If you think you’re about ready to start hiring people, that’s a success: it means you’ve built up your business to a point where it’s ready to expand and grow.
Becoming an employer means taking on extra responsibilities, duties, and legal obligations – and you need to know where you stand if you want to avoid getting in trouble.
Here are the essential legal requirements you’ll need to understand before becoming an employer.
Paying the minimum wage
We all know there’s a National Minimum Wage that you have to meet when you’re hiring people. But calculating it might not be as easy as you think.
To begin with, there are five different levels of minimum wage, depending on whether your employees are:
- Under 18
- 18 to 20
- 21 to 24
- And 25 and over
You also need to know that the legal minimum wage is always calculated by the hour – regardless of how you calculate your employees’ pay. And things like training, travelling between work assignments, or being on standby close to your workplace can all count as working hours.
So don’t assume that an employee with a decent annual salary is automatically above the minimum wage: use this minimum wage checker tool from the Government website to be sure you’re following the law.
Preparing for extra employee costs
There’s a legal minimum for sick pay and holiday pay that you have to allow for almost every person you hire.
Depending on how long they’ve been continuously sick, and how much they earn in an average week, a contracted employee might be eligible for Statutory Sick Pay.
At the time of writing, that sick pay is £94.25 per week, up to a maximum of twenty-eight weeks.
Your business can offer more than this through its own company sick pay scheme – but this is the legal minimum that you have to pay by law.
Similarly, your workers will be entitled to a legal minimum amount of annual leave (holiday pay).
That’s currently 5.6 weeks of paid holiday each year.
So, if your employees work five days in every week, they’ll get 28 days of paid holiday each year (5 x 5.6) – and you’ll need to prepare for this paid leave for every employee you have.
Creating an employment contract
If you’re employing staff, you’ll need some kind of agreement between you and your employees, something that lays out the duties and responsibilities of both sides in order to protect everyone and avoid disagreements.
But it’s important to know that you might be bound by more than just what you put in the contract.
As well as the contract terms that you include, you’ll also have to be aware of any implied terms.
These are the duties and responsibilities that – even if they’re not explicitly covered in the contract – are still a legal part of an employment contract.
For example: implied terms for the employer could include things like providing statutory holiday pay or creating a safe working environment.
And implied terms for the employee could be things like not taking home the business’s goods for their own use or keeping a valid driver’s licence when it’s necessary to do the job.
The terms of an employment contract don’t always have to be written down inside the contract. They can be terms that are verbally agreed, or written in a separate document, like an employee handbook or a company notice board.
But what does have to be written down is a ‘written statement of employment particulars’ – and as an employer, you’re required to give this written statement to your employees within two months of the start of their employment.
You can find a list of what that statement needs to include (and what it doesn’t need to include) on this Government webpage.
Setting up a pension
Every employer has a legal responsibility to put certain staff into a workplace pension and pay into it. Under the Pensions Act 2008, this is called ‘automatic enrolment’.
But here’s the important part:
Even if none of your employees are eligible for automatic enrolment, you still have legal duties to declare your compliance – and your duties start on their first day of work.
So, what do you need to do before you start hiring people?
First, use this online tool to check whether your staff will be eligible for automatic enrolment.
If they are, you’ll need to:
- Choose a pension scheme – this could take time, so start looking as early as possible
- Write to each eligible employee to tell them how automatic enrolment applies to them – you’ll need to do this within six weeks of their start date
- Declare your compliance to The Pensions Regulator – you’ll have five months from your first employee’s start date to do this
To make life a little easier, you can run through this declaration of compliance checklist from The Pensions Regulator website to find out exactly what you’ll need to do.
If your employees aren’t yet eligible for automatic enrolment, you’ll still need to:
- Record your employees’ ages and earnings before their start date – to make sure they’re not eligible
- Write to each employee to inform them within six weeks of their start date
- Declare your compliance within five months of your first employee’s start date
And after all that, you’ll still have ongoing duties to keep up with – so be sure to find out your responsibilities from this page on The Pensions Regulator site.
Health and safety
When you start employing staff, you become responsible for ensuring their safety – and your employees have their own responsibilities to learn about and follow, too.
Health and safety compliance is a huge topic – and it’s just not possible to cover everything properly here.
But it’s important to understand the basic requirements. If you think you’re ready to start hiring people, you’ll need to:
- Develop a health and safety policy – and if you have five or more employees, it needs to be a written policy
- Put someone in charge of first aid – and keep a well-stocked first aid kit
- Display the official health and safety law poster – or give each employee an equivalent pocket card
- Complete risk assessments – covering both your employees and any non-employees who might be affected by your work
- Report accidents and illnesses – and if you have more than ten employees, you’ll need to keep an accident book to help you track and recognise patterns in your incidents
- Consult your workers about health and safety issues – to get a better understanding of the risks and dangers from the front-line
That’s a long list, and it’s barely scratched the surface. So if your business is about to start employing staff, you ought to spend some time on the official Health and Safety Executive Government website, where you’ll find everything you need to know about creating a safe workplace.
Getting the right insurance
When you start employing staff, you’re required by law to get Employers’ Liability insurance.
This is insurance that’s designed to help you pay compensation if any of your employees suffer an injury or illness because of the work they do for your business.
But there are conditions. Your Employers’ Liability insurance needs to:
- Come from an authorised insurer – check the Financial Services Register to be sure
- Cover you as soon as you become an employer
- Cover you for at least £5 million
In some cases – such as when you only employ family members or your employees are only based abroad – you might not need this insurance. But for the most part, it’s safe to assume that you will.
And if you don’t follow the law, the consequences can be costly. You can be fined £2,500 for every day that you’re not properly insured – and you can be fined £1,000 for not displaying your Employers’ Liability insurance certificate.
Becoming a registered employer
If your business is starting to hire people, you’ll need to register as an employer with HMRC.
But there are a few important details you need to know:
- You need to register as an employer before the first payday
- It can take up to five days to get your PAYE reference number
- And you can’t register earlier than two months before the first payday
If your business is a limited company with less than ten Directors, you can usually register online. But for other types of businesses, you may need to register with HMRC by phone. You can use this short questionnaire to help you find out which method your business needs to use.
As an employer, you’ll usually have to use PAYE (Pay As You Earn) as a part of your payroll process.
You’ll need to include your employees’ wages, statutory pay and leave, and any benefits and bonuses – and you’ll also need to calculate and deduct any taxes and National Insurance from their payslips and report it to HMRC.
Luckily, there are plenty of options for payroll software out there that can help you do it all yourself (some of which are free if your business is small enough). You can find a detailed guide to PAYE and your responsibilities on this Government webpage.
And if you’d rather not do it all yourself, you can always use an external payroll provider. But be careful who you choose.
As an employer, you’re the one who’s ultimately responsible for PAYE and its associated duties – even if you hire an external service to do it for you.
Don’t worry, it’s perfectly natural. There’s a lot to take in when you hire your first few employees. But there’s also plenty of guidance online to help you get it right.