Taking on your first employees is a big milestone for your business, and an opportunity to find talented people that will help propel it to the next stage of growth.
However, staff salaries are usually one of the biggest ongoing expenses your business will face, and while a great hire will add real value, a bad hire will cost even more in wasted time and resources.
Thankfully, there are steps you can take to limit employment costs and to make sure that, when you do find a great candidate, you can maximise the chances of a successful hire.
Here are the eight key things to do when employing people.
1. Consider the costs of hiring an employee
According to the ONS, the median UK salary in 2021 was £31,772, up 4.3% on 2020.
If we divide the total £1.6 trillion turnover of UK small businesses (0-49 employees) by the total number of those businesses (5.5 million), we get an average annual turnover of £290,000. That means a small business could spend nearly 11% of its annual turnover on one employee.
Of course, investing in a great employee pays dividends in the long run, but make sure to properly account for the cost of any new hire.
2. Explore hiring temporary or seasonal employees
If you need labour to meet spikes in demand, but don’t want to pay full salaries, you can hire temporary or seasonal employees to bolster your staff around peak trading periods without being overstaffed during quieter months.
Temporary employees are usually hired on a fixed-term contract, meaning you’ll pay them a fixed amount to work for a set period. However, you should be aware that, unlike contractors, temporary staff should have the same working hours, pay, and holiday allowance as your full-time staff.
3. Understand the rules when taking on someone who’s self-employed
Using contractors or freelancers is a great way to access highly skilled labour without having to pay the full and hefty salaries that those kinds of jobs can demand, as well as sick pay, holiday pay, National Insurance, and pension contributions.
If you do use self-employed contractors or freelancers, you need to be fully au fait with the regulations to avoid falling foul of employment law.
In practice, this means not exploiting someone by treating a self-employed worker like an employee without offering them any of the benefits of full-time employment.
According to gov.uk, someone is employed if they:
- Are required to work unless on leave
- Are paid by you to work a minimum number of hours
- Are managed or supervised by someone at your company
- Cannot offer their work to someone else
- Get paid holiday
- Are bound by your disciplinary procedures
- Receive their working tools from your business
You should also be aware of IR35, which was introduced in 2021 to ensure contractors who provide their services to your business through an intermediary (who would otherwise be classed as an employee if they provided their services directly) pay the correct tax. You can use the CEST tool provided by HMRC to check the employment status of potential contractors or freelancers.
4. Create an employment contract and a written statement of employment
An employment contract is a legally binding agreement between employer and employee that establishes the terms of their employment, including pay, working hours, holiday days, responsibilities, standards of behaviour, and the statutory terms set out in employment law.
This is an essential document because, not only does it outline the rules and establish norms that both employer and employee must abide by, but it also ensures that there’ll be consequences if either party violates the terms of the contract. For example, you could be taken to court if you fail to pay your employee’s stated pay, and your employee can be legally fired if they consistently fail to carry out their duties.Discover more around small business payroll
5. Share your employee handbook
An employee handbook details everything a new starter might want to know about your company, which can help them to settle into their new surroundings and ensures a positive and consistent workplace culture.
While not a legal requirement, there can be some crossover with your contract, as the handbook can be an easier reference point. It’s important to detail expectations of behaviour during the working day, such as limiting use of distractions like social media and phones, as well as standards of dress and timekeeping. You should also include information on company values, strategy, and perks that your new employee can enjoy, which can help to build loyalty.
6. Know the rights your employees have
Your employees have certain rights that are enshrined in law, including:
- Statutory payments
- Minimum notice periods if they quit or are dismissed
- Protection against unfair dismissal
- The right to request flexible working
- Time off for emergencies
If you don’t offer these rights, you could face legal proceedings.
7. Ensure employees understand your holiday policy
A good break will ensure your employees remain refreshed, revitalised, and ready to perform to the best of their abilities. That’s why, by law, your full-time workers must receive at least 28 days paid holiday a year, which can include bank holidays. This should all be detailed in their employment contract, as well as how much notice they need to give, and your right to refuse a holiday request if it would result in understaffing or if an important event is coming up.
Beyond that, it’s up to you how much time off you give them. Some businesses offer an additional day off for every year an employee remains at the company, which is a nice way to promote loyalty. Others have started to experiment with ideas such as unlimited holiday, with varying degrees of success.
8. Explore government grants that are available to help with hiring employees
Because employing talent doesn’t come cheap, the government offers several grants that your business might be eligible for that can help with the cost.
For example, if you have fewer than 50 employees, and take on an apprentice between 16 and 18 (19-24 if they’ve been in the care of their local authority), the government will pay 100% of their training costs up to the funding band maximum. You’ll still need to pay them a wage, but you don’t need to pay National Insurance if they’re under 25, on an approved government apprenticeship, or earn less than £967 a week.
In addition, eligible businesses are entitled to claim Employment Allowance (Up to £5,000 for 2022/23 tax year). This reduces the amount of employer National Insurance payable.
Discover more government support in our guide to the 150 small business grants you can apply for right now.
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