Since 6 May 2019, any business with 20 or more employees must use probationary periods instead of 90-day trials when they want to assess someone new.
This law change was part of the Employment Relations Amendment Act 2018 that sought to restore protection from unjustified dismissal for most employees starting a new job.
If your business has less than 20 staff (and is likely to stay below 20 for the foreseeable future), you can keep using the 90-day trial period. For everyone else with 20+ employees, you have to use probationary periods.
In our experience, probationary periods can be just as effective as 90-day trials for assessing new team members; they just have to be done with the right attention to good faith and proper process.
In this article, we look at the law change, how probationary periods work, and provide helpful guidance on how your business can set up and run quality probationary periods.
Am I a small-to-medium-sized employer?
Under the law, only “small-to-medium-sized employers” can use a 90-day trial period when taking on a new employee. A small-to-medium-sized employer is defined as an employer who has fewer than 20 employees at the beginning of the day on which the employment agreement is entered into.
Remember, employees include all casual, permanent, and fixed-term staff. Independent contractors are not employees.
So for many businesses, it will be clear what sort of period to use because you have well over (or under) 20 employees.
For others, around the limit of 19 staff, it may be a bit trickier. If you have 19 employees and hire someone new, they won’t have a trial period.
In the instance where employee number 19 resigns and you find a replacement while the person resigning is still working out their notice (this gives you the benefit of a handover period), the new person will still not have a trial period even though the business will have 19 employees once the resigning person leaves.
If your company is around the 20-person level, you many want to look at other ways of staying below the threshold, such as temporary contract labour or spreading the workload across the existing team (if the load isn't too great or for too long).
However, if your business is growing fast and you're going to need 20 or more employees, you'll have to switch to using probationary periods for any new people.
What are probationary periods?
A probationary (or probation) period allows a business to assess a new employee's suitability for a role within a specified timeframe, based on their capability, performance, conduct etc.
It sets out a fair process for managing performance issues and ending employment if those issues aren’t resolved. Think of it as if you were employing somebody on a final written warning.
The criteria, procedure, and length of the probationary period are defined by the employer (so long as they are fair and reasonable) and agreed to by the employee as part of their employment agreement.
Note: You can't put an employee on a probationary period after a trial period. If you haven’t given the employee notice by the end of the trial period, then they are no longer on trial and their employment continues.
- It can be as long or as short as you want it to be, by agreement with the employee.
- You can extend it if you’re not happy with progress.
- As the employer, you have greater control over the process followed, provided it is fair and reasonable.
- There is no protection from a personal grievance like with 90-day trial periods, so you may be challenged.
- You are required to undertake more consultation, so the process is more detailed.
How to run an effective probationary period
- Ensure your recruitment process is robust so you give yourself the best chance of getting the right person for the role and the organisation.
- Have a robust clause in the employment agreement. This is where the employee agrees to take the job subject to a probationary period – it can be useful to remind them of this if problems arise.
- Implement a well-structured, formal induction/onboarding process for your new employee. Provide support and training, catch up regularly, give detailed feedback, and document the process. Don't let things lie; address any issues (even minor ones) early so new people know where they stand. Give them clear direction and the opportunity to improve. Find out more about complete employee onboarding.
- If things don’t work out, the process for termination is much the same as a formal disciplinary procedure, where you present your documented reasoning and give the employee the right of reply. The process is much more consultative than the 90-day trial period and you don't have the same level of protection against grievances, so ensure the process is watertight.
In the end, good quality, fair employment practice is the best solution. Employing staff should be a positive experience for all parties, so don't leave things to chance. Treat the process with the same rigour and respect as you would your other legal obligations.
MyHR Live 14 - Effective Probationary Periods
Frequently asked questions
How does a trial period termination differ from a probationary period termination?
During a trial period, the employer must fairly assess the employee and give them clear feedback and the opportunity to improve any areas of concern. The employer must be explicit and advise the employee if anything is likely to lead to termination.
The employer can subsequently dismiss the employee without stating their reasons. However, if the employee asks, they must provide their reasons in writing. The employer must give notice of the termination and the length and terms of the notice must be those stated in the employment agreement.
The employee can’t raise a personal grievance claim about their dismissal.
During a probationary period, the employer must fairly assess the employee and give them clear feedback and the opportunity to improve on any areas of concern. The employer must be explicit and advise the employee if any concerns are likely to trigger termination.
If the employer decides to terminate they must explain why and that they intend to end the person's tenure. The employee has to be given an opportunity to respond, which the employer must consider before making a decision. The employer can then give the employee notice to end their employment.
Employees can raise a personal grievance on the grounds of unjustified dismissal.
I want to fire someone who has been with me for a week. Can I use the trial period?
Not unless you and the employee have agreed to a trial period before they start work and it is stated in their employment agreement.
There are several hoops to jump through when using a trial period. If you’re considering doing so, seek specialist advice to ensure you have a valid trial period in place.