How to Prepare Your Startup Business to Hire First Employee

As a new business in town, getting it to the point where you need more hands-on deck is an important stage. However, before you can hire someone, there are a few steps you will have to follow.

First-time startup hiring
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First, you will have to set yourself up as an employer. This process includes, amongst other things, making your workplace safe and accessible for employees, registering as an employer with HMRC and setting up PAYE, deciding how you want to run payroll, and getting employer’s liability insurance.

One aspect that is often overlooked during the recruitment process is employment contracts. Given the information age we live in and the modern business practice, entrepreneurs need to be careful about what terms they include in their employment contracts.

Startups need to prioritise their overall business goals and protect their business interests and secrets from falling into the wrong hands that can cause irreparable damage to the business.

In this article, we will take you through setting yourself as an employer and hiring your first employee. Further, we will discuss how using a contract of employment template, entrepreneurs can make this daunting process easier and have strong protection of their business interest in their employment contracts.

Hiring early-stage business staff
photo credit: Gustavo Fring / Pexels

Understanding who you need to employ – an employee, worker, or contractor?

The person you will hire will have some employment rights granted to them by statutory law. These rights will exist even if you have not made a written contract of employment and cannot be reduced in any case. (Please note that while the law requires that no employee or worker work for more than 48 hours a week, this requirement can be opted out of).

What will be the employment status of your first hire

Employment rights and employer’s obligations flow from the employment status of the individual. To understand this, we have to delve into the UK employment law.

There are three categories of employment status:

  1. Employee;
  2. Worker;
  3. Self-employed.

The difference between these employment statuses is important. The law grants most protection to employees and lesser protection to workers.

While self-employed workers are intended to be excluded from employment law protection since their relationship with the employer is governed by a contract of services between two businesses.

What are the employments right of employees and workers?

Is it important for you to understand this so you can decide how to make the best hire for your new business.

The UK employment law grants certain basic rights to all employees and workers, regardless of whether they are working full time or part-time. These include holiday entitlement, right to be paid the National Minimum Wage, right to statutory sick pay, protection from unlawful deduction from wages, protection against unlawful discrimination, and rights to maternity, paternity, and shared parental pay.

Employees have additional rights, including time off for emergencies, statutory redundancy pay, right to request flexible hours, minimum notice period to end employment, protection against unfair dismissal, right to statutory maternity, paternity, and shared parental leave.

When you should hire an employee and when should you hire a worker

It is important for you to understand when you need an employee and when you are set using a worker.

For a post that is likely to be permanent, you should use a contract that establishes an employee and employer relationship. If you need someone who can work for you as the need arises, use a worker employment contract.

Note: The title of the employment contract is irrelevant in determining the individual’s employment status. Rather, the terms of employment determine whether that person is an employee or a worker.

Employee with disability

Making your workplace safe and accessible

To make your workplace safe and accessible, you need to set up some important employment policies required by law.

Anti-discriminatory policy

The UK has extensive laws to prevent discrimination on basic personal characteristics such as religion, sex, gender, age, or disability.

You need to put together a workplace policy that addresses all types of discrimination and harassment and covers every aspect of the employment process (from initial interviews through termination).

Fire safety policy

Under the Regulatory Reform (Fire Safety) Order 2005, all employers must carry out fire safety risk assessment of their work premises and review it regularly.

Having a fire safety policy will not only ensure compliance with the law, your employees and visitors will also be aware of their responsibilities with regards to fire safety.

Adjustments for workers with health conditions or disability

As an employer, you are required to make reasonable adjustments to make sure that no worker is substantially disadvantaged when doing their job due to their health condition or a disability.

The reasonable adjustments include having a recruitment process that allows candidates with disabilities or health conditions to be considered for the job, making the changes to premises (such as installing a ramp for a wheelchair user), allowing employees who have become disabled to make a phased return, allowing a disabled person to work on the ground floor.

Staff data protection policy

As an employer, you will be processing your employees’ personal data, such as their financial information.

Under the General Data Protection Regulation, you have to notify your employees of what data you process, the basis you process personal data on, and employee rights to see that data.

Having a data protection policy ensures compliance with the law.

Health and safety policy

The law requires every business to have a written policy for managing health and safety if they have more than five employees. However, it is useful to have a health and safety policy if you fewer than five employees.

This policy informs your staff of what they are required to do in an emergency and what steps they need to take to prevent injuries. Further, the policy includes providing a safe place of work and safe access to it, safe systems of work, safe equipment, safe and competent fellow workers.

Productive and happy employee

Registering as an employer and setting up PAYE

Before you start the recruitment process, you need to register as an employer with HM Revenue and Customs (HMRC), so you can pay tax and national insurance for your employees.

You must register before the first payday of the worker. It can take up to two weeks to get your employer PAYE reference number. Therefore, it will be good to register a few days before the person starts their employment with you.

However, you cannot register more than two months before the first payday of the worker.

Deciding how you want to run payroll

You can either operate PAYE yourself using payroll software, or you can pay a payroll provider to do it for you.

If you choose to do it yourself, you should use HMRC recognised software. Further, you will also need to complete some tasks. This includes registering as an employer with HMRC as telling them about your employees.

If you want to hire a payroll provider, you need to decide how much support you need.

You will be responsible for collecting all the data and keeping the employee’s details that the payroll provider will need.

Setting up a recruitment system

Starting recruitment process

Now you are ready to start the recruiting process. You first need to put out a job advertisement.

Preventing discrimination in recruitment process

As an employer, you must ensure you recruit employees fairly. You must make sure that the job advert does not state or imply that you will discriminate against anyone.

Further, you are prohibited from asking certain questions when recruiting. These include:

  • Marital status
  • If they have any children or plan to have children

You can only ask a question concerning health or disability to the extent that there are necessary requirements of the job and cannot be met with reasonable adjustments if you want to enquire whether someone needs help to take part in the selection process or if you are using positive action to hire a disabled person.

Additionally, you need to ensure that your recruitment process is easily accessible for candidates with disabilities or health conditions.

Conducting the relevant checks on job applicants

You will have a legal obligation to check whether a candidate you intend to hire actually has the right to work in the UK. To ascertain this information, check that their documents are genuine, dates for the applicant’s right of work have not expired, and the date of birth is the same across all documents.

If the worker will be working with children, the elderly, disabled or otherwise vulnerable people, you may need to apply for a DBS check.

Checking your obligations regarding workplace pension

Under the Pension Act 2008, as an employer, you are required to automatically enrol your employee into a workplace pension scheme provided:

  • his or her age is between 22 years and the state pension age.
  • his or her annual earning is at least £10,000.

This is called “auto-enrolment”. You can be subject to a fine if you fail to do so or pay into the scheme late.

However, you will not have to do this if the prospective employee provides proof of a lifetime allowance protection scheme.

Business liability insurance

Arrange Employers’ Liability insurance

As soon as you become an employer, you must get Employers’ Liability (EL) insurance. Your policy must cover you for at least £5 million, come from an authorised insurer, and be clearly displayed at the work premises.

In case of failure, you can be subject to a substantial fine. However, you may not need EL insurance if you only employ a family member or someone abroad.

Agreeing to terms of employment in an employment contract

It cannot be stressed enough how important it is for startups to use modern employment contracts that are strong in protecting their business interest.

By law, you are required to provide every new employee before their employment begins, a written statement of employment particulars (also called, ‘principal statement’). Its’ purpose is to favour the employee and make him aware of certain important employment terms.

You do not have to provide a principal statement separately if all the information required is disclosed in an employment contract.

As a startup, you need protection of your confidential information, trade secrets, intellectual property, and business know-how. Further, you need to protect your business by restricting the employee’s ability to set up in competition against you and poach your employees and clients.

Using an employment contract template, you can make your own employment contract that serves the purpose of a principal statement and is strong in protecting your business interests.

Register the employee with HMRC

Every time you hire someone, you need to register them as your employee with HMRC.

Ask your employee to provide you with the P45 form and their National Insurance number. If the employee does not have a P45 form, use the PAYE starter checklist.