With the recent press around the proposed 90 day trial period for new employees in New Zealand (and well done to Rod for picking up on this as well), it seemed an opportune time to republish a piece I wrote for Unlimited magazine a few months ago – when the trial period was but a dream on the horizon.

Great to see some sense has been brought to the table – despite the unions trying to raise a rabble-mob on fear.

Read on – for the owner of a few small businesses perspective on why this trial period is positive for business…

Employment is shaping up as one of the big election issues. National has announced plans to introduce a 90-day trial period for employees in small firms – something long sought after by business lobby groups. As you’d expect, the unions and Labour have come out vehemently against the proposal.

The proposal stems from a private member’s bill a couple of years ago, which in turn arose from a recommendation from the government-appointed Small Business Advisory Group (SBAG). As an aside, it’s interesting to note how few of the SBAG’s suggestions have gained any real traction, which indicates to me that the government’s promises about listening to small business are just hollow platitudes.

The Council of Trade Unions has been quick and vehement in its damning of the proposal – no surprises there. It cites concerns it would create an underclass of workers employed for short terms and then booted out the door. But are the CTU fears really justified?

From where I stand as a businessperson and employer, it seems the CTU classifies me as a greedy scoundrel, ready to hire and fire workers with reckless abandon and without real cause. This view ignores the fact workers are the lifeblood of any business and no sane employer would toy with their most important resource.

When you’re an employer, employment law is a quagmire. And oh so daunting. Even before you take into account the cost of training an employee, there is substantial time and hassle involved in hiring someone.

So I think there are two very good reasons why everyone should be relaxed about the notion of a 90-day trial period for new workers and should have more faith that employers would not abuse it.

Firstly there is basic economics. Subsequent to hiring an employee, the business needs to train them. Various studies have estimated the cost of training a new employee at anywhere between 20% and 100% of their annual salary. Even for manual workers (and, let’s face it, the CTU is concerned the bill will negatively affect blue collar workers predominantly), a 20% cost of training is a substantial amount of money to outlay again and again. What sane businessperson would jeopardise this investment for no good reason?

Let’s take an example and do the maths. Jim is a production worker earning around $50,000 a year. Over the first three months of his employment (the probationary period suggested in the bill), his earnings would be $12,500. However, when you include the cost of training Jim, this figure changes drastically. Even given the lower end of the cost-of-training spectrum at 20% of his annual salary, the cost to the business of training Jim is $10,000.

From this example you can see that in the event Jim is let go at the end of his probationary period, he has cost the business $22,500 or $7,500 per month. On the other hand, if Jim stays employed for a full year, the total cost of employment is his annual salary of $50,000 plus the costs of training at $10,000. This results in a total annual cost of $60,000 or $5,000 per month. It may seem simplistic, but this example fuels my contention no employer would lightly terminate an employee after such a short period of time, at least in part because it would cost them money.

But the second good reason for supporting the proposal and, I believe, the more persuasive argument, is one of ethics. By and large, New Zealand business people have high ethics. I also argue the employers whom the CTU is most concerned about – those who manufacture domestically – have proven their ethics by making the decision to continue manufacturing here.

Even in the face of high compliance costs, a difficult employment marketplace and increasing competition from imported items, they continue to employ staff in this country rather than support cheaper labour offshore. As an employer myself, I am a little dismayed the CTU thinks I’m likely to terminate staff for no good reason, while at the same time it congratulates me and my fellow domestic manufacturers for keeping their members employed.

So let’s not be swayed by the hyperbole; the proposal is not a demon dressed up in flexible clothes. It is merely a method to make the employment process more flexible, and to encourage Kiwi employers to take the leap and increase staff numbers – which is a good thing for their businesses, their workers, and the CTU.

Ben Kepes

Ben Kepes is a technology evangelist, an investor, a commentator and a business adviser. Ben covers the convergence of technology, mobile, ubiquity and agility, all enabled by the Cloud. His areas of interest extend to enterprise software, software integration, financial/accounting software, platforms and infrastructure as well as articulating technology simply for everyday users.

3 Comments
  • Good news for employers.

  • I think it’s good news for everyone (employers and employees) … I know that it will encourage me (as a Small Business owner) to try staff out that I would normally have passed over.

  • A couple of years ago I employed a young guy, about 21, he didn’t really have any previous experience but was really into computing and so I thought I’d give him a go.

    I employed him on a probationary 3 month period, which under the Labour government didn’t really mean anything. Things pretty quickly started going wrong, he argued with some straight forward things I asked him to do, mainly around process, the kinds of things you pick up with experience, stuff like proper change control, etc.

    After about two months I was starting to get frustrated with his negative attitude, he was bringing the whole atmosphere at work down. I took him out for a coffee to talk about the issues and see if we could sort things out. This didn’t go well and I ended up giving him the sack.

    I immediately contacted my lawyer to see how I should handle the situation (yes, I know, closing barn doors, etc.) he said that rather than go through mediation and employment court, etc. I should pay the employee out. If he went to employment court the maximum he could expect was about $8,000 and so this is what I offered him. At first he didn’t accept but after I suggest we go to mediation he then agreed. The payout was more than he had earnt in his short time with me.

    As a small business having someone who doesn’t fit in and is disruptive has a huge impact on the productivity of the business. Since that situation I have been extremely reluctant to hire new young staff, giving them a chance to make it in a cool web development company. It’s a shame.

    I think the change of law to allow employers to end an employment relationship within 90 days without fear of employment court is levelling the playing field. I think with this change I would definitely consider giving younger guys an opportunity.

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