Can You Still Use A 90-Day Trial Period?

By now you may be well aware that not all businesses can use the 90-day trial period law. Nowadays, a business can only enter into an employment agreement that includes a 90-day trial period if it has less than 20 employees.

This change, which took effect from 6 May 2019, adds to the list of boxes you need to tick before you can have a valid trial period and later dismiss someone under it.

Unfortunately, like a number of aspects of the 90-day trial period law, this most recent change isn’t as straightforward as you might think.

For example, when is the right time for counting your number of staff? And which employees do you include in that number?

TIMING IS EVERYTHING

The time for counting whether your business has less than 20 employees is at the beginning of the day the employment agreement containing the 90-day trial period clause is entered into.

What, then, does it mean to enter into an employment agreement?

There are a couple of ways someone can become your employee. For example, you can offer employment to someone verbally. If they accept that offer, you have entered into an employment relationship without having a written agreement.

Entering into an agreement this way means you are in breach of the requirement to offer an employment agreement in writing to the potential employee – but it doesn’t mean you haven’t entered into an employment agreement. Your agreement just happens to be a verbal one.

However, to have a valid trial period, the Act requires you to have a trial period clause in a written employment agreement. So “entering into” an employment agreement for the purposes of this recent change can only mean when you and your new employees have agreed to written terms of employment that include a 90-day trial period clause. That usually will mean the time that both you and your new recruit have signed an agreement.

Further, you should note that there must be agreement on both sides before it can be said the terms have been “entered into”.

For example, let’s say you sign the agreement on a Thursday, but your new employee does not sign until the Friday. In the absence of anything else to indicate they agreed to these terms earlier, the employment agreement was not “entered into” until the Friday. So the relevant day for counting up your staff in this example would be Friday, not Thursday. That could be very important if you have signed up a number of staff on Thursday which puts you over the 20-employee threshold.

The other important thing to note is that the relevant time for counting your staff is not related to when your employee actually starts work. Often employees who accept employment have to give notice to their current employers before they begin with you. That means they may not start work with you for a month or two after “entering into” employment with you.

WHO IS THE EMPLOYER?

You also need to be clear about who the employer is – it might not be who you think it is.

An employer can be an individual person (a sole trader), two or more people carrying on business as a partnership, or a company. But where the business is split across different sites or divisions, the identity of the employer may follow suit.

For example, if you have a business with two locations that is owned by one company, you can only have a valid trial period if there are less than 20 employees across both of those locations. However, if the locations are owned by two different companies, there are two different employers. Each employer has its own employee limit.

So be careful to state who the employer is on your employment agreements, as well as on your pay slips and other correspondence with your employees – especially if you have more than one possible employer in the mix. And to avoid even further confusion, you should state the name of the legal entity itself rather than your business’s trading name.

COUNT ALL OF YOUR EMPLOYEES

Do your part-timers count as half an employee? What about the casuals you call up in an emergency, or your seasonal workers?

There isn’t anything in the legislation to distinguish between employees who work more or less hours than others. This means part-time staff are counted in the same way as full-time staff. If you have a business with a lot of part-timers, you are going to reach your 19-employee limit faster.

Casual employees are technically only employed during each period of engagement with the business. If they aren’t working for you at the moment, they shouldn’t be counted.

But remember, your casual employees can become (or might already be) non-casual employees. For example, if someone you used to call upon in emergencies has developed a regular work pattern and there is a mutual expectation this work will be ongoing, you’re going to find it difficult to argue they are truly a casual employee. They may well be a part-time or even full-time employee.

WHAT IF THE NUMBER OF EMPLOYEES YOU HAVE CHANGES?

Working out how many employees you had on the date the agreement was entered into isn’t going to be an issue if your business always has 20 or more employees (which means no new employees will have a trial period) or 19 or less employees (which means new employees could have valid trial periods, if all the other boxes are ticked).

However, things might not be so clear cut if the number of employees you have fluctuates around the 19-20 employee-mark.

For example, what happens if you have 17 employees when you make a written offer of employment to a person, but you have six people join your team by the time that person gets back to you with a signed agreement?

If that person signed their agreement after these six new people joined, taking you to a total of 23 employees, your new employee cannot have a valid trial period.

But, let’s say this person and your six new recruits signed their employment agreements on the same day. This means your business only had 17 employees at the beginning of that day and all of your new recruits potentially have valid 90-day trial periods.

CONCLUSION

Confusing? Remember, it will always come back to how many employees you had at the beginning of the day a person entered into their written employment agreement. This means you need to take care to identify:

  • who the employer is;
  • the day the person entered into their written employment agreement with this employer; and
  • how many people were employed by the employer at the beginning of this day.

If your business had less than 20 employees on this day, your new recruit might have a valid trial period (but don’t forget to check your business has met the other requirements).

If you find you had 20 or more employees on this day, your new employee cannot be on a trial period.