Ready to take on your first employee? It’s a huge step for your business and one that, if you get it right, could be the catalyst for greatness.
But when you are upsizing from being a sole trader to an employer, you need to think about the nuts and bolts. How much does an employee cost? What do you need to add to your business to become a legitimate employer? What are the risks involved?
You need to weigh that up against the benefits - scaling up your operation, increasing profitability, building a business for the long-term.
This handy guide will help you think about the pros and cons of employment. Ultimately, business survival relies on growth, so inevitably if you are successful you’ll need to employ someone sooner or later. Here are a few things to consider...
One of the most significant impacts an employee can have on a business is the cost of their salary. So first you have to know how much you can afford to pay them. Legally you have to meet the UK minimum wage:
There’s more detail about the minimum wage here. Remember, you may offer minimum wage, but will that recruit have the skills or knowledge you want? Know your industry average and be sensible in what you offer to attract the right candidate. It’s not just wages you need to consider though, you also need to make National Insurance contributions - 13.8% of employees pay - and you need to auto-enrol them in an appropriate pension scheme, into which you must pay contributions. According to the Pensions Regulator, 67% of employers with 1-2 members of staff managed to set up auto-enrolment for staff without incurring setup or advice fees. Employer contributions are 1% until April 2018, then rising to 3% by April 2019.
If you’re not sure you can afford to pay someone full time, you could consider employing someone part-time to reduce the cost. Plus it could ease yourself into the idea of being an employer!
If you’ve never employed someone before you’ll need to put a few things in place. Ensure that you have suitable liability insurance (see the Legal Costs section) in place to protect everyone within the business. Speak to your accountant about whether you need payroll services. You can manage your first employee’s wages yourself but you need to know what you are doing to ensure salary payments go through and all taxes are paid.
You may feel it unnecessary but it is also worth considering retaining a Human Resources service provider, to help you put appropriate policies in place on behaviour and expectations and to help manage grievance situations should they arise. An independent agency offers protection for both employee and employer in smaller businesses without their own HR infrastructure.
The recruitment process
So now you’ve decided you can afford an employee, recruiting them is the next step. But how are you going to find them? Using a recruitment agency to find someone could cost you 20% of your employee’s first salary! Posting an ad on social media is free, but your audience, unless you put some paid budget behind it, is limited to the people who follow you. When interviewing a potential employee Acas - the Advisory, Conciliation and Arbitration Service - have some great tips:
Salary Sacrifice Schemes
If you still want to find savings in the cost of an employee’s salary, you could make salary sacrifice schemes part of your offer. By allowing employees to give-up a fraction of their pre-tax salary to fund childcare vouchers, a cycle to work scheme or other specific benefits, you can reduce your National Insurance contributions and the overall cost of employment. The Government has more advice on that here. Often salary sacrifice schemes are seen as benefits by employees so it could be a win-win option.
Having an employee means your company will need liability insurance. You’ll need insurance of up to £5 million to cover any harm that could come to your employees on site. More details about this insurance can be found here. Fail to put this in place and you could be fined up to £2,500 per day.
You also have to give your employee a contract of employment within four weeks of taking them on. You should take advice from an employment specialist solicitor on this. Obviously this will cost you money but messing up your employee’s contract could prove massively costly.
Before giving your employee their contract, check that they’re legally allowed to work in the UK here. Otherwise you could risk another hefty fine.
Becoming an officially registered employer
Within four weeks of employing your first member of staff, you’ll need to register as an official employer with the Government. You can find more information about becoming an employer here. On top of this, you’ll need to register your employee’s payroll details to let the government know how much they need to tax your employee. Plus it’ll help you calculate the deductions that’ll need to be taken off your employee’s salary.
As a sole trader you may remember, in the distant past, what a holiday was. However, as an employer you can’t expect the same single-mindedness from your workforce. All employees are entitled to a 20-minute break per six hours of work. They should also have at least 5.6 weeks paid holiday per year, as you can read about here. It’s proven that employees who take regular breaks work better. Despite how much devotion you may want your employee to have to your business, making sure they get some well-deserved rest is needed. It’s probably good advice for you too!
If your employee becomes ill, you need to know what their entitlement is. You need to ensure this is spelt out clearly in their contract too. Employees are entitled to a minimum of 28 weeks off with sick pay so long as they provide you with a ‘fit note’ from their doctor that excludes them from working due to their condition.
If your employee falls pregnant they are entitled to maternity leave. If they are the spouse of a pregnant individual, they are entitled to paternity leave. Again, these need to be detailed clearly in the contract of employment. Having someone off long-term may not be ideal for your business. But these are risks you have to consider when hiring someone and bear in mind, if you remain a sole trader, you have no safety net if you fall ill or pregnant, at least as an employer your business doesn’t need to grind to a halt!
No-one wants to think that a business relationship will turn sour but sometimes things happen and employees log grievances. This is where an HR agency or adviser and a robust HR policy will prove their worth. No matter how fair you are, sometimes employees find reasons to make formal complaints and you need to not only be prepared for them, but be certain your employee knew your HR policies from the start so they can progress them professionally. There are standard complaints procedures you can follow:
Source: National Archives
Having a standard procedure can make handling issues simpler. But if a problem isn’t easily solved, you could be dragged into costly legal battles. So it’s worth considering the risk of this happening when employing staff.
So, is employing staff worth it?
After reading this, you might think hiring someone isn’t worth it. And if your business is still relatively small, hiring someone may not be the right choice for you now. But employing a member of staff can have its benefits. Having another co-worker can take a lot of the pressure off you and resolve some of the issues that growth can pose for a sole trader:
Once you’ve set up insurance and registered everything online, having an employee can be pretty simple to manage. Plus it can be positive in giving you more time for yourself and your business. So it’s worth seeing if the effort hiring an employee can help you in the long run.
Follow us on Twitter @OregaOffices for more tips and updates!