Who you employ and how you do it can make or break any business. During the first stages of setting up a company, it is common to spend a great deal of time perfecting your product and understanding the consumer market. However, staffing and resourcing issues can sometimes be left as a bit of an afterthought. While it may seem difficult to find the time to deal with these issues, it is definitely better to get employment law and HR right from the outset (rather than deciding further down the line that all your contracts need changing when employees are accustomed to a certain practice). Don’t worry, you don’t need to know everything yourself, and this blog helps by explaining some of the top employment issues that our start-up and high growth clients regularly ask us about at MBM Commercial LLP.
Should you hire an Employee, Consultant, or neither?
There is a big difference between taking on an employee and taking on a consultant. Hiring an employee is usually a much more serious and long-term commitment. They accrue employment rights from day one and need to be provided with sick pay, holiday pay, and maternity leave/ pay amongst other rights. Consultants, on the other hand, tend to work on a self-employed basis. This means that you do not have to pay them through PAYE (they pay their own tax), and it is usually up to the consultant when and where they work. Some positions are naturally better suited to employees such as a CEO, CTO, CFO, as these roles are integral to the organisation. However, if you still need some assistance in the short-term in areas such as business development, for example, it might be worth considering a consultant as this will be a much more flexible arrangement than employment. Finally, you may not actually need to hire anyone. It is important to think carefully about whether your company is ready to take on someone new. Employing someone can take up a lot of time and money, and you need to make sure there is a fully developed job to be carried out before you take that step.
Practical Steps to Hiring and Employment
When you become an employer, you must register with HMRC before the first payday. This shouldn’t be done more than two months before you start paying employees. If you are looking to register please click here. Most employers are also required by law to insure against liability for injury or disease of their employees arising out of their employment. Please follow this link for more information. Once you have hired an employee, it is good practice to provide them with full induction, and you must give them a ‘written statement of employment particulars’ if their employment contract lasts at least a month. This isn’t an employment contract but it will include the main conditions of employment. However, it is advisable to put a contract of employment in place to prove that you are compliant with the law, and to ensure that both you and your employee understand the basis on which employment has been agreed.
Restrictive Covenants: Things you can and can’t do
Restrictive covenants (sometimes known as post-termination restrictions) are typically clauses written into employment contracts that prohibit employees from competing, soliciting custom/employees, or using confidential information to the detriment of their ex-employer for a defined period after the employee has left the business. Courts and tribunals will not always be willing to enforce restrictive covenants because they are effectively limiting an individual’s freedom after they leave employment when the rest of their contract ceases to have an effect. Therefore, if you are writing restrictive covenants into a contract it is important to be mindful of what is and isn’t enforceable so that you can maximise the chances of your business interests being protected.
Under UK law the restrictions imposed after an employee leaves employment should be no wider than necessary. In fact, any contractual term restricting an employee’s activities after termination will be void for being in restraint of trade unless (1) the protection is no more than is reasonable having regard to the interests of the parties and public interest and (2) the business has a legitimate proprietary interest that is appropriate to protect. In broad terms, the rights that the court will allow being protected fall into three broad categories (1) trade connections (customers, clients, suppliers), (2) trade secrets and other confidential information, and (3) the stability of the workforce. The apparent reason for the restrictive covenant must be genuine to protect one of these reasons, and not just to restrict trade (in which case it will be void). Therefore, the drafting of restrictive covenants is important as clauses should be worded to take into account the above considerations. It is a good idea to seek legal advice if you are at all unsure.
How to Maintain an Agile Workforce
Small businesses need to make sure they have the flexibility to survive when there may be fluctuations in funding and unexpected market changes. If your funding is unstable, it is unlikely to be a good time to hire someone, however, sometimes this can be difficult to predict. It may even be the case that an employee is hired who seemed perfect at interview but just doesn’t deliver in practice. As a consequence, it is advisable to have a probationary period (e.g. 3 or 6 months) written into the contract and short notice periods within this period such as one or two weeks to keep expenses to a minimum if you need to let an employee go for whatever reason. It is also prudent to consider only offering shares or share option schemes after employees have been employed for a certain amount of time (say 6 months), unless this incentive is required to ensure that the individual accepts the offer of employment: it could be a difficult situation if an employee is invested in the company and they need to be dismissed during the first few months of employment. It is always a big decision to dismiss an employee, no matter how long their service period is, and you should always seek legal advice before taking any measures. However, if an employee has been with the company for under two years then there is less of a legal risk because they are not eligible to make a claim for unfair dismissal. Nevertheless, there are still discrimination claims and potential breach of contract claims to consider so employers should always think very carefully about making a decision and make sure they fulfil all contractual obligations. These could include paying for accrued holidays and providing the correct notice period.
We hope that you found this blog useful. It can be a daunting prospect to hire employees (especially if you are new to it) so we have developed our Holistic HR service which is a fixed fee unlimited employment law and HR advice service. This acts as an outsourced HR department for smaller companies and can help guide you through HR and employment law issues, including the ones discussed in this blog post.
If you have an HR or employment issue or would like to find out more about our Holistic HR service, please contact our team on 0845 345 5004 or fill out our online contact form.
Hannah Roche and Katie Pearson (The Employment and HR Team at MBM Commercial LLP)