Whether you are growing through outside funding and investment or going it alone, it's likely you will need to grow your team and take on employees to scale your business.
In this latest insight in our Start-Up series we look at the key considerations when taking on employees for the first time.
Hiring can be an exciting time but it brings a wide range of legal obligations and things to consider.
The first key consideration is the employment status of your new team member. Are they going to be a full-time or part-time employee? Perhaps you are considering needing someone for a fixed period of time, or could gain the expertise and assistance you need via a consultancy arrangement.
There are legal differences between "employees", "workers" and "contractors". The growing 'gig economy' has led to a rise in litigation on the question of worker status and associated employment rights and responsibilities in the workplace, so it is important to define this upfront and understand your obligations accordingly.
As your business grows, it is worth noting that from April 2020, medium and large companies in the private sector that contract with personal service companies for the provision of workers' services will have to account for tax and national insurance through PAYE in the same way as the public sector has been required to do since April 2017 and this may impact on your preferred recruitment methods. Take a more detailed look at proposed IR35 changes.
A good recruitment process helps you find the best people for your business and ultimately saves you time and money through a positive start to an employment relationship. A bad hiring decision can be disruptive and time consuming.
A good start is to produce a well-defined job description outlining the main tasks and duties of the role, and any key responsibilities, such as health and safety, the role may involve.
Fair treatment through recruitment is a legal obligation. Advertising and selection needs to be carried out in a fair and objective manner, free from discrimination. You need to bear in mind there are particular protected characteristics and may have to make reasonable adjustments to ensure your process does not place an applicant at a disadvantage.
Growing quickly? In Northern Ireland, once you have 11 or more employees working 16 hours or more per week you will be required to register with the Equality Commission and monitor the composition of your workforce in terms of community background and sex, as well as periodically review your employment practices to ensure fair participation.
You may find that the individual(s) you wish to recruit are from outside the European Economic Area (EEA), in which case you may wish to consider applying for a Sponsor Licence from the Home Office to allow you to employ them. Regardless of who you employ, you must check that they have the right to work in the UK before they start working for you. You could face criminal penalties if you don't.
A contract of employment is a legally binding agreement between an employer and employee which comes into effect when an employee agrees to work for an employer in return for pay.
Although a contract can be made orally, it is best practice to have it in writing and whichever UK jurisdiction you operate in, you will be legally required to provide certain basic particulars of employment in writing.
You may of course wish to draw up a more comprehensive contract of employment but the following main terms and conditions of employment are legally required as a minimum.
The law requires you to give a written statement to all employees who have been in employment for at least a month, within two months of employment starting. Any changes to the statement must also be notified in writing within one month of the change.
While it might seem like a lot of effort upfront for your first employee and there is no legal requirement to provide one, a well drafted Employee Handbook can provide a home for your organisation's policies and procedures. These can include policies covering family friendly matters, equal opportunities, social media/internet use, and bullying and harassment, or other industry or business specific policies that could benefit your business. They can be tailored to your venture's size and operational structure and provide an opportunity to communicate expectations that reflect your business values.
In terms of best practice as an employer, it is preferable in general terms to make your handbook non-contractual so as to provide greater flexibility to make amendments in the future. This can also help limit the risk of breach of contract claims brought by employees who may allege a failure by an employer to adhere to policies.
Although no-one wants to start an employment relationship expecting the worst, considering upfront what will happen when the employment relationship ends, from either side, is prudent and will help minimise risk and disruption for your business.
In start-up businesses with new technology or services in development, it is important to consider how you can protect related Intellectual Property (IP) rights from misuse by employees or former employees or consultants. Likewise, where you are in talks about potential investment or partners, there is likely to be confidential information or 'trade secrets' that need to be protected. While a business can rely on implied protections in some cases, a well drafted employment contract or consultancy agreement covering confidential information and assignment of rights in IP and inventions is always preferable. In ventures where new products, services or technology are being developed it is advisable to make it clear that anything created in the context of the employment or consultancy relationship belongs to your business, not to the individual working for you.
Restrictive covenants (where you restrict the actions of an employee who is leaving your organisation) can be a complex area of employment law and we would suggest seeking professional advice to ensure the balance between protecting your legitimate commercial interests and allowing an individual the right to contract or trade freely. A well drafted confidentiality clause or agreement may be able to achieve the same aims. We discuss this more in a previous insight.
It is probably fair to say that this is one area where prevention really can be better than the cure.
Our Employment team can advise on all aspects of employment law across all the UK jurisdictions, ensuring you are compliant and allowing you to focus on growing your business.
Contributor: Rob Tubman
This publication is intended for general guidance and represents our understanding of the relevant law and practice in Northern Ireland, England and Wales as at September 2019. Specific advice should be sought for specific cases. For more information see our terms & conditions.