Employment Agreement 90 Day

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  Issue 1 ■ February 2009 - April 2009
                                                                 NEWSLETTER
90 Day Trial Period
Effective from 1 March 2009,                             “The 90 day trial will provide real                        business in the same way as other
the Government has passed                                opportunities for people at the                            employees. This provision appears
legislation granting employers the                       margins of the labour market”.                             to be based on a ‘headcount’
right to dismiss an employee within                                                                                 methodology as opposed to full
                                                         As with any legislation, it is not as
the first 90 days of employment                                                                                      time equivalent staff. Hence, the
                                                         simple as it sounds. The probation
with no right to lodge a personal                                                                                   cleaner who comes in for 2 hours
                                                         period provisions only apply where
grievance against the employer.
                                                         the employer employs “fewer
The Government has introduced                            than 20 employees”…“at the
                                                                                                                          A man owned a small
this legislation in an effort to                         beginning of the day on which
                                                                                                                          contracting business.
encourage employers to provide                           the employment agreement is
                                                                                                                            The Department of
employment opportunities to                              entered into”. However, in some
                                                                                                                            Labour claimed he
people, without financial risk to                         cases       the
                                                                                                                         was not paying proper
the employer if the employment                           point        at
                                                                                                                         wages to his staff and
relationship does not work out. In an                    which        an
                                                                                                                           sent an agent out to
announcement on 11 December                              employment
                                                                                                                        interview him. “I need a
2008 the Minister of Labour, Hon.                        agreement
                                                                                                                         list of your employees
Kate Wilkinson, stated that “By                          is      entered
                                                                                                                        and how much you pay
lowering the legal risks employers                       into can be
                                                                                                                          them,” demanded the
face, they will be more confident                         unclear. For
                                                                                                                                   agent.
in giving people the opportunity                         example, is the                                               “Well,” replied the owner,
to prove themselves” and that                            agreement                                                          “there’s my framer
                                                         entered into                                                  who’s been with me for 3
                                                         when        the                                                years. I pay him $600 a
          Inside this edition                            offer is made and accepted orally                             week plus free room and
                                                         or when the agreement is signed                                 board. There’s the site
90 Day Trial Period ........................ 1                                                                         man, who has been here
                                                         by the first or second party to affix
Help After a Redundancy ........... 2                    their signature?                                              for 18 months, and I pay
                                                                                                                        him $550 per week plus
What’s in a name?....................... 3               In addition, in order for the 90 day                            free room and board...
Reimbursements and Honoraria                             period to be in effect the legislation                        and then there’s the half-
Paid to Volunteers ........................ 3            requires a trial period provision to                           wit. He works about 18
                                                         be written into the employee’s                                   hours every day and
Snippets ......................................... 4     employment               agreement.                             does about 90% of the
Update – Associated Persons Bill 4                       However, some employers in small                                work around here. He
                                                         businesses still do not enter into                              makes about $300 per
KiwiSaver – Comparing Salaries . 4                       written employment agreements                                     week, pays his own
New Thresholds for SMEs .............. 4                 with their staff, even though they                              room and board, plus
                                                         have been a legal requirement                                   I buy him a few beers
 All information in this newsletter                      since 2000. If the agreement and                               every Saturday night to
 is to the best of the authors’                          trial provision are not in writing                                  keep him happy.”
 knowledge true and accurate.                            there is no protection under this
 No liability is assumed by the                          legislation.
                                                                                                                         “ That’s the guy I want
 authors, or publishers, for any                                                                                       to speak to... he’s clearly
 losses suffered by any person                           The requirement for an employer                                 being taken advantage
 relying directly or indirectly                          to employ fewer than 20 staff for                             of, and underpaid ... this
 upon this newsletter.        It is                      this protection to apply may lead
 recommended that clients
                                                                                                                        poor ‘half-wit’ you refer
 should     consult     a   senior                       to debate. Small private businesses                                to” says the agent.
 representative of the firm before                        often include family members as                                   “That would be me.”
 acting upon this information.                           employees, although they might                                     replied the owner.
                                                         not be actively involved in the

February 2009 - April 2009               A newsletter on business matters prepared by Wallace Diack for its clients and contacts                     1
each day will be included in the           If an employee is not dismissed                            protect the employer from a
headcount, as will job sharing             within the 90 day period the                               grievance for unjustified action.
part-time workers.                         employer will be subject to                                That means that if the employer
                                           the normal provisions to justify                           changes the employee’s role
The method of counting staff
                                           a dismissal and will have no                               or reduces their pay, the full
will become critical as once
                                           protection from this section of the                        procedural   requirements    still
the employer hits the 20 staff
                                           Act. This will be strictly applied.                        apply.
threshold, further employees will
not be subject to the provisions.          The changes to the Act do not



Help After a Redundancy
As part of the National Party’s            • “RePlace” - complements the                              a CV, interview preparation and
election platform, it promised               accommodation supplement,                                career planning. This element
an assistance package to help                and can be up to $100 per                                of the package is referred to as
workers made redundant as a                  week. People who receive a                               “ReConnect”.
result of the current economic               redundancy payment of more
                                                                                                      In order to be eligible for “ReStart”
climate. The “ReStart” package               than $25,000 are not eligible for
                                                                                                      assistance, the individual must:
has now been put in place and                “RePlace”.
commenced from 1 January 2009.                                                                        • be a New Zealand citizen or
                                           However,        a   person    whose
The package was formulated                                                                              permanent resident and usually
                                           redundancy payment exceeds
by amending existing assistance                                                                         live in New Zealand
                                           $25,000 may be eligible for the
mechanisms thereby speeding up                                                                        • have been made redundant
                                           Accommodation           Supplement.
implementation and avoiding the                                                                         from a full-time job
                                           A person’s assets are taken into
need for new legislation.
                                           account         when     determining                       • be looking for a full-time job
The package is intended to assist          eligibility for the accommodation
individuals whose employment               supplement. Only the portion of a                          • have been working for the six
positions have been eliminated by          redundancy payment in excess of                              months before being made
their employer. It does not apply          $25,000 is taken into account for                            redundant,   although    not
to individuals who have been               this purpose.                                                necessarily with the same
fired, or who have completed a                                                                           employer, or
                                           The “ReCover” and “RePlace”
fixed term or seasonal contract.                                                                       • have been self employed
                                           payments are only available to
The package can also apply to                                                                            and now entitled to the
the previously self employed                                                                             unemployment benefit.
as long as they are now
                                                                                                           For an individual, full time work
eligible for the unemployment
                                                                                                           consists of 30 hours or more per
benefit.
                                                                                                           week, for a solo parent 20 hours
On a financial level the                                                                                    or more and for a person in a
package comprises two types                                                                                relationship, 30 hours or more
of payment (both non-taxable)                                                                              when combined with those of
that an individual can receive                                                                             their partner.
for up to 16 weeks:
                                                                                                        Under the package, an
• “ReCover” - this effectively                                                                          individual who has been made
  replaces the in-work tax                                                                              redundant will have 20 working
                                           one spouse in the family. This means
  credit (the working for families                                                                    days to apply for assistance.
                                           that a person who has been made
  credit paid to eligible working
                                           redundant is not entitled to either
  parents). The person must have
                                           of these payments if their spouse
  been eligible for the in-work
                                           or partner is already receiving
  tax credit prior to being made
                                           them.
  redundant. For parents with one
  to three dependent children the          The “ReStart” package also consists
                                                                                                               Everyone makes
  “ReCover” payment is $60 per             of assistance with finding a new
                                                                                                            mistakes. The trick is
                                                                                                           to make mistakes when
  week and a further $15 for each          job through support to develop
                                                                                                              nobody is looking.
  additional child, and

2                          A newsletter on business matters prepared by Wallace Diack for its clients and contacts   February 2009 - April 2009
What’s in a name?
Who is the legal owner of shares in                                                                      delivery of the share transfer to the
a company? That all depends on                                                                           registered office, does not pass
whose name is on the company’s                                                                           legal title. The process of transfer
share register.                                                                                          is completed only when the name
                                                                                                         of the purchaser is placed on the
In a recent case, Gillespie v Kinloch
                                                                                                         share register of the company. In
Golf Resort Ltd, the High Court had
                                                                                                         this case the Court dismissed a
to decide whether legal ownership
                                                                                                         summary judgement application
of shares had been transferred.
                                                                                                         by Gillespie to allow the transfer of
Following some difficulties with the
                                              expressly permitted by the court.                          the shares, stating it was arguable
management of MG Corporations
                                              Therefore, even though there                               that KGRL should not have to
Limited, the major shareholder
                                              was an agreement for the sale                              suffer the consequences of the
(Gillespie) decided to sell its shares
                                              and purchase of the shares, they                           liquidation.
to Kinloch Golf Resort Limited
(KGRL). After lengthy negotiations,           could not be transferred from the                          Parties to an agreement for the
the parties entered into a sale               major shareholder to the intended                          sale and purchase of shares
and purchase agreement for                    purchaser.                                                 should take note of this case. It
the shares for $3.2 million. In the           The Court discussed various issues                         is not sufficient just to have an
interim, the company was placed               but ultimately re-iterated that                            agreement that is signed, sealed
into voluntary liquidation. The sale          legal title can only be passed on                          and delivered. The most important
of the shares was not registered              registration of a company’s shares                         part of the process is getting the
before the company was placed                 in the share register. Until the                           purchaser’s name onto the share
into liquidation.                             transfer is registered on the share                        register – for until that happens, the
                                              register, the purchaser only retains                       purchaser is not the legal owner
Under the Companies Act 1993,
                                              an equitable interest in the shares.                       of the shares in the company and
once a company is in liquidation,
                                              Before then, an agreement for the                          has no legal title to the shares.
its shares are prohibited from
being      transferred,    unless             sale and purchase, and even the



Reimbursements and Honoraria Paid to Volunteers
In New Zealand, services provided                                                                         Parliament to clarify how to treat
by a large number of community                                                                            reimbursement and honoraria
organisations are dependent                                                                               payments.     With    respect   to
on individuals who donate                                                                                 amounts received to reimburse
their time for the benefit of the                                                                          volunteers for expenditure that
community. In some cases the                                                                              they incur, the reimbursement will
organisation may reimburse costs                                                                          be defined as exempt income,
incurred, such as travel expenses                                                                         i.e., non-taxable and related
or provide a gift to the person in                                                                        expenses non-deductible. The
appreciation of their sacrifice.               The speaker receives no other                               amount of the reimbursement may
Alternatively, the person may                 payment.     One     interpretation                         be an estimate of the expenditure
receive an honorarium payment.                of the tax legislation is that the                          incurred, eliminating the need for
The correct tax treatment in these            speaker is defined as a “resident                            the volunteer to provide invoices
situations has often been unclear.            entertainer” and FBT is payable                             or other supporting documents.
The payer is often unsure whether             based on the value of the vouchers                          It should also be noted that
to deduct withholding tax or pay              (subject to the FBT exemption                               a reimbursement can be in
fringe benefit tax (FBT), while the            thresholds). Alternatively, if the                          the form of gift vouchers, as a
recipient may be unsure whether               speaker received a payment to                               reimbursement “amount” can be
or not the receipt is taxable.                reimburse expenses, the receipt                             paid in “money’s worth”.
                                              may technically be self employed
Consider a guest speaker at                                                                               Honoraria are currently, and will
                                              income and the expenses incurred
a University who receives gift                                                                            continue to be, captured as a
                                              would be deductible.
vouchers in appreciation of                                                                               ‘scheduler payment’ (formerly
the   speaker’s   contribution.               Draft legislation is currently before                       referred to as a ‘withholding

February 2009 - April 2009    A newsletter on business matters prepared by Wallace Diack for its clients and contacts                        3
payment’) and tax is required to             income. In order to benefit from                             or gifts in appreciation of a
be withheld. The draft legislation           the exemption a reimbursement                               volunteer’s service. It only applies
confirms that where a payment                 payment separate from the                                   to reimbursement of expenses.
is a combined honoraria and                  honoraria would be required.                                This should be taken into account
reimbursement     payment       no                                                                       when characterising what a
                                             It is important to note that the draft
portion will qualify as exempt;                                                                          payment to a volunteer is for.
                                             legislation does not cover the
the full amount will be taxable
                                             treatment of honoraria payments


Snippets
Update – Associated Persons Bill                                           Area of compliance                             Thresholds
On the dissolution of the previous Parliament leading                                                                  Original      New
up to the election 78 Bills lapsed, one of which was                       PAYE – Taxpayer able to file
the Taxation (International Taxation, Life Insurance,                      once a month if total PAYE
and Remedial Matters) Bill. This Bill consisted of                         / SSCWT deductions below
                                                                           this level.                                 $100,000     $500,000
draft legislation affecting a number of different
areas, including the taxation of offshore companies                        FBT - Taxpayer able to file FBT
                                                                           returns annually if PAYE
controlled by New Zealand residents, life insurers
                                                                           / SSCWT deductions below
and the introduction of rules specific to employee                          this level.                                 $100,000     $500,000
relocation payments. However, of widespread interest
                                                                           Use of Money interest safe
are the provisions in the Bill that relate to the reform of                harbour – residual income tax
the definition of “associated persons”.                                     threshold below which use of
In the context of land                                                     money interest will not be
transactions the provisions                                                charged.                                     $35,000      $50,000
of the Bill, if passed in their                                            GST registration – GST
existing form, will result in                                              registration required for
a significant expansion                                                     turnover above this level.                   $40,000      $60,000
of what persons will                                                       GST 6 monthly filing –
be deemed to be                                                            6-monthly filing allowed for
                                                                           turnover below this level.                  $250,000     $500,000
associated. The Bill in its lapsed form has been re-
instated and the closing date for submissions was 15                       GST payments basis –
                                                                           Payments basis allowed for
January 2009. At the time of writing it is unclear if the
                                                                           turnover below this level.                     $1.3M           $2M
“associated persons” rules as drafted are likely to be                     Low value trading stock
altered pursuant to the new Government’s position                          valuation – No stock
on the issue.                                                              revaluation required if
                                                                           estimated closing stock is
KiwiSaver – Comparing Salaries                                             below this level.                             $5,000      $10,000
Changes introduced by the last Government which
                                                                           IRD use of money interest rate   14.24%                      9.73%
prohibited an employer from paying employees on                            – Reduction of the interest    underpaid
KiwiSaver at a different rate than those who were not                      rates on overpaid and
receiving KiwiSaver were to come into effect on 1                          underpaid tax. (This change is    6.66%                      4.23%
April 2009. Consequently, KiwiSaver members were in                        effective from 1 March 2009). underpaid
essence to receive a higher rate of pay. The National                      Legal fees – Total level of
Government has repealed this move and employers                            expenditure under which full
are now free to look at the total remuneration for                         amount is deductible
                                                                           irrespective of whether item is
each person.                                                               of a capital or revenue nature.                 $0.00     $10,000
New Thresholds for SMEs
New compliance thresholds were introduced in the                               If you have any questions about the newsletter
July 2008 Tax Bill to provide some concessions for                               items, please contact us, we’re here to help
SMEs. Some of those thresholds have been adjusted
further and new measures introduced by the new
Government as part of its relief package for small to
                                                                                                    W
medium sized businesses, generally with effect from 1
April 2009. These concessions are meant to assist SMEs
                                                                            Level 2, Youell House, 1 Hutcheson Street, Blenheim
to reduce compliance costs. These changes are set
                                                                                  Ph 03 578 7389 wd@wallacediack.co.nz
out in the following table.

4                            A newsletter on business matters prepared by Wallace Diack for its clients and contacts   February 2009 - April 2009

				
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