Becoming an employer for the first time

If you're running a business and you want to expand, you'll need to consider the best options for meeting your new needs.

These could include outsourcing or training existing staff, or taking on new staff.

Taking on staff

Taking on people whichever way you choose to do it, will always mean some form of investment for your business.

It's equally important to remember that taking this investment seriously can make it more valuable.

If you decide to take on new staff, or replace someone who has left, this guide will help you understand:

• the different ways of taking on people to work for you, and
• how to choose the ones that best meet your needs

If you are taking on your first employee you will need to register as an employer with HM Revenue and Customs (HMRC).

You can find a 6 point check list about employing staff for the first time at GOV.UK: Employing staff.

Information for employers including filing annual returns, PAYE and NIC payments can be found at HMRC: Employers.

Before spending time and money on employing someone new, you should weigh up whether you really need to recruit new staff.

To do this, look at your staffing needs in relation to the wider objectives of the business.

You may need extra help immediately or you may simply be thinking about your future staffing requirements.

In both cases it's valuable to plan as far ahead as you can.

You should consider why you're looking for extra help and how long you will need it for.

Ask yourself the following questions:

• Are you considering taking on your first employee to help you grow your business or handle an increasing workload?
• Are you replacing an employee who has left? If so, why did the previous employee leave and what skills and experience have you lost?
• Do you need to bring in a new skill to your business that none of your existing employees has?
• Has your workload increased? If so, is the workload likely to continue or is it just a temporary increase?
• What will be the impact of taking on a new staff member? Do you have somewhere for them to sit? Will you need to buy new equipment for them?
• Do you need cover for yourself in the long term?

If you are taking on your first employee you need to register as an employer with HM Revenue and Customs (HMRC).

You can find a 6 point check list about employing staff for the first time at GOV.UK: Employing staff.

As an employer, you have many legal obligations around paying employees.

If you don't follow the proper procedures, including paying your male and female employees equally and fairly, you could have penalties to pay.

Alternatives to taking on new staff

Since recruitment can be expensive and time-consuming, other options you could consider include:

• Re-organising the company structure
• Sharing work among existing employees
• Promoting existing staff
• Asking part-time employees if they would consider full-time work 
• Improving the efficiency of the business, perhaps by rearranging tasks
• Offering overtime
• Adopting flexible working arrangements, e.g. allowing some staff to begin earlier / later to provide cover for a longer part of the day

You have to consider the type of worker you wish to employ, depending on factors such as:

• How constant the work is
• How long the work will last
• The number of hours of work each week

You have different options:

• Permanent employees
  Can be full-time or part-time. They have an open-ended employment contract with you. You have obligations to them but they will be an investment in your business.
• Fixed-term contract
  These employees have an employment contract with you but it is for a predetermined time or until a specific task has been completed. You'll still have employer obligations but only for the duration of the contract.
• Employment agency - temporary staff
  They are engaged by the agency and supplied to you. Your contract is with an employment agency to supply you with staff, but you still have certain legal responsibilities towards the agency worker.
• Self-employed freelancers, consultants and contractors
  Using self-employed freelancers, consultants and contractors gives you the minimum of employer obligations. You need to be sure that the people are legally defined as self-employed.
• Zero-hours contracts
  These allow you to have people on-call to work whenever necessary and mutually convenient. Generally, you are not obliged to offer work, and there is no responsibility for the worker to accept any work. Look at the terms of any zero-hours contract carefully as it may affect the employment status of the worker and your responsibility towards them.

Employing children or young people

If you plan to employ children or young people, you should keep in mind that there are restrictions on the hours and types of work that they can legally carry out. 

Tax arrangements 

You will also have to make tax arrangements for permanent and fixed-term employee.

For more information, see HMRC: Employers.

Regardless of whether your employees are full time or part time you will have responsibilities to them.

Some of these apply straight away, others after a minimum period of continuous employment.

As an employer it is your responsibility to provide:

• A written statement of the main terms and conditions of their contract of employment.
• An itemised pay statement at or before the time of payment.
• A safe and secure working environment.
• Insurance to protect against claims for any illnesses, injuries or diseases your employees may pick up as a result of working for you.
• HM Revenue and Customs (HMRC) with information to set up a payroll, deducting tax and National Insurance contributions from your employees' pay and forwarding the money to HMRC.
• Employees with a minimum level of paid holiday, a maximum length of a working week and minimum levels of rest breaks.
• Pay of at least the National Minimum Wage.
• Statutory sick pay if your staff are off sick for more than three days - this is a legal entitlement. 
• Leave for employees if they are pregnant, or is about to or has recently become a parent. There is an entitlement to maternity, paternity or adoption leave and parental leave during the first five years of their child's life (longer for a disabled child). You must also seriously consider any requests from parents with children under six to work more flexibly.
• Fair treatment of employees, avoiding discrimination. If things do go wrong, all employees are entitled to fair treatment, whether you have to dismiss them, make their position redundant or if you're selling your business.

There may be times when it's best for your business to take on somebody on a fixed-term contract. This is one which either:

• Lasts for a specified time, set in advance
• Ends with the completion of a specified task
• Ends when a specified event does or does not take place

Some examples include:

• Taking someone on for just three months to cover the busy run up to Christmas
• Employing someone specifically to cover for someone who is on maternity leave

Pros and cons

Fixed-term contracts give you the advantage of bringing in specific skills and labour as and when they are needed.

It's important to remember that unless there are special circumstances which can be justified, you must treat fixed-term employees the same as comparable permanent employees.

This means you must give them the same:

• Pay and conditions
• Or equivalent benefits package
• Or equivalent pension scheme
• Opportunity to apply for vacancies for permanent posts in the business

Fixed-term employees also have access to the same employment rights as their permanent equivalents.

Tax arrangements

You will need to make the same tax arrangements for fixed-term employees that you would for permanent employees.

For more information, visit HMRC: Employers.

One possibility when looking for staff is to go to an employment agency and hire agency workers.

Circumstances vary, but usually the worker who is supplied will be under your control but paid by the agency.

Your contract will be with the agency only, to which you pay a fee. For example, you may find that it's helpful to use an agency secretary to cover when your permanent secretary is ill or on holiday.

Some types of business use agency workers on a more permanent basis. For example, if you run a nursing home you may prefer to use an agency to supply your nursing staff needs.

Advantages and disadvantages

If you use agency staff, it's likely that much of the basic administration of recruitment, such as advertising, has been done for you by the agency.

You'll usually not need to deal with payroll and related issues either. 

You'll still have to pay the agency but you may be able to make a single payment to cover several agency workers.

Agency workers may help you fill temporary skills gaps, staff absences or labour shortages. They may also be useful in areas where there tend to be high staff turnovers.

Agency workers are engaged by the agency and have a contractual relationship with it.

You still have responsibilities for agency workers' health and safety. 

Remember that you must avoid discrimination against anyone who carries out work for you, whether they are employed by you or self-employed. 

One way your business can take advantage of extra skills and labour without taking on many of the responsibilities of an employer is to use freelancers or outside contractors.

These are workers who are self-employed or belong to separate outside companies.

For example, you might use an outside IT contractor to build your business web pages, or hire a freelance PR consultant when you want a promotional push for your business.

Advantages and disadvantages

An advantage of using freelancers and outside contractors is that in many cases they look after all their own income tax affairs and National Insurance contributions.

It's always a good idea to check that you won't be responsible for deducting tax and National Insurance from their payments.

People who are genuinely self-employed may not be entitled to the same rights afforded to employees. Depending on the contract under which they are providing services, they may qualify as workers.

Under these circumstances they would be entitled to workers' rights such as holiday pay. If you are in any doubt about a person's employment status, you should get professional advice.

Freelancers and contractors still have a right to the National Minimum Wage. If they are being paid by their own firms, this will not affect you.

As an employer, you still have responsibilities for freelancers' and contractors' health and safety and check whether your insurance is affected by having non-employees working on your premises.

Remember that you should avoid discrimination against anyone who carries out work for you, whether they are employed by you or self-employed.

Every limited company must have at least one director.

Directors are appointed by the shareholders as the people who can best run the company on their behalf.

Directors have a range of responsibilities in areas such as health and safety, tax and employment law.

There are serious penalties for not meeting these responsibilities which makes appointing the right director very important.

There are also restrictions on who can become a director.

People who may not become directors include anyone who:

• has been disqualified by the courts from becoming a director
• is an undischarged bankrupt, unless they have permission from the courts

Managers

You may wish to take on someone to cover you while you're away or so that you can spend more time growing the business.

Consider whether it would be a good idea to appoint someone who you can delegate day-to-day running.

When preparing the job description, the advert and the interview questions, you will need to keep in mind the additional qualities, experience and skills the candidate will need to take on the managerial role.