The Lifecycle of a Business – What to think about as a first-time employer

Setting up and running your own business is an amazing achievement. It requires vision, creativity, motivation and stamina. On occasion, it can even bring you fame, riches and fortune. But it can also result in reams of paperwork and cause sleepless nights. And as someone once said to me about children “It doesn’t get easier, it just changes”, so the same can be said for your business throughout its lifecycle. From setting up to exit, it will force you to consider issues that you might not previously have known anything about and it will need you to make many decisions, sometimes very quickly. What it certainly is not is mundane.

With this in mind, the corporate team at Forsters, together with some of our specialist colleagues, has written a series of articles about the various issues and some of the key points that it may help you to know about at each stage of a business’s life. Not all of these will be relevant to you or your business endeavours, but we hope that you will find at least some of these guides interesting and useful, whether you just have the glimmer of an idea, are a start-up, a well-established enterprise or are considering your exit options. Do feel free to drop us a line or pick up the phone if you would like to discuss any of the issues raised further.

We’ve already discussed various topics, such as, set up, directors, funding and shareholder-related matters, but now let’s concentrate on "Employment: 9 to 5".

What to think about as a first-time employer

A key part of any operating business is its workforce. To the untrained eye, becoming an employer appears to happen overnight; one minute there is just a company name, the next it has employees (…and much more!). But “appearances can be deceptive” and there are some non-negotiable foundations to be laid before the first employee walks through the door (or logs on remotely).

In no particular order, the housekeeping matters that you will need to have addressed as a first-time employer are: employer’s liability insurance, immigration considerations, relevant documentation and payroll and pension services.

Employer’s liability insurance

All employers have an obligation to ensure the health and safety of their employees. One way that the law ensures that this obligation is fulfilled is by requiring all employers to take out a valid employer’s liability insurance policy, covering disease and bodily injury of employees in the UK, with minimum cover of £5 million for each potential claim. Failure to have this in place on or before an employee’s first day is a criminal offence, carrying with it fines of up to £2,500 for every day that a valid policy is not in place.

Immigration

Unless an employee has the automatic right to work in the UK (i.e. they are a British or Irish national) or otherwise has a visa allowing them to work, the employee will need to be “sponsored” by their employer in order to have the right to work in the UK. Where this is the case, the employing entity will need a “sponsor licence”. To get this arranged, a comprehensive application needs to be submitted to the Home Office; this can take a few months to process, meaning that some pre-planning will be required in the event a future hire needs to be sponsored.

Documentation

There is a minimum suite of documentation that an employer must provide to new employees. This includes certain mandatory policies (such as disciplinary and grievance procedures), best practice policies (such as those relating to equal opportunities and whistle-blowing), the minimum particulars of employment and data privacy documentation.

The particulars of employment, which must be provided to an employee on or before their first day of employment, set out the bare bones of the employment arrangement, such as the names of the parties, rate of pay, commencement date, place of work, job title and so on. Typically, however, employers will provide more comprehensive contracts of employment which, if well drafted, will include bespoke clauses for the specific employment relationship, including in relation to confidentiality, intellectual property and post-employment restrictive covenants.

Employers process lots of employee and candidate data and they must provide privacy notices to the individuals whose data they will be processing, explaining how and why they will process their personal data.

Payroll and pensions

Last, but absolutely not least, employers must organise all applicable financial processes (and if necessary, appoint a payroll provider to manage the processes on their behalf). This will include setting up an auto-enrolment pension scheme for all eligible employees and making sure that all pay arrangements meet the National Minimum Wage requirements. Employers must also ensure that they are registered with HMRC (which they can do up to four weeks in advance) and that appropriate deductions for income tax and National Insurance contributions are made.

All of this might feel a little daunting, particularly alongside everything else which goes with establishing a business in the UK but, thankfully, the Forsters’ employment team are always at hand to assist and guide new businesses during these early stages…and beyond…

Disclaimer

This note reflects the law as at 6 March 2024. The circumstances of each case vary and this note should not be relied upon in place of specific legal advice.