If you are involved in a start-up company, it can be tempting to push HR down the priority list, especially during the early growth stages when your time and resources are in short supply.
However, you should not underestimate the importance of putting the right processes and policies in place from the outset. Taking a more reactive approach can lead to common and potentially damaging errors. Dealing with employment issues proactively can save you significant time and money further down the line should a problem occur.
Here we outline the top 10 mistakes made by start-ups and most importantly, how you and your board can avoid them:
1. Inconsistent hiring
It is not unusual for businesses to recruit employees on an ad-hoc, needs-driven basis but without a plan to support the hiring process, it is likely that process will be inconsistent and ineffective. Not only could this waste your time and money, but risk discrimination claims.
You need to think carefully about what skills are required and be able to justify why you have selected a particular person for a job over and above other candidates. This can be achieved by creating a tailored checklist for each role, which is discussed during the interview process and used every time you recruit to ensure consistency.
A decision to hire should not be based solely on what you find on social media profiles. It is easy to make assumptions about a person based on photos but there could be underlying reasons why they are acting in a certain way. For example, a candidate may have a disability.
2. Incorrect employment structures
An individual may be an employee, a worker, or self-employed. The distinction is important, as it determines an individual’s statutory employment rights, and how they are taxed. Assessing an individual’s status is not just determined by how the parties label the relationship. It is a question of law and fact.
An employee is an individual who has entered into, or works under, a contract of employment. An employment contract may be in writing, but can also exist by virtue of how matters operate in practice.
To determine whether an individual is an employee, an employment Tribunal will assess their integration into the workforce. Employees are entitled to the full range of statutory employment rights. This includes rights during employment, such as the right to a written statement of terms, and certain statutory minimum payments in the event of illness and some forms of family-related leave. It also includes rights on termination, including a statutory minimum notice period, and some protection against dismissal. Some of these rights only apply after the employee has attained a minimum period of service.
The category of worker is slightly wider. It includes employees, but will also include an individual who has entered into a contract personally to perform any work or services for another party, as long as that other party is not the client or customer of any business carried on by the individual.
Identifying an individual’s employment status is not always straightforward, and categorisation of individuals as workers has proven particularly contentious over recent years (notably in the context of the arrangements operated by Uber and Deliveroo for example). Workers are entitled to a more limited range of statutory employment rights. Like employees, they are entitled not to be discriminated against on the basis of a statutorily protected characteristic and to accrue a statutory minimum amount of holiday. However, they do not enjoy the same level of protection against dismissal as employees.
An individual is self-employed if they provide services to another party in the course of running a business or profession in their own right. Self-employed individuals have few statutory employment rights, but are still entitled to certain minimum rights, such as a safe working environment when working at a client’s premises and in most cases are also entitled not to be discriminated against on the basis of a statutorily protected characteristic.
This is an area of the law which is likely to change and hopefully simplify following government consultation (which is currently ongoing). But in the meantime, entrepreneurs need to tread carefully when classifying individuals in the workplace.
Businesses should not be tempted to class an employee as a contractor purely for tax reasons. If you push someone into a different box because you feel that would be most beneficial for the company, this could lead to potential liabilities and future tribunal claims.
If you do recruit contractors or consultants, ensure you have a robust written and tailored contract in place with each of them to avoid any ambiguity. Some intellectual property (IP) rights (notably copyright and rights in designs) arising as a result of services provided under a consultancy agreement will normally belong to the consultant. As a business will usually want to take ownership of these rights, it may be important to include specific assignment provisions in a well-constructed consultancy agreement.
The same principles should apply when recruiting non-executive directors.
3. Unprotected company interests
Failing to protect your company’s interests including customer connections, staff and intellectual property (IP), could be hugely damaging.
Growth companies usually have small teams with lots of knowledge so even if just one individual joins a competitor, this could cause major issues.
To help manage these risks should they arise, robust contracts should be put in place from the outset. Think about how crucial an individual could be to your business and what you would need to protect should they leave. Then put the necessary clauses in their contract.
These could include tailoring post-termination restrictive covenants to give them maximum chances of enforceability. A garden leave provision is another associated option, which entitles the employer, after notice has been given by either party, to require the employee to stay at home and not work or contact colleagues, clients and suppliers.
4. Off the shelf employment policies
Less is more when it comes to employment policies. You don’t need an employment handbook filled with off-the-shelf policies as chances are, most of them won’t fit with your business so could restrict the way it operates.
Focus on what you need as a minimum and on non-contractual policies. In other words, those that can be changed and which are of most value to your company.
A disciplinary/grievance policy/procedure is essential for all businesses. It is also advisable to have a bribery and whistleblowing policy in place as well as a data protection policy in line with the GDPR.
5. Limited awareness of employee rights
You don’t need to know everything about employee rights, but you do need a basic level of knowledge. If you don’t, you risk breaching the law and having an unhappy workforce.
For example, an increasing number of people want to work flexibly and they have the right to make a formal request to do so. An understanding of the law will ensure you respond to those requests in the right way.
There is a lot of useful information and advice available online (particularly on government websites) to help you understand what employees are entitled to, so take advantage of these resources.
6. Poor management of workplace conflict
If there is a potential workplace issue bubbling away in the background, tackle it head on. If you don’t address it at the earliest opportunity, it could escalate into a full-blown dispute.
Make sure you follow your grievance policy and encourage those involved in the issue to also read and follow this policy.
Don’t be afraid to put a formal (and documented) plan in place if needed, especially for poor performance, as this could save you time and costs further down the line.
7. Failure to gather evidence
Take a proactive approach to record keeping and documentation. Keep your employee records up to date, especially if there have been issues in the workplace.
If someone has formally raised concerns about something at work, these should be logged so that you have a paper trail if things escalate (even if just by way of a brief follow up email on the issue).
8. Limited procedural knowledge
If you don’t know how to carry out a disciplinary procedure or understand the policy, take advice. There is plenty of guidance available and legal support if necessary to help you follow the rules.
For example, you could dismiss someone and if you didn’t follow the correct procedure and the dismissal is found by an employment tribunal to be unfair, the employee’s compensation could be increased by 25 percent.
9. Poor management of sickness and absence
If someone has to take sick leave, this can be really disruptive for a start-up. However, you need to make sure you manage this issue carefully as it is an area that is ripe for discrimination claims.
If someone has been off work sick for several weeks, take the time to understand the reasons why and try to find out whether their absence is linked to a broader, underlying, issue. This includes requesting them to attend an appointment with occupational health, or other medical specialist as appropriate (if necessary). You may discover that they have a disability in which case you will need to consider putting in place reasonable adjustments in the workplace and carefully manage any future capability process.
10. Lack of employee engagement
As your start-up grows, don’t forget about engaging your employees and keeping them motivated. Losing talent can be detrimental to your business, so make sure you communicate with employees regularly. If someone’s performance dips unexpectedly, talk to them to find out why.
Think about what incentives you could offer such as working from home or Enterprise Management Incentive (EMI) share options which enable you to grant your employees share options up to the value of £250,000 in a three-year period and tax relief if they meet certain criteria.
CSR initiatives are another effective means of engaging staff and creating a feel-good factor.
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