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Daunted by horror stories of payroll complexities and an endless myriad of employment law issues to grapple with, it is no wonder that many small businesses seek to delay the inevitable for as long as possible. For it is inevitable in almost all cases – to quote the late Steve Jobs, “great things in business are never done by one person. They’re done by a team of people”.

Rather than approach the prospect with trepidation, you can have the confidence in viewing the prospect with ambition, excitement and in the spirit of opportunity. As with most decisions in business, there will be mistakes along the way – but the key is preparation, preparation and a little bit more preparation.

Stage 1: Preparing for your new employee

Writing the job description

As a business owner looking to hire your first employee, it’s important to start by considering what role the employee will fill. It may be an administrative role or a managerial role. This will act as a guide for the majority of the recruitment process.

Having determined the role, you will then need to put together a job description, which sets out the purpose of the role, key responsibilities, and duties that the employee will carry out in their day-to-day work. This should be considered carefully as it will be one of the first things a candidate reads when investigating whether the role is for them. If certain skills or attributes will be desired, it may be worth producing a person specification to accompany the job description. Well-written job descriptions and person specifications can help to attract the best candidates as they enable them to assess where they fit within the company and whether it is a match for them.

Determining the rate of pay

While a well-written job description (and person specification) will go some way to attracting top talent, many potential candidates will look first at the salary on offer. This should be commensurate to the responsibilities of the role and the level of experience required of the ideal candidate. National Minimum Wage / National Living Wage may be appropriate (and sufficient) for entry-level or junior roles where an individual’s duties will be unlikely to alter the path of the business, but it will almost certainly not be appropriate for more senior positions. If you are struggling to come up with an appropriate rate, a good starting point may be to look at other similar opportunities being offered by businesses in the local area (that is if they advertise salary). 

In addition to considering the level or rate of pay, employers should also consider whether to offer a bonus or commission. Again, whether this is offered will largely depend on the type of work being carried out. If an individual’s success in bringing work in or delivering on targets can be easily quantified, either of these options may be suitable. Both can be effective ways of attracting the right candidates and then incentivising staff whilst in the role.  

Preparing your job advert

The next stage will be to write the job advert, which is also a key part of the process for attracting the right candidate. 

A job advert will provide an accurate description of the role (which may mean referring to a separate document for a job description) and the business that has the vacancy. A candidate should know whether they have the appropriate qualifications and experience for the role based on reading the advert. They should also know what the business is offering; this means dealing with working hours, working arrangements and benefits. In a time when flexible and hybrid working has become the norm, businesses wishing to attract the best talent will want to consider whether they can require individuals to come into the office, or whether home working should be offered. The final part will involve setting out what the individual must do by a set deadline. This may mean completing an online application form, psychometric or numerical literacy test and/or sending in a CV and cover letter.    

Advertising the role

Once you have prepared all the above, it will be time to get your job advert out there and in front of potential candidates. In the age of the internet, there are many ways to get a job advertised. A business may want to consider posting on national or local websites where candidates will look for a job. If a business has their own website and social media, it can be helpful to post jobs here. Professional sites such as LinkedIn can also assist with getting the word out there. An alternative to the DIY approach is speaking to recruitment agents or consultancies in your area of business who may already have several candidates on their books ready to recommend to you. A combination of all these approaches will likely be best, seeing as this will mean more people talking about your job advert and therefore hopefully more applicants.

Stage 2: recruitment process

Shortlisting candidates

The next stage is to recruit. If the employer has done a good job with advertising the new role, they should have plenty of interest from qualified candidates. It will then be a matter of shortlisting candidates based on their applications. An employer should begin by identifying key criteria that they feel to be necessary for the role. This may be split into “essential” and “desirable” skills. The employer can then start checking applications and see where candidates rank compared to each other. It goes without saying that an employer should watch out for any spelling errors, inconsistencies, or other red flags in applications. The employer should have in mind how many candidates they want to interview and then provisionally select those candidates. 

One of the most important parts of the shortlisting process is to obtain a second opinion by checking up on any references. It is hard to imagine any situation where an employer will not want to have spoken to previous employers to get a picture for a candidate’s work. 

An individual might be great on paper, but this could all be fabricated or highly embellished. We would therefore suggest that any new employer seeks out more information on a candidate through references.  

The interview process

After the shortlisting process has finished, it will be a case of interviewing those shortlisted candidates. This is the best way to find out more information about the candidate. It is also key to seeing whether they will fit into the company. 

Everyone will have a different style to interviewing. However, there are certain key things that should be kept in mind. An employer will want to ensure their interviewer comes prepared and armed with questions (which should be the same for each candidate). It will be no good simply speaking generally with the candidate. The interviewer should ask about previous roles, aspirations, and salary. They should also invite any questions from the candidate. There should be a clear written record of the interview. This will assist with the hiring process. It will also assist if the individual raises any allegations of discrimination in the application process.  

Once all the shortlisted individuals have been interviewed, the employer must then select their preferred candidate. Depending on the interviews and number of candidates, this can either be a very challenging or very easy process... This is because there are several pre-employment checks which an employer should carry out. These can be done before or after an offer of employment is made. There is no real right answer as to when the checks are carried out. However, an employer should bear in mind that if they carry out checks after making an offer, they should make the offer conditional on satisfaction of the appropriate checks. If they do not, and later find out information that leads them to no longer want to employ the candidate (and they accepted the job offer), an employer will then have to dismiss and pay them their notice. This is because they will have been formally employed. Depending on the circumstances, there may also be complicated issues in terms of discrimination. 

Checking the candidate has the right to work in the UK

One of the more important pre-employment checks is ensuring that the provisionally selected candidate has the right to work in the UK. Every employer has a legal obligation to check their employees’ right to work in the UK. Failure to do so can lead to a civil fine (and in some cases, a criminal sanction). 

Depending on the individual’s background, this process will involve either a manual document check or an online check. A manual document check is where an employer requests original identification documents, checks these against the candidate, takes a copy and keeps a record of the same. Since 6th April 2022, an employer can no longer carry out a manual check of biometric residence cards, biometric residence permits, and frontier worker permits. (An individual looking to prove their right to work in this way must generate an online share code and provide this to the employer. This will then provide the employer with evidence of their right to work.) For British and Irish passport holders, employers can carry out a manual check or use the new Identity Document Validation Technology (IDVT). The latter is a form of online check, where the employer can pay a third party to carry out the right to work check (though the employer retains ultimate responsibility for carrying out the check properly).

Other pre-employment checks

Another pre-employment check is a Disclosure & Barring Service (DBS) check to reveal whether the candidate has a criminal record. 

An enhanced check will show this, together with whether the candidate is on any of the barred lists. This is where they are prevented from working with children or vulnerable adults. Of course, DBS checks may be more important for businesses in the healthcare industry than for those in accounting. However, an employer will probably want to know whether a candidate has been previously convicted of an offence which relates to their business area. Not only could history repeat itself, but other employees may find out about the individual’s background at a later point, which could lead to problems among staff and reputational damage. There are problems a business will probably want to avoid…

An employer may also want to carry out a pre-employment medical check. Whether this check is carried out will depend on the role and specific industry. For example, a business working in a safety critical industry (such as public transport) may need to ask questions of the candidates and obtain medical evidence to understand whether they will be able to carry out the role. Given the risk of disability discrimination here, we would recommend seeking professional HR advice before asking any questions of a candidate which relate to their health or medical situation. 

Given we now live in a world where social media is pervasive, employers would also be advised to do their due diligence and look into a potential employee’s social media or internet profiles. Of course, some may have adjusted their privacy settings to the point that this is not possible. However, for those that have not, a social media check can be a very helpful tool for weeding out those candidates who may appear “squeaky clean”, but who in fact have secrets to hide…

Stage 3: the legal bit!

The offer letter

As mentioned above, an employer may want to carry out some of the pre-employment checks after it has  offered the job to the successful candidate. It may be appropriate to make a job offer before doing such checks if the desired candidate is highly qualified or experienced and so could be snapped up by another potential employer. Regardless of the approach to be taken, the selection process should be quickly followed up with the correct written documentation (which should have been being prepared in the background). This means preparing and sending an offer letter and contract of employment. 

The job offer letter will set out the headline terms of the employment being offered to the candidate. For example, it will state the job the candidate is to perform, the salary they are to be paid, their working hours or arrangements, and the intended start date. It should also set out a date for acceptance of the offer and any other things that the candidate is required to do before employment. As already mentioned, an employer would be advised to make any offer of employment conditional upon a candidate satisfying all the appropriate checks (and including wording to that respect in the offer letter). If there are conditions attached, and the candidate fails the checks, the employer can simply withdraw the job offer. If there are no conditions attached, and the candidate has accepted the offer, they will technically be an employee and so need to be dismissed and paid notice.

Contract of employment

Alongside the offer letter, or sometimes sent separately, is the contract of employment. All employees are legally entitled to a statement of the main terms of their employment. This is a set of terms which are prescribed by law. They include terms relating to job title, pay, working hours, holiday entitlement, sickness absence processes and pay, pensions, grievance and discipline, notice of termination and more. 

In addition to the terms which are required by law, an employer may want to include more onerous or specific terms in the contract of employment. For example, if confidentiality is particularly important, an employer may want to focus on any restrictions on the use and disclosure of confidential information. If an individual is particularly senior and/or will be working in a role where they could be exposed to highly confidential information about the business and its processes, an employer may want to have specific post-termination restrictions in the contract. These could seek to prevent the employee dealing with or poaching clients, staff, or suppliers. They could also seek to prevent the employee entering a competing business. Since the courts regard these types of clauses as potential restraints of trade, as they seek to prevent employees earning a living, specific advice should be taken in the circumstances to assess whether they are likely to be enforceable.  

Provided that the candidate accepts the terms on offer (and they usually will, as their negotiating position is weak if there are lots of other candidates in the running for the role), both parties can then sign the contract. And so begins the first employment relationship!  

Stage 4: what to do now you are an employer     

Registering with HMRC as a new employer

After the employer has taken on their first employee, they must register with HMRC as a new employer for PAYE. This will involve setting up or logging in through the business’ Government Gateway account. The registration process must be completed at least one month before the employee’s first payday (but registration cannot be started more than two months beforehand). This means there will be a limited amount of time in which to progress matters, so employers are advised to make this one of their priorities having employed someone. The PAYE number will be sent within five working days of registration. 

Payroll

Once registered for PAYE, an employer will be able to report payments to their employees, and any deductions from their pay, to HMRC. These reports must be made on or before payday. The reports will show how much the employer owes HMRC. The employer must then pay any amounts owed to HMRC. This usually happens every month (for small employers expecting to pay less than £1,500, they can contact HMRC and seek to arrange quarterly payments).  

An employer is also legally required to provide their employees with a payslip on or before payday. These can be printed copies or electronic copies. The payslip should be itemised and show gross and net pay, the amount of any deductions (such as tax and NI) and the number of hours worked if pay varies according to this. If there are any deductions which are fixed (such as a season ticket loan), the employer must explain why this is in the payslip or in a separate written document (sent out before the first payslip).

Employers can either choose to deal with the above payroll functions themselves or pay a payroll provider to do it for them. Some payroll providers offer large amounts of support, such as producing payslips, keeping employee records and reporting to HMRC. However, employers should note that even if they choose to outsource their payroll function, they will still be ultimately responsible for collecting and keeping records of their employees’ details for payroll purposes. The records to be kept include those relating to employee payments and deductions, reports and payments to HMRC, employee leave and absence, and taxable expenses or benefits (among others).

Pensions 

Another important consideration for new employers is the legal requirement to enrol eligible employees into a workplace pension scheme and then pay into the scheme (known as “automatic enrolment”). Both the employer and their new employee will (jointly) be required to contribute a minimum of 8% of their earnings (which for these purposes includes salary, commission or bonuses, overtime, and pay for statutory leave) into the scheme. The employer must pay at least 3% but can choose to pay more. 

As an employer’s duties to automatically enrol apply from the employee’s start date, preparing for enrolment is of key importance. There are several specific automatic enrolment pension scheme providers to choose from, with the most common being the government’s NEST workplace pension scheme. Some payroll software can be used to calculate pension contributions for automatic enrolment and then make the correct deductions from pay. This may therefore be a consideration when choosing the payroll provider.  

Employers’ liability insurance (ELI)

It is also important to mention that a new employer must take out a policy of ELI with an FCA-authorised insurance provider which provides cover for at least £5 million. Again, this is a legal requirement. It is intended to help compensate in circumstances where an employee is injured or becomes ill due to any work they complete. 

For every day a business operates with employees, and they do not have the proper ELI cover in place, they could be fined £2,500. Similar to the pension scheme arrangements then, this is something which is probably best to prepare in advance of taking on the first employee. It may be best to contact an insurance broker, as they will be able to assist with putting in place ELI. 

Health and safety considerations

A new employer will also need to be mindful of their duty to their employees under health and safety laws. 

An employer is responsible for safeguarding the health and welfare of their employees and managing any health and safety risks in their business. Legally, the employer must do whatever is reasonably practicable to achieve this. This means, in practical terms, conducting health and safety risk assessments where necessary, taking action to eliminate or mitigate any risks, informing employees of risks (and the actions the employer is taking against these), providing information on health and safety (including a poster approved by the Health and Safety Executive), and allowing employees to report health and safety risks. It may not be immediately obvious as to what health and safety risks there may be in the business, so this is something which is certainly worth taking time to consider properly.

Need further help?

If you are thinking about or have recently taken on your first employee and require further help TaxAssist Accountants can refer you to Employmentor, who are specialist employment solicitors and have written the above guide.

Date published 28 Jul 2022

This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.

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