concern is to act reasonably. You must know that you are obliged to communicate with your staff and treat them fairly at all times.