Recruiting your first employee is a really exciting time in a business but it can also be a bit scary too. Here are some questions you should ask yourself before you start your recruitment campaign.
- Do I need an employee or a contractor?
This can be a tricky question to answer as employees and contractors both have their benefits and drawbacks.
One of the main differences between an employee and contractor is the level of control that you can exert over the relationship.
For example, in an employment relationship you are exchanging an individual’s time and expertise for their salary and as an employer you can then control to a large extent the location, days and times and way in which the work is done. An employee does not have the right to say that they will not do the work you ask if they have signed a contract to say that they will do that work, nor can they ask someone else to do the work for them unless this is approved by the business.
When you engage a contractor you lose a large proportion of that control and instead the contractor can usually decide if, where, when and how the work is done in agreement with the business. A contractor can also choose to send a substitute to complete the work which an employee cannot. However, a benefit of a contractor engagement is that the financial runway is often shorter as there is no statutory minimum notice period to consider.
You need to be careful if you engage a contract when the role is actually that of an employee as you could be deemed to be avoiding your employment and tax obligations. In these circumstances, the Check Employment Status Tool (CEST) is a useful resource.
If you decide that an employee is the right decision for you then read on to find out more about your legal obligations.
- Can I afford it?
The salary budget is often the biggest budget within an organisation so you need to be sure that you have the long term finances in place before you consider committing to any recruitment campaign.
Your budget will need to include more than just the individual’s pay which we’ll discuss later. If there is the possibility that you won’t receive the investment/funding/revenue that you hope you will then you should check that you have a sufficient financial runway should you need to downscale. The employee runway will be dependent on the notice periods that you agree but a six month runway is a good start.
- Do I need to tell anyone that I’m employing someone?
Yes. To set up your company payroll you’ll need to register as an employer with HMRC to get a Company PAYE reference number.
You have a legal obligation to provide your employees with an itemised payslip. You can either do this yourself through your HMRC portal or you may choose to outsource managing your payroll to an accountant. This will be an additional cost that will need to be included within the budget.
- How can I protect my business?
Employers Liability Insurance is essential from employee # 1 and will protect the business from compensation costs if your employee becomes ill or injured as a consequence of their work.
You can also consider optional extras such as legal insurance that you could use should you need to defend the business from employment tribunal claims.
- Do I need to check that they are eligible to work in the UK?
Yes. You have a legal obligation to check that every employee has the correct documentation to work in the UK. You can be sent to jail for 5 years and pay an unlimited fine if you’re found guilty of employing someone who you knew or had ‘reasonable cause to believe’ did not have the right to work in the UK. Employers can outsource this to an organisation that uses Identification Document Validation Technology (IDVT) should they wish but that will be an additional cost to include in the budget.
- What other costs will I need to budget for?
All employers are expected to pay HMRC National Insurance Contributions. You should check gov.uk for the current rates but in April 2022 until April 2023 it is 15.05% of an employee’s monthly salary.
Employer Pension Contributions
Many employees are eligible for auto-enrolment into a company pension scheme, such as Nest. If they are eligible then you will need to make a contribution of around 3% of their monthly salary.
If your employees work a five-day week then they will be entitled to at least 28 days’ paid annual leave a year (equivalent to 5.6 weeks of holiday). This will be pro-rated for those working less than five days.
Employees must get their full normal pay for any time they work during their notice period so you should consider what notice periods you set within their contract of employment and balance the risk of them leaving the business with your own financial runway.
You might choose to offer your employees other benefits such as enhanced maternity leave and pay, paternity leave and pay, compassionate leave, sick pay, bonuses, enhanced holiday pay. You should build the statutory entitlement and any enhancements into both your budget and also your financial runway.
- What documentation do I need to give my employees?
You’ll need to issue a contract of employment which confirms the role details, salary, hours and entitlements and procedures such as holiday, notice period, sick pay, grievance, disciplinary and more. You will also need to ensure that you have a Health & Safety policy once you employ five or more people.
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If you’d like to explore your options before you recruit your first employee then click here to arrange a 30min zoom call with Vic to discuss further.
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