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Notebook and Fountain Pen

Becoming an employer…

hrbytara

On 1 February 2022, I became an employer for the first time.

I’d worked for companies for 25 years and been in HR management for most of them, so I knew all about employing people, but not actually much about how to become an employer. My journey to becoming an employer started a few months earlier when I first started thinking about adding resource to my business and did lots of research into the steps involved.

At the time, I was still a sole trader (yes, you CAN employ people when you’re a sole trader, even if it does sound a bit illogical) but HR by Tara had reached a stage where I knew I would benefit from someone assisting me.

I could have outsourced to a freelancer, but I decided to employ. I wanted the person I was going to work alongside to feel part of my business, even if she was working on a rather ad hoc basis to start with.

HR by Tara’s mission is to help small businesses to be great employers, so I thought that documenting what’s involved in setting up as an employer in the first place would be a useful source of information for future clients. So I wrote a series of blog posts about it all. This is an edited version of those blog posts, updated with what else I’ve learned since then.


 

Deciding to employ

HR by Tara provides services to small businesses, helping them with anything to do with employing staff. Some of the work I do requires my particular expertise and a deep understanding of my clients. Some of it is all about the relationship between me and the business owners I support. Other tasks could definitely be done by someone else, once I’ve set up the right processes and templates.

In 2022, to increase my capacity, so that I could support more clients and grow the business, I needed extra resource.

I could have outsourced. I‘d helped a few clients put in place contracts with freelancers to take on some of their work. However, I chose to employ. After all, it’s what I know best.

There are differences in the relationship, legally, for tax purposes and in day-to-day practice, between working with a self-employed freelancer and employing someone. It’s important to choose wisely. Feel free to get in touch if you want help with making that decision for yourself or your business. Or come along to our free webinar called “To employ or not to employ?”, which focuses on how to choose the right option for your business.


Finding someone to employ

In my case, I had an opportunity to bring a particular person into my business and luckily she agreed to join me (thank you, Stacy!). I’d met this individual networking and could see her potential. She was also happy to work flexibly, which was really important for my business at the time. I needed to know that my costs could flex with the work available.

If you don’t already have someone in mind when you decide to take an employee on then it’s really important to choose your new worker well.

Be clear what you want the person to do, what they will be accountable for delivering for your business. How will you know if they are successful in the role? What business value will they bring?

Be clear about what skills and experience you think are essential for them to be able to deliver what you expect. What do they need to already know how to do? What can you train them to do? Do you want to hire someone “ready made” or someone less experienced who you can mould into a great team member for your business?

Be clear about what attitudes and ways of working will best fit with your values and how you work yourself. Remember that small businesses are messy - priorities can change quickly, everyone has to pitch in - so think about what attributes will help someone thrive in your particular business environment.

Be honest about what you can afford. There’s information below about how much it costs to employ people and it’s important to think it through before you hire. You need to pay enough to attract and retain people with the right skills and experience, but you also need to ensure that there is a return on investment for what you’re spending.

Be clear about what you’re offering to your new team member. Think about what they’ll gain from working with you, which is usually much more than just their pay at the end of the month. Will they learn and develop? Is the work enjoyable? Is it meaningful?

Once you’ve thought all this through, you can start recruiting and selecting the right person. You can find out more about this in our “Helping you hire” article.

Choose your first employees wisely and they will bring you far more benefit than they cost. 


Setting up as an employer

There are lots of things you need to do to get your business ready to become an employer. Here’s my checklist for what I did to put everything in place myself. We often work through a version of this checklist with clients to help them set everything up effectively.

  • Adding Employer’s Liability Insurance to my business insurance

  • Checking out how much it costs to employ people and making sure I could afford it

  • Creating a Principal Statement of Employment Particulars that complies with the requirements of the Employment Rights Act

  • Registering with HMRC as an employer and setting up PAYE

  • Deciding how to run payroll

  • Setting up a workplace pension

  • Thinking about employee records, developing an employee data protection policy and privacy notice and registering with the ICO

  • Developing a health, safety and wellbeing policy, doing a risk assessment and putting in place practical arrangements to protect staff

  • Setting my new employee up with access to the right systems and putting in place security measures to enable them to work effectively while also protecting my business

After all this, I was now in a position to have someone start working within my business, which is where the hard (but more enjoyable) work starts - induction, training, expectation setting, delegation, feedback and all the rest of what good people management looks like…


Contracts of employment

One of the easiest things, for me at least, about setting up as an employer was creating the Letter of Employment, to summarise all the terms and conditions of employment for my new employee. After all, I create these documents for my clients all the time.

However, I know why my clients ask ME to do it for them, as it's not an easy document to get your head around if you haven't been surrounded by contracts for 20 years like me. If they don't ask a HR professional to put something together for them, your typical business owner will Google "contract of employment" and download a template to use, which may or may not be a great idea...

A much better place to start is the gov.uk website, where they nicely explain all the essential terms you need to cover in the Written Statement of Employment Particulars, which you are required by law to give someone on or before their first day of work. You used to have a month to get this document to someone, but as of April 2020 it's now a day one right.

Also, you do have to give a Written Statement of Employment Particulars to people who fall into that pesky category of workers*, even if they're not actually employed. I tend to use two different documents for employees (Letter of Employment) and workers (Worker Agreement) as the terms and conditions will be different due to the different rights they have - but now we're getting too technical. This is the kind of thing our clients just leave to us to sort out.

Back to the basics... There are a number of terms you HAVE to include in the Written Statement of Employment Particulars on day one, and most of them are quite obvious. They are:

  • employer’s name

  • employee’s or worker’s name,

  • the job title or a description of the work

  • start date for the agreement

  • how long the job is expected to last (and what the end date is if it’s a fixed-term contract)

  • how long any probation period is and what its conditions are

  • how much and how often an employee or worker will get paid

  • hours and days of work and if and how they may vary (also if employees or workers will have to work Sundays, nights or overtime)

  • where an employee or worker will be working and any flexibility expected - if an employee or worker works in different places, where these will be and what the employer’s address is

  • holiday entitlement and how public holidays are treated

  • any benefits

  • any obligatory training, whether or not this is paid for by the employer

On the first day, you must also provide the employee or worker with information about:

  • sick pay and procedures

  • other paid leave (for example, maternity leave and paternity leave)

  • notice periods

You don't have to put this in the Written Statement of Employment Particulars, but I tend to always at least reference these things, and then perhaps signpost people to more detailed information found elsewhere. If you do that, you need to make sure the employee or worker can easily access that information from day one.

Lastly, within two months of the start date you need to provide written information about pensions, disciplinary and grievance procedures, any rights to training, and any collective agreements in place (those are only relevant if you recognise a trade union). Again, I tend to reference all these things in the Letter of Employment and signpost to more detailed information elsewhere. Then everything is dealt with all in one go!

BUT, a Written Statement of Employment Particulars is NOT a contract of employment! Any gasps at this point?

A contract of employment exists even if you don't write anything down. It includes lots of terms relating to employment conditions and the rights, responsibilities and duties of both the employee and the employer. You can include contractual terms in the Written Statement of Employment Particulars, in a fully documented Contract of Employment, in an Employee Handbook, in a letter, or even in a notice on the wall. But not everything you write down is automatically contractual. Also, contractual terms can be implied by law (e.g. working time regulations or health & safety duties), by custom and practice in your business (like you paying a Christmas bonus every year) or by long standing legal principles (like the implied term of mutual trust and confidence between employee and employee).

Some arrangements between you and your employee you want to be contractual, but beware of making things contractual if you may not stick to them yourself, or may want to change them. If you don't comply with a contractual term then you are in breach of contract and a claim can be made against you. Also, you often can't change a contractual term without the employee's agreement, or at the very least a consultation process.

I went for a simple Letter of Employment that covered all the basics, but also included contractual terms about confidentiality, data protection, information security, and conflicts of interest, as these are important to the nature of my business and the work my employee will do for me and my clients. I hope that what's included in these extra terms will never need to be relied upon, but as an employer you do need to make preparations for the things that could go wrong later.

In the end, the contract of employment is what will be used if there's a disagreement between you and your employee that ends up with ACAS or in court. If necessary, some of the terms will be interpreted from your actions, not just from what you write down. It's one of those documents that doesn't matter too much, until it REALLY does.

So, before you just download a template you found via Google Search, make sure you think through everything carefully. ACAS have a couple of useful basic templates that can be good place to start for the Written Statement of Employment Particulars, but if you need extra protection for your business in certain areas then perhaps find a HR professional to help you (or you could go to a solicitor, but they're generally a lot more expensive).

* A worker is someone who is not "employed" by your business, but satisfies certain criteria to be considered a worker - rather than someone genuinely self-employed. Be careful about people you may think you can ignore when it comes to being workers or employees. I'm happy to chat it through if you're ever unsure.


Pay, and the cost of employment

Very few people are going to work for you without being paid. What you decide to pay them is mostly up to you, but there’s one important rule you must follow.

You are legally required to pay people at least the National Living Wage (or National Minimum Wage if they are under 21) for every hour that they work for you.

Currently the minimum for someone aged 21+ is £11.44 per hour. This is around £23,855 per year for a 40 hour working week. If you pay someone on a salaried basis at £25,000pa then you have to keep an eye on their working hours to make sure they stay below 42 hours in a week.

To start with, I could only afford to pay just above the minimum, with the aim of increasing pay rates once we became a profitable business. So, I needed to make sure that I had a way to record working hours easily. I chose to use a system called Clockify, but there are many similar systems available.

In terms of the total cost of employing someone, you need to remember that you’ll be paying for the following things on top of the basic pay

  • paid holiday of 5.6 weeks per year (around 12% extra for someone hourly paid)

  • Employer’s National Insurance at 13.8% of earnings over the relevant threshold

  • Employer pension contributions at 3% of earnings over the relevant threshold

For someone working 40 hours per week, at £11.44 per hour, the actual hourly cost is £14.20.

You’ll also need to pay for equipment, software licences, uniforms, etc. so make sure you think that through as well.

People working only a few hours per week tend to cost less in ERNI and pension - as their earnings may be below the relevant thresholds, but if you employ multiple low hours people instead of one person on full time hours, then you may end up paying more in equipment or software, for example.

I thought through how much revenue I needed to bring in to cover each hour that my new staff member worked. That helped me calculate how much I needed to charge my clients.


Payroll

When you pay people, it has to go through a payroll and be reported to HMRC. So, early on in the process of becoming an employer, you need to think through how you will process payroll and account for tax, national insurance, pension contributions, etc.

I thought this bit would be relatively easy for me. For some strange reason, I've loved filling in forms since I was a little girl, and I've worked alongside payroll professionals for my whole career.

However, the first hurdle was getting registered with HMRC as an employer and getting signed up for PAYE. I had already got myself a Government Gateway account as part of being self-employed, but now I needed to set a linked one up for HR by Tara and register for PAYE. This involved proving my identity on the gov.uk website (more than once during the process). Passport was fine, but as I hadn't had a P60 recently I ended up having to answer lots of questions about my credit record to demonstrate I was who I said I was.

The website recommends you don't sign up more than a month before your first pay date - but the fact that HMRC then have to send you information through the post in order to complete your registration means that (if you're anything like me) you're checking the post each day in the hope that it all comes in time for that first pay date. I applied on 31 Jan and got my PAYE reference number in the post a few days later. I then got my activation code in the post on 10 Feb. So I was then all registered and ready to go.

The next step was to get some payroll software. HMRC lists some free payroll software for small businesses on their website. I wanted to go with something free to start with, so that I wasn’t tied into anything. If you work on a Windows PC then you could use HMRC Basic Tools to run your payroll for free. However, I had a complication. For me, the payroll software needed to be cloud-based and able to work on a Chromebook - as that's what I use to run my business. This ruled out a few of the options. In the end I went for Shape payroll. It was really easy to set up and use.

Once I changed to being a limited company and started using Xero for my bookkeeping, I moved to using the Xero payroll system. It’s not the best payroll system, but being integrated with the accounting system saved some time and stress.

If you have an accountant, they will often offer to manage your payroll for you. You will still need to provide them with information each month so that they know what the gross payments should be, but they will then deal with the deductions for tax, national insurance, pension contributions, student loan repayments, etc. And they will send off information to HMRC on your behalf.

Obviously you need to have information from your employee to set them up on the payroll system. I think the best option is the HMRC starter checklist, plus them sending you their bank details. Obviously, if they have a recent P45 then you need that too, to help make sure they're taxed correctly from the start. Bear in mind the information on protecting employee data and make sure you don't collect more personal information than you need.


Pensions

Under the Pensions Act 2008, every UK employer must automatically enrol eligible workers into a pension scheme and make contributions towards it each pay period.

So, as soon as you employ anyone, you need to have a workplace pension scheme in place. I have chosen to go with NEST at this point, due to it being really easy to set up and operate. However, it's probably not what I would choose for a workplace pension if I had a bigger team. If my business grows then I will definitely get some good financial advice and select a pension that I believe will be good for my employees as well as for the business. In the meantime, I think NEST is the right way to go.

You’ll need to make a decision on whether to postpone assessment for automatic enrolment or not. You can postpone it for up to 3 months from their start date, but if you want to do that then you need to write to them to tell them what you’re doing and explain their rights.


Employee record keeping and data protection

I’m sure most of us have heard of the Data Protection Act, or possibly GDPR (which stands for the General Data Protection Regulations, which came from EU legislation).

The moment you receive a CV from a prospective employee, you're processing personal data, and that means you need to protect that data. Hopefully you wouldn't carelessly leave that CV on the bus... but there are many other ways that personal data could become lost and misused.

Lots of people think data protection is just a bunch of annoying rules trying to stop us doing anything, but then those same people would be angry if their own identity was stolen. We all have a responsibility to respect the privacy of individuals, and once you become an employer there are some specific things you need to do. The Information Commissioner's Office (ICO) has some really useful information to help you get started, that's focused on smaller businesses: https://ico.org.uk/for-organisations/sme-web-hub/

You need to register with the ICO, which you may have done already if you store and process client data. It's often only £40pa, but you can be fined if you're processing personal data without being registered. I registered as soon as I started my business and renew each year.

My employee data protection compliance started with me thinking about what data I actually NEEDED in order to employ someone, and it wasn't actually very much - most of it is the information I need about someone to set them up for payroll.

  • full name (ideally matching exactly what's on their passport and what HMRC has on record)

  • date of birth

  • gender

  • full home address

  • National Insurance number

From their P45 (if they have one) I will also collect their

  • leaving date from their last job (if relevant)

  • existing tax code

  • total pay and tax paid to date for the current tax year (if relevant

  • student loan deduction status

There is a starter checklist from HMRC that I can get them to fill out if they don't have a P45 from their last employer.

In order to pay someone, I will also need their bank details. To communicate with them, I probably want their mobile number and email address.

To check they have the right to work in the UK, I need to take a copy of their passport or a print out of their details from the online checking service.

So, at this point, an employer is already starting to amass quite a bit of personal data. As you add to this list, it's important to keep a record of what you are collecting, holding and using. Keeping records is vital to all your other data protection activities, as is the idea of "data minimisation" - only collecting what you actually NEED for a specific purpose. I've approached this by creating a spreadsheet that's my Employee Data Schedule. It lists all the items of personal information I may hold about someone, why I need it, where I store it, how I use it and when I destroy it. Writing it all down helps me focus on whether I really do need that piece of information or not.

For each piece of personal data, you have to have a lawful basis for holding and using it. For almost all the information types I list above, the lawful basis I am relying on is "the processing is necessary for a contract you have with the individual". I cannot employ someone without paying them and I need all that information to pay them. I hold the copy of their passport based on "the processing is necessary for you to comply with the law" - without it I could not evidence their right to work in the UK. I hold their contact details to help me run my business so "the processing is necessary for your legitimate interests".

You will notice that the lawful basis for holding the data I have is NOT consent. Consent can be withdrawn, so don't ask your employees to consent to you holding their data unless it really is optional for them - perhaps emergency contact details might be an example.

Although you're not asking for consent, you do have to make sure that the people whose data you have know what you have and what you'll be doing with it. This includes applicants for jobs and any employees, workers or freelancers that you hold data about. This communication normally comes in the form of a Privacy Notice. You can download templates from the internet that vary from 1 page to 30 pages. The important thing is to make sure the content of your Privacy Notice is true and accurate (not just aspirational), easy for people to understand, and properly tailored to your business. The aim is to ensure transparency, not confuse everyone even more!

My Privacy Notice for employees ended up being 5 pages long and was based on the ICO template for small businesses.

When you hold personal data, you need to make sure it's secure. This may mean putting paper documents in a locked drawer where only you can access them. If you're holding information online then it can be a bit more challenging to check what security is in place. So I recommend talking to someone who can advise you on this. Things to consider include making sure your network is secure, that you only use secure applications, that your devices and software are kept up to date, and that you have the right access controls set up.

I got a cyber security expert (who also happens to be my husband?!) to help me think about all the systems I use that hold employee (or client) personal data and how I can reassure myself that it is all protected to a reasonable level for a business my size. One example of actions I took, is that I chose the paid option of Google Workspace that meant any data held in my Google applications is stored within the UK/EU (you have to declare any transfers of data outside the UK/EU as the privacy laws elsewhere may not be up to scratch!). I also have strong passwords on systems and don't reuse them between different systems.

There is a lot more to the UK data protection legislation than I can cover here, but the first step is to realise that when you become an employer you have a whole new set of data protection responsibilities and there are actions you need to take. The ICO website takes you through everything in a pretty straightforward way, but you can always get help and advice from data protection specialists (I can recommend some if you get in touch).

What's also important to remember is the "accountability principle" within the legislation, which means it's not enough to just comply with the law, you also need to be able to SHOW that you have complied. This means you need to go through the requirements carefully, make records of the decisions you take, and keep everything under review as things will no doubt change over time.

I'm comfortable with data protection requirements, and have trained plenty of managers on this topic in the past, but if you're feeling in the dark about what you need to do then get in touch and I'll hopefully at least provide a torch for you to see the way ahead. It doesn't have to be scary or hard work.


Health, safety and wellbeing responsibilities

Despite the fact I've worked in HR roles for more than 25 years, I wasn't actually aware (until I looked it up) that you can be fined £2,500 PER DAY for not having employer's liability Insurance in place. It shocked me, and has shocked a couple of my clients too when I’ve mentioned it to them. 

So, one of the first things I did when I was preparing to become an employer myself was to find some employer’s liability insurance. I got mine from the same insurer who provides my public liability and professional indemnity insurance and adding it onto the policy was very easy indeed. It’s worth shopping around to find a good price for cover that meets your requirements. I managed to get cover through my professional body (CIPD), which offered a substantial discount. I also spoke to an independent broker and to the FSB (Federation of Small Businesses). If you’re a member of the FSB then you can get insurance advice and recommendations through them.

Employer's liability insurance covers you for legal and compensation expenses as a result of an employee making a claim against you due to becoming ill or injured at work. The cost of the policy will depend upon the sum you insure (£5m as a minimum), the number of people you employ and the risks associated with the work those people do.

You must also display your employer's liability insurance certificate somewhere that your employees can view it. Some people put a copy on the wall - next to the Health & Safety at Work poster (which is also compulsory). I’ve chosen to publish it (together with a leaflet that replaces the poster) within our HR system instead, as my team work flexibly and are often not in the office.

In my mind, linked to the purchase of employer's liability insurance is taking time to consider the health, safety and wellbeing risks associated with the work your people will be doing. As soon as you employ someone, or take on a worker*, you become legally responsible for their health, safety and wellbeing at work. Some business owners and managers hear this and get scared stiff about it. Others are rather more blasé and assume nothing bad can happen - all their people have common sense, don't they...?

All employers need to do a number of things to meet the requirements of the Health & Safety at Work Act. These include having a safe place of work, safe equipment and safe systems of work, providing safety information and training to your workers, and conducting risk assessments.

You only HAVE to start writing all this down once you have 5 employees, but I think it's a good idea to note down what you think about and what you decide to do about it, even if you only have one employee, like I did when I started.

Even though I didn't legally have to, I sat myself down and wrote a brief Health, Safety and Wellbeing Policy, including guidance for my staff on areas such as safe workstations, accidents and ill health (including Covid-19 at the time), driving for work, and managing stress. As both me and my first team member worked from our own homes, I also included some basic guidance on having a safe place to work within our own homes.

Yes, be aware that if your people work in their own homes then you are still responsible for their health and safety at work and must do the basics to ensure their workplace is safe. It's not good enough to assume they'll look after themselves - even though most people do.

For those with a shared physical workplace, I would recommend additional sections on welfare facilities (toilets and drinking water, etc.), first aid provision, emergency evacuations, manual handling (lifting and carrying stuff), and work equipment (including Personal Protective Equipment, if applicable). These are a minimum - what you write and the sections you need will depend upon the outcomes of your risk assessment.

Since my business has expanded, driving for work has become a more significant risk, so we have added additional information about that. Be aware that if people in your business drive to other locations as part of their job then this is driving for work and you’re responsible for their health and safety while they’re driving. Some basic steps can help to reduce risks in this area.

You can get lots of helpful advice on health and safety in small businesses from the HSE website (https://www.hse.gov.uk/leadership/smallbusinesses.htm). In most cases, it's not as complicated as you may think. Also, talking about health, safety and wellbeing with your team, then agreeing some small actions to reduce the risks can make a big difference to your staff, to productivity and to potential absences from work.

Even though my employee and I will be working in our own homes, we're still doing some e-learning about safe workstations and completing individual workstation risk assessments. And we'll talk about how to ensure we take appropriate breaks and share workload in the right way to help avoid pressure turning into stress at any point.

As business owners (and human beings!), none of us want to end up in a situation where someone becomes ill or injured when working for us. Hopefully because we care about our people, not just because it can have horrific consequences if you are held liable.

So, three simple steps to help protect yourself as an employer:

  • Buy yourself some employer's liability insurance in case the worst happens.

  • Then review anything that could have a negative impact on health, safety or wellbeing at work and discuss it with your people.

  • Lastly, take actions, share information and provide training that will help reduce the risks to your people.

And if you have 5 or more workers then make sure you document what you consider, decide and do.

If you would like some help with the basics of health, safety and wellbeing in the workplace then feel free to get in touch for a chat. We can provide template documents, help you think through your risks, document your arrangements or suggest training options. We aren’t health and safety specialists, but we work with trusted partners who can provide expertise when you need it.


Setting things up for my new team member

When you bring a new team member on board (often known by us HR people as “onboarding”) there are an incredible number of things you need to get set up.

There are the employment related bits - sending them a letter of employment, getting the information you need from them, setting them up on payroll, etc.

Then there are the systems bits - getting them a computer (if necessary) and a licence for each piece of software they need to use. We have a list now of all the applications we use and then we can work through the list to check off all the ones each person needs to be set up on.

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