Employment Essentials for Small Business Owners


This article provides a quick and easy to understand checklist for new businesses on how to employ people and what the law requires of you, but also how to be a good employer.
Employees are the heart of a business & the most valuable asset, especially in a smaller company. Some would even argue your business is your employees. Thus it is important to make sure the impact they have is positive and they are treated well, helping you increase your productivity, while also abiding by the law and employment regulations.

1. Choosing what type of employee you need 

You can choose to employ permanent employees or hire a contractor/freelancer. There are different types of employment agreements such as full-time, part-time, fixed-term, freelance, consultant, and contract, all with their own legal requirements.
Find out more about employment types in this article

2. Successfully recruiting 

A clear job description & seamless recruiting  
Regardless which type you plan to employ, first you need to create a clear job description. This is vital to get relevant applications from people that have the skills and qualifications you require.
Keep a record of each applicant throughout the process, including strengths, weaknesses & other notes. It will help you select the best candidate when the interviews are done. You can do the hiring process yourself or you can hire a recruiter to do it for you.
Avoiding discrimination in the workplace  
Please note it is against the law to discriminate employees based on age, race, sex, marriage, disability, sexual orientation, and religion.

3. Inform HMRC 

When you start hiring, you need to register as an employer with HMRC. It is important to note you cannot pay your staff before doing this and also you cannot register more than 2 months before you employ and start paying staff.

4. Obtain employers liability insurance 

The law requires you to have employers’ liability insurance and it must cover for at least £5 million, coming from an authorised insurer. It is designed to allow for employee compensation if they are injured at work and protects your business if you are taken to court. You also need to display a copy of the employers’ liability insurance certificate in your workplace. The cost of this insurance is based on several factors such as: type of business, number of employees, and previous insurance claims history.

5. Draft the employment contract 

If this is your first contract, it is advisable to seek professional legal advice in order to make sure all is in order. The employment contract needs to be signed by both parties, both you and your future employee.

6. Make sure every employee has a National Insurance Number 

You also have to ensure every employee has a National Insurance Number, as contributions need to be paid and tax payments need to be recorded against their name.

7. Bookkeeping: keep accurate tax records, remember key dates and tasks & set up a payroll system 

Legally, you are required to keep accurate tax records for six years. They need to be safe, secure and easy to access when needed. For this, you can use an accounting software or hire an accountant who can do that for you.
It is also advisable you log in to HM Revenue and Customs’ (HMRC) PAYE Online service to send payroll reports to HMRC, access tax codes and notices about your employees, appeal a penalty if you get one, get alerts from HMRC for late reporting/paying or any mistakes in the monthly reports.
For setting up a payroll system you can either do it yourself or hire an accountant to deal with this and with your tax records. Usually accounting software is used and it is quite a painless process. It helps you stay compliant, pay your employees on time and file reports for HMRC.

8. Understand the rights of your employees & keep a file for each employee 

Keep an up to date record of all your employees, including full name, address, contact details, emergency contact details, tax details, a signed copy of the employment contract, and any other important information about them. They need to be kept for 6 years just like the tax records.
If you are unsure what information you need and are allowed to collect about your employees, contact HMRC.

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