Becoming an employer is a landmark moment in the life of any small business. It’s an important step on the road to success – but you need to be prepared.
In the video below, Simply Business’ Jasper Martens explains the key points to consider when hiring your first employee, but you can read on for a more exhaustive guide.
What do you need?
It is important that you work out exactly what you need from a prospective employee. This will help you not only to find the right person, but also to make sure they are used effectively.
The first step is to determine whether, in fact, you need to hire an employee at all. It may be that it is more cost effective for you to contract with a freelancer, or to find a third party company that can fulfil your needs. Freelancers in particular can be a highly efficient means by which you can fill skills gaps in your business without the financial pressure of employing someone.
You might also want to investigate innovation vouchers, which can help mitigate the cost of bringing skills into your business. This government scheme is designed to help small firms buy in knowledge. Depending on the sort of skills you are looking for, you may be able to apply for up to £5,000 from the scheme. [Read more about innovation vouchers here.]
If you are confident that you do need to hire an employee, it is important that you think carefully about what, exactly, it is that you need them to do. Are you looking for someone to fill a role with very specific parameters? For example, do you want someone who will exclusively work on marketing, and should therefore have a track record in the field? Or do you need an all-rounder, to help you with the day-to-day operation of your business? By defining the role at the outset, you can help to ensure that you find the right person.
Can you afford it?
Of course, cost is a key concern when hiring. The first thing to consider is salary. Remember that, at the very least, you will be legally required to pay the National Minimum Wage (NMW). At the time of writing this is set at £6.19 per hour for those aged 21 and over, and £4.98 per hour for those aged between 18 and 20. If you fail to pay at least the NMW you risk prosecution, and can be made to make back payments.
Salary will also depend on the level of expertise and experience you are looking for. Although the labour market is currently pitched very much in favour of employers, it is important to remember that you will get the talent you pay for. This doesn’t, however, mean that you need to offer the very highest salary. It is common for employers to ‘bulk up’ their salary offering with enticing employee benefits. This can be a great way of attracting talent more cost-effectively.
The costs of hiring, however, extend well beyond the headline salary and benefits. You should remember that the recruitment process itself also costs money. If you choose to use an agency you will need to pay their fees, but even if you choose to go it alone you may still have to pay for advertising. You should also remember the time cost involved in interviewing candidates. Finally, you should remember that your new employee may also need training, which will come with its own financial and time costs.
Do you need an agency?
Many small businesses choose to contract with a recruitment agency to help them find the right candidate. Agencies can be useful, particularly if you cannot spare the time to conduct the recruitment process yourself. They can also provide you with the help you need to ensure that you conduct your first recruitment process as efficiently as possible. You should remember, though, that it is perfectly possible to hire on your own - and that contracting with an agency can be very expensive. Similarly, some business owners believe that conducting the recruitment process themselves has helped them ensure that they find the right candidate, and that the candidate is better integrated into the business.
Choosing whether or not to use an agency will depend in great part on your business’s specific circumstances. If money is particularly tight, it may make most sense to go it alone - but you should remember that this will require a significant time investment.
Write a job description
A good job description is one of the most important elements of the recruitment process. This document will help you clarify what you need, and will help you find them. It should set out exactly what you expect that the new recruit will be doing, what qualifications you need them to have, and what existing experience might be necessary. This will form the bedrock of your recruiting effort, and it’s important that you take the time to get it right.
A good job description should fulfil two major requirements: it should attract the right candidates, and it should properly define the role. By accurately defining the role you can provide potential candidates with the information they need to determine whether or not they fit your requirements. You should set out the experience you expect of them, as well as any relevant qualifications. Attracting the right candidates, meanwhile, requires a combination of a well-defined role and an appealing description of your business culture. Why would someone want to come and work with you? What is it that makes your company special? What can you offer that another firm cannot?
Advertise the position
Your next step is to advertise the vacancy. There is a range of locations in which you might choose to do this. Broadly, can split these into online and offline.
Recruitment is increasingly going digital, and the number of online routes through which you can advertise a vacancy have increased substantially. There is a host of well established job sites such as Reed, Monster, and Guardian Jobs, which can provide effective means by which you can reach potential applicants. There can, however, be very significant differences in price and service between these sites. Some, for example, enable you to stipulate pre-application questions for jobseekers, to help ensure that only the right people are applying. You should therefore do as much research as you can before deciding which sites to advertise with.
The government’s Universal Jobmatch service is another potentially useful service. This online database allows you to list vacancies, but also provides you with a set of “suitable jobseekers”, matched by CV. You can sign up for Universal Jobmatch on the .GOV website.
There are many potential offline advertising routes too. You might consider advertising in your local newspaper, or in relevant trade journals. Depending on the nature of the role, you might also choose to add details of the vacancy to your own marketing materials.
Once you have put together a shortlist of candidates, you need to conduct interviews. You might choose to carry out phone interviews first, followed by face-to-face meetings with the candidates who you feel perform the best. It’s important that you prepare for these interviews properly. A list of basic questions will help you to give some structure to the interview, but you should make sure that you don’t rely on this as a script. Instead, be ready to improvise and make sure that you treat each candidate as an individual. You can break the ice by describing your business’s current position, and outlining the role, before asking about the candidate’s experience and expertise. Make sure that you ask open ended questions, rather than those which could yield a ‘yes’ or ‘no’ answer, and that you avoid particularly leading questions.
You should try to make notes during or immediately after the interview ends, as it can be very easy to forget important points. Try to keep some structure to these notes in order to make it as easy as possible to compare candidates.
Carry out checks
Once you have selected a candidate, you need to carry out some checks. The first and perhaps most important of these is to follow up on the references that the candidate provided during the application process. It is all too common for prospective employers to allow these references to go unchecked, but this simple step can make a huge difference. Where possible, ask that applicants provide phone numbers for their referees. If you are suspicious about their veracity, consider checking whether the firm exists at Companies House, or whether they have a reputable looking website.
You will also need to check that your potential candidate is legally allowed to work in the UK. If you employ people who are not legally allowed to work, you risk prosecution and a fine of up to £10,000 per employee. There is a step-by-step tool on the government’s .GOV website that will help you do this.
Depending on the nature of the role, you may also be required to carry out a criminal records check. These are commonly referred to as CRB checks, but are now more properly called Disclosure and Barring Service (DBS) checks. DBS checks are a particularly common requirement in childcare and healthcare, but you should remember that you can only refuse to employ someone on the basis of a spent conviction if there is a “specific need” for you to check their criminal record.
If the job requires it, or if it is a legal requirement, you may also conduct a health check - but it is vital to remember that you are legally prohibited from doing this in any other than these two circumstances. You must stipulate that you intend to conduct a medical check when you make the job offer.
Get the paperwork in order
You should also draw up an employment contract or statement of employment. You are legally obliged to provide a statement of employment if the contract lasts for more than a month, and you must provide it within two months of hiring your employee. This document must include basic details such as job title or description of work, salary and frequency of pay, hours of work, holiday entitlement, and more. You must provide the statement of employment within two months of the employment beginning.
However, it might be that not all of the terms of employment are contained in the statement. Terms might also be verbally agreed, or they might be ‘implied’. An example of an implied term would be that the employee may not steal from the employer.
When you become an employer, you are legally obliged to take out employers’ liability insurance. This will cover you against compensation claims arising from injury or illness suffered by your employee as a result of their work. Claims of this sort can be financially ruinous for a business, and aside from the legal requirement it is therefore very good business sense to take out this cover.
The standard level of cover provided by most insurers is £10 million, and the legal minimum is £5 million, but you might choose to take out a higher level depending on the nature of your work. You need to keep a copy of your certificate of employers’ liability insurance, which will be provided by your insurer, in a place in which your employees can easily read it.
You can compare employers’ liability quotes quickly and easily with Simply Business.
Register with HMRC
Finally, it is vital that you register as an employer with HMRC. Again, you are legally obliged to do this, and you can register up to four weeks before you start paying your employee. You can register through the HMRC website.
In addition to registration, becoming an employer confers a number of other legal responsibilities on you. These include:
1. Calculating and deducting PAYE and National Insurance Contributions
2. Paying Class 1 NICs
3. Making Statutory Sick Pay payments and other statutory payments
4. Making deductions for Student Loans where applicable
5. Keeping records, filing returns, and paying HMRC on time
You might choose to keep your payroll records yourself, or you might pay a bookkeeper to do it for you. If you choose to do it yourself, you might wish to use the free Basic PAYE tool provided online by HMRC. There are monthly deadlines according to which you must pay HMRC.
You should remember that you may be entitled to take advantage of the so-called ‘National Insurance holiday’. This government scheme could save you up to £5,000 per employee in NICs. Read more about the National Insurance holiday.
Becoming an employer requires you to adhere to a range of legal obligations. If you are in any doubt about these, it is important that you seek independent advice.
For even more information on hiring your first employee, check out our interactive infographic.
Click image to open interactive version (via Simply Business).