A business owner's guide to 90-day trial period’s in New Zealand
Ever hired someone who looked perfect on paper, but a few weeks in, you realised they just weren't clicking with the team or the role? For small business owners, a 90-day trial period can be a real lifesaver in these situations.
A trial period is a specific clause in an employment agreement for businesses with 19 or fewer employees. It’s a tool that allows you to assess a new hire's suitability for a role. If they aren’t the right fit, it gives you a pathway to end the employment without them being able to raise a personal grievance for unjustified dismissal.
What is a 90-day trial period anyway?
Think of it as a ‘test drive’ for a new employee.
It's a specific clause you must include in a written employment agreement, giving you a chance to properly assess a new hire's skills, attitude, and cultural fit within your business. It's a key tool for managing the risks that come with hiring.
If things don't work out within those 90 days, this clause allows you to end the employment relationship cleanly and with a bit more certainty. It provides a crucial safety net, giving you more confidence when bringing new people onto your team.
Key things to understand
Now, this isn't a free pass to dismiss someone for any reason. The key benefit of a correctly implemented trial period nz is that it removes the employee's right to bring a personal grievance for unjustified dismissal. That's a very specific protection for employers.
However, all your other obligations as an employer remain firmly in place.
You must still act in good faith and cannot dismiss an employee for reasons that are discriminatory or otherwise unlawful. Essentially, the trial period helps you manage the risk of a bad hire without removing all employee protections.
A trial period is only valid if the new employee has not previously worked for you in any capacity, and they must sign the employment agreement containing the trial clause before their first day of work.
While New Zealand has specific legislation for trial periods, understanding general at-will employment principles can provide valuable context on different approaches to employment termination globally.
The main takeaway? A trial period is a powerful tool, but only if you follow the rules to the letter. Get it wrong, and it’s legally worthless.
Trial period at a glance
To make it crystal clear, here’s a quick summary of the essential rules for using a 90-day trial period. Think of this as your non-negotiable checklist.
| Requirement | What it means for you |
|---|---|
| Employer Size | You must have 19 or fewer employees when the agreement is signed. |
| New Employee Only | The employee must not have worked for you before in any capacity. |
| Written Agreement | The trial period clause must be included in a written employment agreement. |
| Signed Before Work Starts | The employee must sign the agreement before they start their first day of work. |
| Notice Period | You must still provide the notice period stated in the employment agreement. |
| Good Faith | All your obligations to act in good faith still apply. |
Getting any one of these elements wrong can invalidate the entire trial period, so it pays to be meticulous with your process from the very beginning.
How to set up a trial period correctly
Getting the paperwork wrong for a trial period isn’t a minor slip-up. It can make the entire clause legally invalid, exposing your business to the very risks you were trying to avoid.
Think of it as a domino effect. One small mistake at the start can topple your entire defence if a dismissal is challenged later on. So, let’s walk through the non-negotiables to get your trial period setup right, every single time.
The golden rule of timing
This is the most critical step, and honestly, it’s the one we see businesses stumble on most often. The rule is simple, but it’s absolute.
The new employee must sign their employment agreement, which includes the trial period clause, before they start their first minute of work.
Getting a signature on their first day is too late. Even if they turn up at 9 am and sign the papers at 9:05 am before touching their keyboard, the trial period is likely invalid in the eyes of the law. The agreement has to be finalised before the employment relationship officially begins.
And just to be clear, verbal agreements won't cut it either. If you’ve only discussed a trial period but it isn’t in the signed, written contract, it doesn’t legally exist.
What the employment agreement needs
For the trial period clause to hold water, it must be clearly written into the employment agreement. There’s no room for ambiguity here.
The clause must state:
That for the first 90 days (or a shorter period, if you prefer) of employment, the employee will be on a trial period.
That during this time, you may dismiss the employee.
That if you do, the employee is not entitled to bring a personal grievance for unjustified dismissal.
This infographic lays out the key legal steps you have to follow.
The visual flow highlights how each piece of the puzzle, from drafting the clause to managing the notice period, is a crucial part of a compliant process.
It’s also best practice to specify the notice period that will apply if the employment is terminated during the trial. Even with a trial period, you are still required to provide notice as per the agreement.
Getting these fundamentals right is essential, but it's just one part of your broader HR responsibilities. For more guidance, check out our complete guide to HR support for small businesses. Dotting the i's on your contracts ensures you can confidently manage your team while protecting your business.
Why trial periods are a strategic hiring tool
Ever had that moment of hesitation before clicking "send" on a job offer? You know the feeling. You’ve found a candidate with a fantastic attitude and heaps of potential, but their CV doesn't tick every single box. In a tight economy, taking a chance can feel like a huge risk.
This is where a trial period clause stops being a simple HR formality and becomes a powerful strategic tool.
Think of it less as a safety net and more as a confidence booster. It gives you the breathing room to hire for potential, not just proven experience. When you reduce the perceived risk of making the wrong call, you’re far more likely to give a promising candidate a fair go-which is a brilliant way to uncover hidden gems in the talent pool.
Building a more resilient business
This isn’t just theory; it has a real impact on your business's stability. During uncertain economic times, it's common to see hiring freezes because the cost of a bad hire feels so much bigger. Businesses that use trial periods, however, can approach recruitment with more assurance, helping them adapt and even grow when others are pulling back.
An independent analysis by the New Zealand Institute of Economic Research (NZIER) looked into this exact issue during the turbulent years of 2007-2009. Their research found that firms using trial periods maintained job numbers at a rate about two percentage points higher than those that didn't. You can dig into the numbers in the full NZIER research paper.
This suggests that trial periods don’t just protect you from a single bad hire; they can contribute to broader workforce stability and business resilience, especially when the economy is shaky.
By turning a trial period from a reactive measure into a proactive part of your recruitment strategy, you can build a stronger, more adaptable team. For a wider look at optimising your recruitment, it's also worth exploring these hiring best practices.
Of course, managing these HR functions effectively takes time-something most business owners are short on. If you're wondering what your options are, you might find our article on whether you should be outsourcing HR helpful. It’s all about making smarter, more confident hiring decisions that support your long-term goals.
How to manage the 90-day period effectively
A trial period shouldn't feel like a 90-day countdown to a dismissal decision. Think of it less as a test and more as an extended onboarding process. It’s a golden opportunity to set your new hire up for success, turning a promising candidate into a valuable, long-term asset for your business.
This is your chance to be proactive, not just reactive. By actively supporting your new team member from the get-go, you give them the best possible chance to find their feet and thrive.
Set crystal-clear expectations from day one
Clarity is your best friend during a trial period. Your new hire needs to know exactly what success looks like in their role. If you leave them guessing, you’re setting them up to fail.
Start with a simple induction plan. This doesn't need to be a massive document; a one-pager covering the first week's goals, key people to meet, and essential tasks is perfect. You can even get a head start on this by checking out our advice to nail your onboarding before they even start.
A successful trial period is built on open communication and mutual understanding. The goal is to remove uncertainty so your new employee can focus on doing great work.
Make check-ins regular and informal
Forget stuffy, formal performance reviews during the trial period. The aim here is to build rapport and provide timely, constructive support, not create pressure. Schedule regular, informal check-ins to see how things are going.
Weekly catch-ups: A quick 15-minute chat over coffee every Friday is ideal. Ask what went well, what challenges they faced, and what support they need from you for the week ahead.
Constructive feedback: Frame your feedback positively. Instead of saying, "You did this wrong," try, "Next time you tackle that task, here's an approach that might make it a bit easier."
Two-way street: Ask for their feedback too. What could the business do to help them settle in faster? This shows you value their perspective and are invested in their success.
During these 90 days, it’s also critical to evaluate how a new employee is aligning with your company’s values and ways of working. Exploring effective cultural fit assessment strategies can help you make informed decisions about their long-term potential.
This proactive approach helps you spot any potential issues early and address them constructively, giving your new hire every opportunity to succeed.
Ending employment during a trial period
Sometimes, despite everyone's best efforts, a new hire just isn't the right fit. Handling a dismissal is always a tough conversation, but a valid trial period provides a clear and structured process. Let’s walk through how to manage this situation correctly and respectfully.
Even with a trial period clause in place, you can't just tell an employee to leave on the spot. You still have a legal requirement to provide notice, as specified in their employment agreement. Forgetting this step is a common mistake that can lead to unnecessary disputes.
Understanding your duty of good faith
One of the most important things to remember is your duty of 'good faith'. While a trial period means you don't have to give a detailed, formal reason for the dismissal, it doesn't remove your obligation to be fair and honest.
So, what does acting in good faith look like in this scenario?
Honesty: Don't mislead the employee about their performance or the reason for the decision.
Fairness: Give them an opportunity to respond or ask questions during the dismissal conversation. You must not have made a final, unchangeable decision before meeting with them.
Communication: Clearly explain that their employment is ending under the terms of the trial period clause in their contract.
The core idea behind good faith is treating people with respect. It's about ensuring the employee isn't blindsided or treated unfairly, even when delivering difficult news. This protects both the employee's dignity and your business's reputation.
The dismissal conversation step-by-step
Holding this meeting can be nerve-wracking. Having a clear plan helps you stay professional and empathetic.
Arrange a private meeting: Choose a confidential space where you won't be interrupted. It’s also good practice to have a witness present, such as another manager.
Be direct but compassionate: State the purpose of the meeting clearly from the beginning. For example, "Thanks for meeting with me. Unfortunately, I have some difficult news. We've decided to end your employment under the trial period provision."
Explain the next steps: Clearly outline the notice period, their final pay details (including any accrued annual leave), and the process for returning company property.
Listen and answer questions: Allow the employee to speak and respond to any questions they have honestly.
This tool is widely used by Kiwi businesses to manage recruitment risks. Data from New Zealand's Ministry of Business, Innovation and Employment (MBIE) showed that of the 63% of firms using trial periods, around 20% had dismissed at least one employee during or at the end of the trial. You can read more about these findings on trial period usage.
Following a fair and lawful process ensures you can use this provision effectively while treating people right.
Common mistakes and myths about trial periods
There's a lot of misinformation floating around about 90-day trials. For time-poor business owners, getting tripped up by a myth can lead to a real headache.
Let's bust a few of the most common ones we hear.
One of the biggest misunderstandings is that a trial period nz clause means you can fire someone on the spot. This is simply not true. You are still legally required to give the employee notice as specified in their signed employment agreement.
Another common myth? That the trial period is an automatic safety net for every new hire. It only applies if it's correctly included in a written employment agreement signed before the employee starts work. If you forget this crucial step, the trial period is invalid.
Employee rights are still in place
It’s a huge mistake to think a trial period removes all of an employee's rights. While it protects you from a personal grievance for unjustified dismissal, it does not give you a free pass on your other obligations.
Employees on a trial period are still fully protected from:
Unjustified actions: You can't do anything that disadvantages them unfairly, like suddenly cutting their hours without a good reason.
Discrimination: You cannot dismiss someone for reasons related to their age, gender, ethnicity, or any other prohibited ground.
Harassment: Your obligations to provide a safe workplace free from harassment remain firmly in place.
Think of it this way: the trial period is a specific tool for assessing job fit, not a blanket exemption from being a good and lawful employer.
Interestingly, trial periods are often used for hiring younger workers who may have higher churn rates. Research shows that a large proportion of employees on trials are under 25, a demographic where employers often want to minimise hiring risks. You can discover more about these demographic patterns and see how these tools are used in practice.
Got questions? We've got answers
We hear these questions all the time from Kiwi business owners navigating the 90-day trial period. Think of this as your quick-fire guide to staying compliant and confident.
Can I extend a 90-day trial period?
Straight up, no. The law is crystal clear on this one: a trial period must be for 90 consecutive days or less. It can’t be extended, paused, or stretched out, no matter the reason.
If you’re nearing the end of the 90 days and still feel on the fence about a new hire, you’ll need to shift gears. From that point on, it’s back to your standard performance management processes, just as you would for any other employee on your team.
What if I forgot to put a trial clause in the contract?
This is a really common slip-up, and unfortunately, it can be a costly one. If the trial period clause isn't included in the written employment agreement that the employee signs before they start their first day of work, then legally, it doesn't exist.
You can't just add it in later or rely on a verbal chat you had. Without that clause in the signed agreement, the employee has full protection against personal grievance claims for unjustified dismissal. That safety net you thought you had is gone.
An invalid trial period is the same as no trial period at all. Getting the timing and the paperwork right from the very beginning is absolutely essential to ensure the clause is legally enforceable.
Do I have to pay an employee if I dismiss them during the trial?
Yes, absolutely. A trial period changes the rules around dismissal, but it doesn't change your fundamental obligations as an employer.
You must pay the employee for every hour they’ve worked, right up until their employment ends. This also includes paying out their notice period as specified in the agreement and any annual leave they've accrued along the way. Your responsibilities under the Holidays Act are not affected by a trial period.
This article reflects employment law and best practice in New Zealand as at July 2024. It is intended as general guidance only and does not replace professional legal advice tailored to your situation.
