8 Jul 2016

It is widely reported that more than 50% of all new UK businesses fail within the first 5 years.

It is widely reported that more than 50% of all new UK businesses fail within the first 5 years. It is also our understanding that complying with employment laws and regulations and putting in place good human resource practices, from the outset of developing a new business, is low on the priorities list. Understandably, entrepreneurs and business founders want to focus on their product or service and trying to stay afloat with their finances. Our experience, however, has shown that instilling good HR processes in a new business, from as early as possible, will help lay the foundations for a business to grow smoothly both in the early stages and in later development (at least from a employee relations view).

This article gives a broad overview of the basic UK employment rights as well as key practical HR considerations that business developers hiring staff should be aware of.

Key UK Employment Rights

Employee Status

When considering taking on staff for the first time, business owners should be aware of whether the individual will be an employee, self employed, or somewhere in between. The individual’s employment status will determine their rights and entitlements and the responsibilities an employer will have towards that individual. For the purposes of this article, it is assumed that the individual is an employee and is therefore entitled to the most beneficial set of UK employment rights.

Employment Contracts

An employment contract does not necessarily need to be written down in the traditional form. Therefore, terms agreed verbally with the employee can form a contract or a contract of employment can be implied from the common practices of the working relationship. Nevertheless, to avoid confusion it is always recommended to agree and sign a written set of employment conditions.

Although the entire contract does not need to be in writing, there are certain terms (“employment particulars”) that must be provided to the employee in writing within 2 months’ of employment commencing. These particulars include the date when employment began, information regarding the employee’s salary, holiday entitlement, as well as other information underpinning the employment relationship.

Wages

It is a criminal offence to knowingly pay less than the national minimum wage (NMW). The standard adult rate for employees over the age of 21 is currently £6.70 and will rise to £6.95 from 1 October 2016. This is reduced for employees under 21 (£5.30) and under 18 (£3.87).

On 1 April 2016, the UK Government introduced a new rate for all employees aged over 25; the national living wage (NLW). The NLW is currently set at £7.20 per hour and is planned to increase annually.

Employers should keep a careful eye on the changing rates of the NMW and the NLW to ensure that they, at least, meet the minimum requirements.

Notice Periods

In order for either party to terminate the employment relationship, they must first provide a period of notice before the date of termination. This ensures that the employee is protected from immediate dismissal and the employer can plan for any replacement before departure.

After one month of employment, UK law guarantees that either party must provide at least one week’s notice to the other party. Whilst an employee’s one week minimum is unaffected by longer service, the employer should give the employee one week’s notice for each year of continuous service, after two years’ employment (up to 12 years). E.g. an individual employed for 6 years is entitled to 6 weeks’ notice.

Hours and Holidays

European legislation regulates an employee’s working hours and entitlement to take paid annual leave. The legislation aims to protect the wellbeing of workers by ensuring they take sufficient time off and are not forced to work overly long hours. The legislation limits an individual’s average working week to 48 hours, although individuals can choose to “opt out” in writing. Other employee rights include a 20 minute break if the working day is longer than six hours, one day off each week and 28 days’ holiday (including public or bank holidays) per year for full-time employees (and prorated for part-time employees).

Unfair Dismissal

After an individual has been continuously employed for 2 years, they have a right not to be unfairly dismissed. The value of any claim would be based on a fixed seniority-based award (currently capped at £14,370) plus financial compensation for loss of earnings (capped at the lower of one year’s pay or £78,962). In practice, this means that if an employer wants to dismiss an employee, with unfair dismissal rights, the employer must have a fair reason (e.g. the employee’s capability or conduct or redundancy) and, importantly, the employer must show they have followed a proper process which will depend on the reason for termination.

Discrimination

This protection applies from day one of employment. Employees have a right not to be discriminated against in relation to a “protected characteristic” (i.e. age, disability, gender reassignment, marriage and civil partnership, pregnancy and maternity, race, religion or belief, sex, and sexual orientation). Employment claims for discrimination can often be the most costly, as there is no limit to the amount of compensation an Employment Tribunal can award.

Family Friendly Rights

UK employment law entitles employees who are having a child, or already have children, to certain rights. There a range of minimum rights depending on the employee’s circumstances, including maternity/paternity/shared parental leave and pay and employees who wish to work flexibly after having a child. Employers should be clear on its policies on different family friendly rights and ensure they at least meet UK minimum requirements.

HR Processes for New Businesses

Recruitment

One of the first traditional HR processes that a developing business will have to tackle is recruitment. As explained above, UK legislation prevents employers from discriminating against prospective candidates in relation to any of the “protected characteristics”. An employer should take care not to take any of the above characteristics into account when deciding which candidate to hire and what terms to offer.

Payroll

Once a business has taken on multiple employees in different roles and at different pay grades, managing payroll can be a difficult and time consuming task that has to be done correctly (e.g. to prevent wage claims or tax exposure). For this reason, many businesses choose to outsource their payroll to a third party provider. Although this may seem like an unnecessary expense, as the business grows it will allow for employees to be hired more easily and free up time for HR to implement and manage other processes.

Policies

Policies, at their simplest, are a written record of a workplace rule. However, they should be drafted carefully in order to communicate the business’ values and expectations to employees (e.g. Code(s) of Conduct). Once the policy is in place, employers should act consistently with it to ensure that if a decision is challenged (e.g. on discrimination grounds), the employer can rely on the policy as a basis for making that decision.

Disciplinary Action, Dismissals and Grievances

Employees, unfortunately, will not always be the right fit for the business or may argue that the business or a colleague has not acted as they should have. The business should have fair and transparent procedures for dealing with a dismissal or some form of disciplinary action against an employee, or a grievance brought by an employee. Getting it wrong can often lead to employment claims. As well as financial damage, such claims can also have an adverse effect on reputation within the market and on employee morale, which is particularly crucial in the early stages of a business.

Data Protection

Unless exempt, UK legislation requires an organisation that processes personal information to register (i.e. providing details of the purposes for which personal information is to be processed) with the Information Commissioner’s Office (ICO). There is a fee to pay and registration can be completed online. All new businesses should be aware of this requirement as failure to register is a criminal offence. Smaller employers who have relatively simple data processing arrangements (e.g. only for staff administration purposes) may possibly be excluded from the duty to notify.

All employers will also (as data controllers) be required to comply with the general principles of the legislation including requirements that any personal data in relation to staff must be: fairly and lawfully processed; processed for limited purposes; accurate and up to date, relevant and not excessive; not kept longer than necessary; processed in line with data subjects’ rights; secure; and not transferred to other countries (outside the European Economic Area) without adequate protection.

UK employment law can be a tricky area and a minefield for those new to the UK market. We would therefore advise you take legal advice where possible on such issues.

For more information please contact Razia Begum on razia.begum@taylorvinters.com or call +44 (0)20 7382 8025.