Probationary Period for New Employees in Small Businesses – A Small Business Perspective

Ben Ridler

Ben is the Managing Director of The Results.Group, New Zealand's leading professional service provider of business coaching for larger-sized, privately-owned companies. It's nine practices across the country work with more than 200 New Zealand businesses weekly.

nullNZ is one of the easiest places in the world to start a business. It's also one of the hardest to stay in business. Every year we see thousands of new businesses start up and fail. Most are gone in the first 5 years but there's always another one to fill the void. That's not good. The economic and the social costs of this "new business conveyor belt" are huge.

With that in mind, I've been reading with interest the various opinions for and against a proposed probationary period for new employees in businesses with less than 20 employees. Having heard from the unionists, employment lawyers and politicians, I thought perhaps a small business perspective could help.

The "experts" need to realize that the biggest step in any business is to go from zero employees to one. The next biggest step is to go from one to two. When business owners aren't experienced in the hiring or management of staff, the fear of getting it wrong and the ensuing consequences, can be paralyzing. A bad hire can kill a small business.

If you survive that minefield, you'll face the equally daunting challenge of specialising your staffing requirement. Small businesses will normally hire technicians (people who do the actual work of delivering / creating the product or service), and maybe an admin person or two. When growth kicks in, the business owner becomes the bottle-neck. To sustain growth the company needs to start sharing out the many hats worn by the owner. That means employing specialist people. This stage is scary because the people we are employing are often smarter and have more experience than us, especially when it comes to employment law. Again, the amount of money and the crucial roles involved in this process can kill a business if you get it wrong.

A few business life times ago, my business partner and I employed a general manager to help run our fast growing company. He wasn't working at the time and therefore wasn't leaving a current position. It became obvious early on that we'd made a mistake. He didn't care and was happy to take us for a ride. We were also facing the loss of key staff if we didn't make the call to end his contract after only a month. With the recruitment fee already due, his salary paid for the month and the month's notice, the claim came in for wrongful dismissal seeking $50,000.

When you haven't dealt with this sort of thing it's incredibly stressful. We settled for just over half the amount on the advice that we would spend that much defending it, not to mention the distraction, the mental and emotional energy of going through the process. It nearly sunk us.
If it had, 16 other people would have been out of work and that company, still going strong 6 years later, would no longer be in existence. We owed it to them to get it right.

We banked the learning and got a lot better at hiring. Even today, we don't get it right all the time (no one does), but as a bigger company we can now carry the cost of our mistakes so it's not such a big issue. Bigger companies can buy their way out of a bad hire. Smaller ones can't. The once bitten, twice shy attitude that results from a bad experience can make a small business understandably reluctant to take on new staff. The result? Our small companies either fail or stay small.


The solution in my opinion is well-designed legislation, providing a probationary period for employees in small businesses. It's fair to employers, it gives potential employees a chance to show their quality, and would most certainly reduce the potential for costly dispute further down the line. It would encourage small businesses to grow, taking some of the risk out of bringing on new people, while performing the important function of getting people into work. With larger corporations starting to let people go in bigger numbers, there has never been a better time to do it.

I'll acknowledge that there are some mongrel employers out there who deserve everything that they get. But the reality is that they won't last in business any way. The vast majority of small business owners are hard working people who care about what they are doing. They want to be good employers and they're putting everything on the line to do so. These guys and their prospective employees deserve the chance to test their mutual fit and suitability. A probationary period for employees in small businesses would be a step in the right direction, encouraging small businesses to grow their capacity and their capability. The result? People working.

Kia Kaha – Ben

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