If you own a small business, the prospect of hiring your first employee can be daunting. It’s a complex subject, covering areas such as contracting, recruitment, legal rights, tax and payments.
The right staff can enhance your business, adding skills and expertise to help everything run smoothly, take on more work and build for the future. But this is less likely if you approach the process without the right contracts and processes in place. All the traders we spoke to felt there was a lack of support available for small businesses in this area, and that more advice and practical support would encourage others to take on employees.
Should you operate as a sole trader, partnership or limited company? Make sure you have the right structure for your business. Read on for more about taking on employees.
The figures bear out this reluctance to take on staff. Small businesses are the driving force of the UK economy, accounting for 99.3% of all private sector businesses. Official figures show there was a total of 5,497,670 in 2016 – a number that’s increased steadily over the past 20 years. But just over three quarters have no employees at all.
Employees come with costs over and above their salary. There’s the recruitment process, premises required, insurance, plus policies around and ways to cover pensions, sick pay, maternity pay, paternity pay and so on. Add to that the costs of getting the wrong person in the job, and the business could end up seriously out of pocket. Grants Electrical Services’ Martin Grant said: ‘Your pricing has to change because you’ve got to allow for the bigger picture. It’s not all about what you make that day, you’ve got to cover leave and so on. There’s a lot of planning involved.’
Adam Maton from WeMove Ltd added: ‘It is a responsibility – you build up your business for yourself. Then when you take people on, they have families and others to support, and you are responsible for someone else.’
Ibrahim Tural of Real Boiler Servicing and Maintenance told us: ‘There’s not enough incentive for businesses to take on the responsibility. I would rather pay more and have an external company deal with the areas I can’t cover myself, as it puts me in a stronger position. With an employee you need an HR department, and you can end up in trouble. It doesn’t seem worth it to me.’
Instead, Ibrahim chooses to work smarter. He said: ‘Automation works really well for me. I’ve got an online booking form, so information is captured by software and put straight into Google. As soon as the customer presses send, I can see it on my phone. I actively try to automate things as it removes human error.’
But for many it’s worth overcoming the fear factor, as taking on employees allows small-business owners to pass on their skills and experience, while growing their business. As Adam Maton from WeMove Ltd put it: ‘If you want to grow, you’ll have to have employees. It’s about doing it at the right time and finding the right people.’
For many successful small businesses, employees are a necessity to keep up with an increasing workload. Some traders felt they’d been pushed into taking on employees by changes in government policy. Peter Maton from Cox Format Developments Ltd said: ‘We worked regularly with the same subcontractors, and the government made it illegal to employ people on a self-employed basis continuously. It pushed up our overheads and made us less competitive.’
But it’s not been all bad for business. Peter added: ‘We’ve now found that customers like the fact that we employ our own staff. It makes them more confident in us. We get asked about it a lot because people hear horror stories about subcontractors.’
Although business owners often put off hiring employees until it becomes essential, many of them find there are benefits once they take the plunge. Gurdeep Lall from 2Red Ltd said:
‘My brother and I set up together. We started the business from scratch, working from a bedroom. We won a contract with E.ON and I had to get myself an office, and as we grew we needed more people. Our first employee was a godsend – he’s the best sales person I’ve got and now he’s a shareholder in the business.’
Most of our traders’ first employees were people they had worked with before – either as subcontractors or in other companies. A pre-existing working relationship helps reduce the risk - you know what you’re getting to some extent.
Furlonger Tree Services’ Fiona Calverley said: ‘Our guys had been working for us as subcontractors for a while. We needed to make them employees as they were wearing uniforms and driving our truck. It was right for the company to take them on at that point.’
If you need to cast your recruitment net wider, it all starts with getting the advertisement right and being clear about what skills or experience you need for the role.
Adam Maton at WeMove has to recruit quite regularly because of the nature of the business. Experience has helped establish positive working practices around interviews and recruitment in general. He said:
‘We’ve really refined the recruitment process. I won’t judge people on their covering letter and email. You can find people who have the right attitude who aren’t necessarily the best writers. It’s more important to have a series of interviews to get to know the individual and see how they’ll fit with the rest of the team.’
Building a team is as much about relationships as much as people’s individual skills and experience. Gurdeep Lall said: ‘We’ve got engineers and office people – they’ve got to have something about them. If I’m recruiting for someone in sales, I don’t necessarily look at past experience – attitude and willingness to learn are more important for me.’
A probation period makes sense to see whether your new employee’s work is up to standard and they’re a good fit with the rest of the team. Adam Maton told us that he has a week’s (paid) trial period for any new recruits, and takes feedback from the whole team on new starters.
Contracts, policies and procedures are all designed to protect both employer and employee. Having clear job descriptions, health-and-safety procedures and fair contracts spell out what is expected of each employee, and set out what to do if they don’t meet those expectations. It can be time consuming, but it’s worth spending time and money to get these right.
Ideally you would create a bespoke contract to reflect your company and your needs. Adam Maton said: ‘We started with downloadable templates online but that’s evolved over time. I could find a contract template online in five minutes, but it wouldn’t be industry specific and isn’t worth the paper it’s printed on. You need to make sure that the policies and procedures you have in place are fit for purpose for your industry. Then they’ll be worth something if you have an issue with a staff member.’
Martin Grant, from Grants Electrical Services Ltd, told us he chose to outsource creating contracts and policies to an HR specialist. He said: ‘People come unstuck if they’re not going about things the right way. I’d recommend outsourcing HR to people who know what they’re doing, to get it right. If your contract is firm but fair, as an employer you should be OK.’
Fiona Calverley from Furlonger Tree Services did find a lot of information online but, crucially, she already had some HR experience. She recommended looking at the Advisory, Conciliation and Arbitration Service (ACAS) website for information on employee rights and HR procedures.
Several traders mentioned how their accountants had helped them through the process of registering as an employer with HMRC, and dealing with PAYE and National Insurance for the first time. See our article on how to find an accountant for more about how the right professional advice could help your business.
Taking on employees changes the way business runs generally and how you have to work day to day. Employees require managing. Fiona Calverley from Furlonger Tree Services said her office-based role had expanded enormously now that the company has three employees. She said: ‘There’s a lot to remember – setting up a holiday calendar, getting them to sign documents and making sure they check their paperwork. You have to have regular meetings, set up appraisals and so on.’
Taking on extra staff can also change the whole business offering, building on the existing knowledge and skills base. Gurdeep Lall from 2RED Ltd explains: ‘Taking people on changed the business massively. We weren’t installing anything at first. We used to generate sales and sell them on. Because my first staff member had been an installer, he brought the installing side of the business into place. We grew from there due to his experience and contacts in the industry. I also met our heating manager through LinkedIn, and his contacts and knowledge helped the business grow further – he’s now a shareholder in the business.’
Managing employees changes the relationship you have with them, too. Martin Grant said: ‘You can’t be pally with employees in the same way that you are with a subcontractor.’
Then there can be physical changes to the business location too. Adam Maton from WeMove explained: ‘I ran the business from home at first, but taking on an operations manager meant that I needed an office – a fixed base for people to come to. It meant a double cost, but it created a professional image in line with our growing business.’
There was a real range of opinions about taking on employees, with traders saying everything from ‘just go for it,’ to ‘don’t do it.’ Growing and taking on employees is a big step, but if you are going to go for it, make sure you get it right. While it might be tempting to try to save money by doing things yourself, this could be a mistake in the long run.
There is support out there, although you may have to pay for it. Adam Maton said: ‘HR issues and responsibilities can be outsourced, I network with a lot of people who do this – don’t take the burden on yourself when you can reach out and find these businesses that will support you.’
If it works out, it can be the start of a bright new chapter. Martin Grant said: ‘If you hire the right people with the right process, you shouldn’t come unstuck - approach it the right way and the rewards will come.’