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Employers' perspectives - Part One: Trial periods

At a glance

Since 1 March 2009, an amendment to the Employment Relations Act 2000 allows employers with fewer than 20 employees to hire new employees on a trial period of up to 90 calendar days. From 1 April 2011, this provision was extended to all businesses.  This report discusses research into employers’ perspectives on trial periods and why the uptake of trial periods has been so extensive.

Background

Employers’ Perspectives – Part One: Trial Periods details the findings of two significant sets of data recently produced by the Department of Labour. The first is the 2011 National Survey of Employers (NSE) that involved around 2,000 employers across New Zealand (excluding Christchurch). The second is a study looking at employers’ perspectives on employment, particularly in relation to the Minimum Wage System. Trial periods were also examined in the context of their influence on employers’ hiring decisions.

Under the trial period provision, if the employee is dismissed within the 90 calendar days, they are unable to raise a personal grievance for reasons of unjustified dismissal. However, the employee still has the right to protections against discrimination, sexual and racial harassment, duress or unjustified action by the employer that disadvantages the employee. Employees are still able to access mediation, and the principle of good faith still applies to the employment relationship.

An evaluation of trial periods for employers with less than 20 employees was undertaken by the Department of Labour (see Johri & Fawthorpe 2010). This report builds on that evaluation and includes the perspectives of larger employers that were not included in the evaluation as they had not yet been able to use trial periods.

Key Findings

Just over half of employers are using trial periods

Overall, 60 percent of hiring employers in the NSE reported using a trial period since its introduction. There was not a significant difference between the level of use in SMEs[1] and larger employers[2].

Employers use trial periods to address risk when hiring

Risk was a key issue discussed by employers. Risks varied between industry but included risk to the brand of the business, and damage to other inputs (such as sheet metal in manufacturing). Central to this was the potential costs associated with dismissing an employee being reduced, and thus giving them the confidence to take a chance on an applicant who may not have fulfilled all the criteria wanted by the employer.

It just takes away that problem of “My God, why the hell did we employ that person” and you’ve got nothing. You then enter into a very hard road of getting, if you do wish to exit them, then you’re in for a long process of doing that.

(Dunedin Manufacturing, employer)

Specific reasons given by employers in the NSE for using trial periods relating to risk included[3]:

Positions being trialled as well

Employers also reported using trial periods to test the viability of a position (rather than person) within the business. This practice was more likely in SMEs, with 30 percent saying they would not have filled the most recently-filled position without a trial period, compared with 17 percent of larger employers.

Trial periods reported to improve employment opportunities

The NSE found that 41 percent of employers would not have hired the most recent employee without a trial period. Employers in the qualitative interviews also discussed the key role that trial periods played in improving employment opportunities within their business.

Well, I definitely think it is a good idea…it definitely is going to allow you to take someone on that you’re maybe a little bit unsure…you know, you’re going to give them a chance whereas you wouldn’t have given them a chance in the past.

(Auckland Agricultural, Forestry and Fishing, employer)

Indications that youth and long-term unemployed are benefitting

The qualitative interviews asked employers about employment of youth and long-term unemployed. Trial periods were reported by employers as one of the key government initiatives that had improved employers’ willingness to hire applicants from these two groups, as again they were seen to reduce the risk to a business when hiring employees, where there might be limited employment history available.

We employ a lot of people, young people, some – many of whom haven’t had a job before. So it allows you to maybe take a bit of a punt.

(Dunedin Hospitality, employer)

Four in five employers reported they have retained employees who were on a trial period

Eighty percent of employers in the NSE reported they had continued employing staff once the trial period had ended. This is similar to the level found in the 2010 evaluation of trial periods in SMEs.

Future Work

This report is the first in a series of three reports on employers’ perspectives. The second in the series looks at employers’ views of the minimum wage system. The final focuses on employment of youth and long-term unemployed.

While this report provides a picture of employers’ views on trial periods, it is not an exhaustive evaluation and should not be considered as such. The prevalence of trial periods at an employee level is not currently known, nor do we have the views of employees. A further evaluation of the trial periods is expected in late 2012/early 2013 as part of an evaluation of the 2010 amendments to the Employment Relations Act and the Holidays Act. It will build a wider picture of the trial periods, including the perspectives of employees.

Related reports on employers’ perspectives

Footnotes

[1] ‘SMEs’ refers to employers with 2-19 employees.

[2] ‘Larger employers’ refers to businesses with 20 or more employees.

[3] Multiple responses were allowed.

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