Collective Agreement vs Individual Employment Agreement NZ: What You Need to Know

In New Zealand, the Employment Relations Act 2000 outlines two types of employment agreements that set the terms and conditions of a working relationship: individual employment agreements and collective agreements. 

While both agreements serve the same purpose, they differ in several ways.

For example, individual employment agreements govern a specific relationship between an employer and an employee, while collective agreements involve a trade union representing a group of employees. 

It is important to understand the differences between these agreements, as they can significantly impact an employee's working conditions and an employer’s business rights.

So, in this blog, we'll explore the differences between collective agreements and individual employment agreements and what you need to know as an employer or employee in New Zealand.

These agreements usually cover areas such as hours of work, pay and benefits, job duties, and other relevant employment conditions such as employee and employer breaches. 

Individual employment agreements are typically unique to each employee and may reflect individual needs and circumstances, such as the employee's experience level, the specific nature of their job and employment type (i.e. full-time, part-time and casual employment). 

In New Zealand, all employers must have a written agreement with their employees. The conditions shouldn’t include any less favourable provisions than those outlined in the relevant legislation, such as the Minimum Wage Act 1983 or the Holidays Act 2003.

For example, the Holidays Act specifies that employees should receive at least three weeks of paid annual holidays after 12 months of continuous service with their employer. So, an individual employment agreement can’t specify anything less than that. 

The Holiday Act also deals with public holidays, domestic violence and sick leave. 

You may be interested in reading our Guide to Employment Law NZ: Holidays Act 2003

What Makes a Well-Drafted Individual Employment Agreement?

Some key elements that contribute to a well-drafted individual employment agreement include:

• Clarity: The agreement should clearly state the terms and conditions of the employment relationship, including the employee's duties and responsibilities, hours of work, and pay and benefits.
• Compliance: The agreement must comply with all relevant employment laws and regulations.
• Customisation: The agreement should be tailored to the employer and employee's specific needs and consider any unique aspects of the working relationship.
• Specific provisions: The agreement needs to include specific provisions, such as confidentiality clauses, dispute resolution procedures, and non-compete clauses, as required.
• Update clause: The agreement must include a provision for regular review and updating of the terms and conditions of the contract.

Employers should always consult with a legal professional when drafting individual employment agreements to ensure compliance with employment laws and protect their interests.

On the other hand, employees should seek legal counsel if they have concerns or are unsure about any provisions in the agreement before signing. 

Legal assistance can help prevent misunderstandings and disputes and ensure a well-drafted agreement that benefits both parties.

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It is a written employment agreement typically negotiated between the employer and the trade union, and once agreed upon, they apply to all employees covered by the agreement.

This means that the terms and conditions are standardised for the group of employees individual negotiations aren’t required. In other words, the agreement applies to the group of employees as a collective rather than an individual.

What is a Trade Union Employment Relationship? 

​​A trade union is an organisation that represents the interests of workers and employees in a particular industry or profession. The primary goal of a trade union is to negotiate with employers on behalf of its members to secure better working conditions, wages, and benefits.

Trade unions also provide support and representation to their members in disputes with employers and offer a range of services, such as legal assistance, training, and advice on employment-related issues. 

Membership in a trade union is voluntary, and employees who are members of a trade union have the right to participate in union activities and to have their views represented in negotiations with their employer.

In many countries, including New Zealand, trade unions are recognised as important partners in the employment relationship and are involved in negotiating and administrating collective agreements.

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• involves a registered union,
• covers a minimum of two employees, and
• can apply to all or some employees in a workplace.

Beyond that, an employee's job role must fall within the scope of the collective agreement to be covered, and the employee must be a member of the union that negotiated it.

Non-union workers may engage in collective bargaining with employers, but the negotiations can only result in identical or similar individual employment agreements, not a collective agreement. 

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Automated payroll software can be invaluable in navigating both collective and individual agreements in the workplace, especially if both cover employees. Some ways automated payroll software can help include:

• Tracking: Automated payroll software can track and manage the different terms and conditions for each employee, including those covered by collective and individual agreements.
• Compliance: The software can ensure that all employees are paid in accordance with their respective agreements and relevant employment laws.
• Record Keeping: The software can maintain accurate records of all employment agreements, enabling you to access and reference them when necessary.
• Calculations: The software can automatically calculate and process payroll based on each agreement's specific terms and conditions - minimising the risk of human error. 
• Reporting: Automated payroll software can generate reports on employee payroll and leave entitlements, making it easier to understand and manage the terms of each agreement.

Using automated payroll software can help to streamline the process of managing collective and individual agreements, reducing the risk of errors and ensuring compliance with relevant employment regulations.

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Understanding the key differences between the two, such as the number of employees covered and the involvement of trade unions, is important for both employees and employers. 

To ensure the best outcomes, employers should always seek legal assistance when drafting employment agreements, and employees should seek legal counsel if they have any doubts before signing. 

Automated payroll software can also be a valuable tool in managing and navigating these agreements, with features like compliance tracking, accurate record keeping, and efficient payroll calculations.

If you want to learn more about payroll software, contact Pay Cat today. 

We’re a team of payroll experts who specialise in assisting employers in utilising automated payroll software to improve their payroll processes.

As part of our services, we will collaborate to understand your unique requirements and provide tailored solutions to meet those needs.

Our services include software implementation, training, support, and ongoing maintenance.