Hiring staff is an exciting time and a significant landmark for any start-up business. It’s a sign that things are going well and demand for your products or services exceeds what you can deliver alone. However, the process itself needs to be handled carefully. There are a number of legal and financial considerations you’ll have to take into account when hiring a new member of the team.
Before you make the decision to hire, you must have a basic understanding of employment law and put the necessary statutory requirements in place. That includes a written contract, an itemized payslip, pay that is at least the national minimum wage and the right to at least 28 days paid holiday (including bank holidays).
Employers must also automatically enroll workers into a workplace pension scheme if they earn more than £10,000 per year. You’ll also need to register as an employer with HMRC when you start employing staff to get your employer PAYE reference number. That must be done before the first payday. You’ll also have to invest in an employers’ liability insurance policy.
Apprentices and Trainees
Budgets for start-ups are inevitably tight and good employees do not come cheap, but there are some cost-effective recruitment options available to new businesses. Internships are one potential solution that can be a win-win for start-ups.
You get an extra pair of hands to fulfill a short-term employment need and benefit from the enthusiasm, new ideas and range of skills an intern can bring. Internships can also be an effective way to identify candidates that could be perfect for a permanent role in the company as an apprentice or trainee.
Interns can be recruited in the same way as you’d fill any other vacancy. You simply place an advertisement and invite applications, shortlist candidates and conduct interviews. The government-run Graduate Talent Pool is a great place to start your search.
If you’re looking to recruit permanent staff then an apprentice or trainee is a cost-effective way to hire an individual who can develop into an important member of the team. Some start-up businesses are hesitant to take on apprentices and trainees because of the red tape they believe is involved, but it can be an excellent way to fill a skills gap.
You can gear the training apprentices and trainees receive to your particular business needs. They can also help you stay up-to-date and relevant, particularly when it comes to digital skills.
Financially, you can benefit from the reduced national minimum wage apprentices receive and employers you do not have to pay Class 1 National Insurance contributions for apprentices under the age of 25. There’s also an Apprenticeship Grant for Employers that’s worth £1,500 per apprentice.
What Are the Allowable Costs for Employers, Including Listing Items That Can Be Tax Deductible Expenses
One of the biggest costs for many small businesses are the expenses associated with being an employer. The good news is that many staff costs are deductible when calculating the profits of the business, which will reduce the amount of tax you have to pay.
The following are examples of staff costs that can be deducted from your profit at the end of the year:
Wages and salaries – The primary costs of employing staff are the wages and salaries they receive. Wages and salaries are deductible when calculating the profits of the business which can reduce the tax liability considerably. The National Insurance contributions you pay as an employer are also tax deductible.
Pension contributions – As an employer, you must automatically enroll your staff onto a pension scheme and make contributions to the pension if the employee is eligible for automatic enrollment. The contributions you make to an employee’s pension are tax deductible as long as they are incurred wholly and exclusively for the purposes of the business. Pension contributions must be included in your profit and loss account and will lead to the profit being reduced.
Benefits in kind – The pay packets of some of your staff may include non-cash benefits such as a company car or private health care. The costs you incur in providing these benefits can be deducted from the profits of the business. Class 1A National Insurance contributions must be paid on benefits provided to employees (unless the benefit is exempt). These can also be deducted from the business’s profits.Statutory payments – Statutory sick pay, maternity pay, paternity pay and adoption pay will have to be paid at some point by most employers. These costs are deductible from the profits of the business. Depending on the size of the business, you may also be able to claim some of the costs of statutory payments back from HMRC.
Tax Relief and Incentives for Business
As a new business owner, the better informed you are about the financial landscape you’re working in, the faster you can grow. Part of this is understanding the range of incentives and tax breaks in place for entrepreneurs.
Here are some of the main ones:
Business Rates Relief – For small businesses who own their own property, business rate relief is there to make life easier. Check the link provided to see the options or contact your local council for advice
Capital Allowances – This is the most useful one for many small businesses, meaning you can claim 100% tax relief on machinery or equipment used in the running of your business.
Enterprise Zones – These are designated areas around the UK where the government has introduced specific policies, including tax breaks, to facilitate business growth. They are particularly prevalent in areas in need of economic stimulus and could offer tremendous benefits to the right kind of business.
Seed Enterprise Investment Scheme – This government backed scheme offers tax reliefs to individual investors who buy new shares in your company as a way of encouraging investment.
Employment Allowance – Employees could get up to 3k off their National Insurance per year. Check the government website to establish your eligibility.
Corporation Tax Relief for the Creative Industries – Those working in film, music, animation, gaming or art may be eligible for tax deductions.
R & D Tax Credits – Money spent on innovation may be claimed back as tax credits via this government scheme to reward those advancing their field.
Patents – For companies earning money via patented innovations, there are lower rates of corporation tax available.
Regardless of the sector you operate in or the size of your business, as an employer, it is essential you meet all of your legal obligations when paying your staff. You must pay every employee at least the minimum wage and produce a physical or digital payslip for every employee on or before their payday.
You must also make all the necessary deductions from staff pay. That includes National Insurance, student loan repayments and pension contributions. Employee pay and the deductions must be reported to HMRC in a Full Payment Submission (FPS).
The good news is that much of that process can be automated through the use of small business payroll software. That will help to make the payment of employees quick and efficient and ensure you remain compliant with all the regulations.
Deciding how much to pay employees is another important consideration for business owners.
You won’t have the budget to compete with larger organisations in your industry when it comes to salaries, but you do want to pay key employees enough so they stick around to fuel business growth.
To establish a benchmark, you should consider some of the following factors:
- What do competitors pay for similar positions?
- What is the cost of living in the city you operate in?
- Is an experienced employee taking a risk by joining a start-up business?
- Will you be able to increase the salary over time?
With the cost of recruitment high, it could be a false economy to pay below the going rate in your industry. Creating a flexible and equitable pay scale and establishing a clear path to promotion will help to prevent your top performers from joining the competition.
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