Most entrepreneurs at some point need to hire their very first true employee to achieve their objectives for expansion and increased profitability. Selecting the person you want to employ is, however, just the beginning, as the next steps towards actually engaging them require close attention to vital legal and regulatory matters.
But with entrepreneurs typically focused on running their businesses they can be tempted to ‘wing it’ and not go through the proper processes, which can result in legal action, fines and loss of reputation and business.
Two people who know this more than most are Charlie Johnson, CEO of recruiter BrighterBox, and his wife, employment lawyer Jane Johnson owner of JLJ Legal, both specialising in helping start-ups and SMEs across a range of sectors.
Below, they highlight seven key points that must be followed without fail to ensure taking on your first employee goes as smoothly as possible.
1. Register as an employer with HMRC and set up a payroll
As soon as you know you are going to employ someone, do this before their first payday – although you cannot do it more than two months before they begin work. It’s a simple process that can be done online via www.gov.uk, but in order to pay your employee you need to set up a payroll system. It’s best to contact one of the many specialist outsourcing payroll companies to do this for you. They will take all the hassle of looking after things like pension contributions and national insurance, and ensure any employees pay the right tax to save you grief later.
2. Check your employee has the legal right to work in the UK
You can check this online if the employee has given you their “share code”. If they haven’t, It’s a very simple process of asking the appointee for their passport or UK driving licence, or if a foreign national, for any relevant visas and associated paperwork. It’s a good idea to ask for a utility bill with name to confirm their residence. You need to check these documents carefully and look for any obvious discrepancies on dates or the pictures used or if the documents seem less than genuine. If you are not sure, and still want to proceed, consult a lawyer. If you knowingly employ someone you know (or could reasonably have known) does not have the legal right to work, you face a fine as much as £20,000 per individual.
3. Ask a professional screening company to run a Disclosure & Barring Service (DBS) check, if required
Any person involved in working with children or vulnerable people in care homes or hospitals, for example, or regulated professions such as lawyers, accountants, vets, chemists and opticians, must pass a check by the government’s DBS. This ensures that they are a fit person to work in these environments. It’s easy and relatively inexpensive to use a specialist company registered with the DBS that will do this for a set fee and decide exactly which DBS check you need to undertake. Alternatively, you can ask the employee themselves to apply for DBS check on www.gov.uk, for a £23 fee and provide you with the relevant paperwork but you must check it thoroughly.
4. Ensure you’re familiar with and pay the correct minimum wages
There is the National Minimum Wage for people aged 16-24 and the National Living Wage for those aged 25-plus and slightly different rates for those in apprenticeships and living in London. The pay rates are reviewed every April and failure to comply can result in fines of up to £20,000. Full details can be found on www.gov.uk – if in doubt consult your accountant.
5. Purchase employer’s liability insurance
This basically guarantees you are covered for any compensation claims arising if your employee becomes ill or is injured at work. By law you must display the Employer’s Liability Insurance certificate in your premises or office. It’s an easy one to sort out though, you just need to go to a good insurance broker to ascertain the right level of cover for the best price. Under no circumstances be tempted to underinsure – your policy must cover you for at least £5 million. You can be fined £2,500 every day you are not properly insured.
6. Ask a lawyer to draw up a written statement of employment particulars
A written statement of employment particulars – sometimes known as terms and conditions or contract of employment – has to be issued if employment is for more than one month and must be issued within two months of the person starting work. It is effectively a legal minimum contract that covers key aspects of the employment, such as: start dates, place and hours of work, holiday allowances and conditions for terminating employment. Avoid using a free, off-the-shelf template statement, they are usually not worth the paper they are written on.
7. Auto enrol your employee into a workplace pension
You are obliged to set up and contribute to a workplace pension for anyone who is a worker or employee who is aged between 22 and the state pension age, who earns at least £10,000 a year and normally works in the UK. If they are under 22 and earn less than £10,000 but ask to join, you still need to enrol them. Your legal obligations begin on the day your first member of staff begins working for you – known as your duties start date – and you must complete a declaration of compliance to the Pensions Regulator within five months of your duties start date. Failure to auto enrol an employee can result in a fine of up to £10,000. A workplace pension can be pretty tricky to set up on your own, so always talk to your St. James’s Place Partner who can help you find an appropriate, manageable pension for your business.
This article is written for the St James’ Place Entrepreneurs Club newsletter. The opinions expressed by third parties are their own and are not necessarily shared by St. James’s Place Wealth Management.
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