Author: Carlo Pandian
For small business owners, taking on an employee (or more than one) for the first time is a daunting but exciting prospect. It's a good sign that business is thriving but making the right choice and ensuring that you comply with relevant legislation can be a fulltime job in itself. There are a number of crucial steps to the process none of which you should overlook. Here are some of the key factors to take into consideration.
How Much to Pay?
The rate of pay for employees will depend on a number of factors, including what you can afford to pay them. Paying the highest rate you can afford to is usually advisable - especially if you're employing professional workers. To access the best talent the best salaries will be necessary. Whatever the salary you set you'll need to be sure that you are paying at least the Minimum Wage. The level of the minimum wage is affected by the age of the employee and the type of work. If you don't pay minimum wage you may be prosecuted and be forced to pay the difference as well as a hefty fine.
I can't make it in today - I've been deported
You've found that perfect employee with all the right skills, the perfect attitude, ability and talent by the bucket load. Then they go and get themselves deported. Before you actually offer the job you need to be sure that they have a legal right to work in the UK. If your star employee is from overseas and they have all the correct documents you'll need to keep copies. The fine for unknowingly employing an illegal worker is only (!) 10,000, while doing so knowingly will get you an invite to stay at one of Her Majesty's delightfully appointed prisons; possibly for quite some time.
Appropriate Insurance
Employer's Liability Insurance is also essential - before the contract starts. Unless you are employing a relative, or a worker based overseas, you will need cover for 5 million and you must also display your insurance certificate at your premises. The Health and Safety Executive (HSE) enforces the regulations around Liability Insurance and if you don't have it they'll charge you 2,500 per day until you do. Your insurance must also be provided by an 'authorised' insurer and to check that an insurer is authorised, contact the Financial Services Authority (FSA).
Employee Registration
If it's your first time as an employer you'll need to register with HMRC. This helps to ensure that you are taking the right amounts in deductions for PAYE tax for your new employee. It's a legal requirement to register and failure to do so has a range of fines attached; the actual amount will depend on how late you register but the minimum fine is 50.
Statements of Intent
Within the first two months of your new employee's starting date you'll need to provide them with a statement of employment; this must be a written statement and it applies if you are employing someone for more than a month. An employee can take you to tribunal if you don't provide this within the first two months and fines, if the tribunal finds against you, can be anything from two to four weeks' salary.
Basic Equipment
All of these steps are essential to ensuring that both you and your employee are protected and complying with relevant legislation. Failure to comply with any or all of these requirements can lead to hefty fines, prison sentences and, for the smallest firms, will lead almost certainly to closure. For information and advice contact Business Link - or visit their website which features a range of tools and calculators to work out everything from minimum wage rates to creating your statements of employment. Also ensure that you have adequate, functional payroll software in place before your employee starts; this is not a legal requirement but will help to make the process of calculating tax, national insurance and rates of pay far quicker and more efficiently.
About the Author
Carlo Pandian is a business graduate at Birkbeck College (London) and blogs about accountancy, technology and human resources covering everything from payroll software to personnel management apps. Aside from his daily job, Carlo loves helping his local community center with his communication and marketing skills.
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Posted by Phil Cross
on Friday, 27th July 2012
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