The 90-day trial: Help or hindrance?

Being able to trial new employees for 90 days before making them permanent has been a win for employers, according to a report by the Ministry of Business, Innovation and Employment (MBIE).

Legislative amendments to the Employment Relations Act 2000 introduced the trial period in 2011 with the goal of giving businesses more confidence to take on new staff and encouraging them to provide more job opportunities for disadvantaged jobseekers.

The MBIE report said employers had reported that the trial periods reduced the potential costs of dismissals, without adding any additional costs.

Results from the National Survey of Employers showed that 72% of employers who had used trial periods had not dismissed an employee while on trial, while 27% had dismissed at least one worker either during or at the end of the 90-day period.

“Interviews with employers who had dismissed staff indicated they followed correct procedures and said they were more comfortable that there would be no comebacks,” the MBIE report said.

The results came as no surprise to BusinessNZ chief executive Phil O’Reilly, who told HRM he’d had positive feedback from employers about the trial periods.

“That lines up with the anecdotal evidence I’m hearing from small business, that it’s probably the single most positive change to the labour relations environment for small business that they’d seen in the last 10 years. It really helped them a lot.”

O’Reilly said that OECD research suggested that small start-up businesses tended to be the job growth engines in economies.

“Large companies employ lots of people, but they’re not going to employ 1,000 new people anytime soon. They tend to employ about the same number. Over time it’s a big number, but it doesn’t grow. So the little guys, they tend to employ the new people. That stands to reason, because they start up and get a new market and need to hire people.”

He said the start-ups tended to be fragile, cash-flow companies with a limited balance sheet and little headroom for failure, which made hiring new staff a big risk.

“The perceptions they used to have around the cost of getting that decision wrong – personal grievances, pay-outs, time in the courts and that sort of thing – was really getting in the way of them making that decision.

“They would tend to either delay that decision until they were bigger or they would have a very risk-averse view of hiring. So they would hire only someone with precisely the right experience and CV. Would they hire someone at the margins – a young kid right out of school or someone coming back to the labour force after a long period away? They would see that as quite a risk because of the potential cost of it going wrong,” said O’Reilly.

He said trial periods enabled businesses to take a chance on jobseekers who weren’t the traditional candidates they’d be looking at, because they had 90 days to see if the employee was suitable for the role.  

However, the MBIE report also highlighted evidence from “a few employers, employees, unions and employment experts” that the trial periods encouraged some employers to adopt a short-term “hire and fire” employment pattern.

O’Reilly said that while such activity might exist, it was at the margins.

“You’re always going to get employers who are untrustworthy, just as you’ll get some employees who are untrustworthy. If an employer is doing that, it’s not logical for them because they’re losing money when they do. There’s a cost of doing that business. There’s a cost of hiring and rehiring and the lack of productivity that you get in that first 90 day period anyway. While some employers at the margins may do that, my impression is that the vast majority of employers use it responsibly and it’s entirely logical that they would.”
 
How helpful have you found the 90-day trial period? Have you dismissed any employees during or at the end of their trial?