Are you employing staff for the first time? It is vital to understand your legal duties.
Starting a new enterprise is an exciting time. In due course you may think about employing staff to help you. It is vital to understand your responsibilities when taking on employees. Time spent getting your paperwork in order could be a wise investment to avoid problems and expense further down the line. Here, I offer a few simple tips to ensure compliance.
1 Run a fair recruitment process
Draft a job description and person specification for the role you are looking to recruit. Set out the requirements in an objective way and avoid using problematic phrases like “young and dynamic candidate” which could be construed as discriminatory. Remember that recruits have the right not to be discriminated against on grounds of sex, race, disability, sexual orientation, religion and belief, age, gender reassignment, marriage and civil partnership, pregnancy or maternity. Design a fair recruitment and selection process so all candidates can, as far as possible, be treated equally. Objective competency tests help to demonstrate this better than interviews alone. Remember that if there is a problem, a disgruntled candidate may request copies of all information you hold about them under the Data Protection Act, so make sure your paperwork is in order.
2 Always use a written contract
When employing staff, the law requires employers to provide employees with a written statement of the main terms of their employment within two months of starting work. The statement must cover the following as a minimum in one single document:
- the employing organisation’s name
- the employee’s name, job title or a description of work and start date
- if a previous job counts towards a period of continuous employment, the date the period started
- how much and how often an employee will get paid
- hours of work (and whether the employee will have to work Sundays, nights or overtime)
- holiday entitlement (and whether that includes public holidays or not)
- where an employee will be working and whether they might have to travel or relocate
- if an employee works in different places, where these will be and what the employer’s address is
Failure to provide the written statement may entitle the employee to raise a grievance and bring a claim before the employment tribunal for compensation equivalent to 2-4 weeks’ pay.
As well as these main terms, the following further information must also be given in writing, although this can be in a staff handbook or other documents:
- how long a temporary job is expected to last
- the end date of a fixed-term contract
- notice periods
- any collective agreements that are in place between the employer and trade unions
- pension entitlement
- who to go to with a grievance
- how to complain about how a grievance is handled
- how to complain about a disciplinary or dismissal decision
As soon as someone accepts a job offer, they have a contract with their employer. An employment contract doesn’t have to be written down, but the use of a written contract helps both parties to know where they stand and can avoid misunderstandings and costly disputes. It also the employer’s opportunity to make sure the employee is aware of certain obligations necessary to protect the employer’s business, such as not poaching customers or staff when they leave, protecting trade secrets, or handing over inventions, documents, passwords and keys when they leave.
The contract of employment can be varied only with the agreement of both parties. If you are proposing to change an employee’s contract of employment, you should consult with that employee and explain and discuss the reasons for the change. Employees are more likely to accept changes if they can understand the reasons behind them and have an opportunity to express their views.
If you impose a change to the contract unilaterally you may be in breach of contract and your employees could bring a legal claim against you for constructive dismissal if the breach is fundamental and significant, claim damages for breach of contract in the courts or bring a claim at an employment tribunal for unlawful deduction from wages, if the change affects their pay.
3 Pay the correct amounts
Do some research to find out what the going rate is for employees in your sector. When employing staff, think about whether to offer a bonus or incentive scheme to encourage good performance and loyalty, but make sure the criteria and rules are clear. Think about what the organisation can afford. Additional benefits, such as pension contributions and childcare vouchers can be attractive for candidates and they may also save tax.
All employees have a right to be paid at least the National Minimum Wage or if they are over 25, from 6 April 2016 the National Living Wage applies, which is £7.20 per hour. Below the age of 25 the following hourly rates apply: 21 or over £6.70, 18 to 20 £5.30, under 18 £3.87, an apprentice aged 16 to 18 or over 19 in their first year £3.30. The National Living Wage for over 25’s, represents a £910 per annum increase in earnings for a full-time worker on the previous minimum wage and it is set to increase year on year. By 2020 the Government predicts a full-time minimum wage worker will earn over £4,800 more in cash terms. The increase is going to have a big impact on the cost base of labour-intensive sectors like health and social care. Organisations will need to budget for these increases in business plans and consider whether and how these costs can be passed onto customers, (or consider recruiting more under 25’s!)
Remember it is unlawful to deduct amounts from an employee’s wages unless you are legally required to do so (e.g. to service student loans), you have a contractual right to do so, or you have a separate written agreement signed by the employee (for example, a right to set off outstanding balance of a training loan or season ticket loan if the employee leaves).
4 Provide induction and ongoing training
At the start of a new job many employees feel highly motivated and excited about their future prospects. Unfortunately this idealism doesn’t always last and some staff members may find themselves becoming disenchanted. Often, this can be attributed to a lack of support, a failure by the business to communicate key responsibilities, an overwhelming amount of new information or because the recruit fails to build a social network within the organisation. A good induction programme is the way to help a new employee settle into the organisation and become effective quickly. Focus on the new employee and provide them with information and training that is needed for them to be competent with their job responsibilities. There should be continuous support: it is a good idea to appoint a mentor to support a new joiner when they first arrive.
Ongoing training for employees has clear business benefits, including
- Better job satisfaction and morale among employees
- Increased employee motivation
- Efficiencies in processes, resulting in financial gain for the enterprise
- Enhanced capacity to adopt new technologies and methods
- More innovation in strategies and products
- Reduced employee turnover
- Enhanced company image, e.g. through customer service training
- Better risk management, e.g., training about data protection and equality laws.
Remember that losing staff always has a cost and risk to the organisation in lost productivity, additional recruitment fees and management time in finding a replacement. Research by Oxford Economics in 2014 found that the average cost to replace an employee was a startling £30,000 once you take into account direct recruitment costs and the time taken to reach optimum working efficiency (typically 24-28 weeks for an SME).
5 Make sure employees know the rules
As well as the contract of employment, when employing staff, it is essential to have a set of policies which staff are made aware of during their induction. These will cover issues like sickness absence, , confidentiality and data protection, expenses and subsistence, use of company facilities, home-working, use of social media. Employees should be made aware that failure to follow the rules can result in disciplinary action. You should have in place a clear written disciplinary procedure. ACAS publishes good guidance on best practice.
If employees have a problem with managers or co-workers, they must have an opportunity to raise these through a grievance procedure. If you hold a grievance or disciplinary meeting, the employee has the right to be accompanied by a colleague or trade union official.
You must have a health and safety policy and put in place Employers Liability Insurance which will help you pay compensation if an employee is injured or becomes ill because of the work they do for you. The policy must cover you for at least £5 million and come from an authorised insurer. You can be fined £2,500 every day you are not properly insured. You can also be fined £1,000 if you do not display your insurance certificate or refuse to make it available to inspectors when they ask.
6 Manage attendance
Research by PWC found that the annual cost of sickness absence to UK employers was almost £29 billion in 2013. British workers apparently take more than four times as many sick days off work than other countries, the average unplanned days of absence being around 9 days!
Clearly, there is a significant cost to the employer of this loss of productivity. The costs could be even greater if you are forced to hire additional temporary cover for a key role. It is important to address this cost by looking for ways to improve employees’ health, morale and motivation. For example, allowing greater workplace flexibility could help to helping break the cycle, e.g. allowing home-working or flexi-time, initiatives to promote exercise or healthy eating may also help. Some employers pay a bonus for a good attendance record.
There should be clear procedures for notifying and recording absences, a requirement to produce medical certificates for prolonged absences of more than 7 days and in the case of long-term absence the employer may want a right to require an employee to undergo an independent medical examination. Specify carefully in the contract how much time an employee can take off on full pay before their salary is reduced. As a minimum, an employee who is off sick for 4 days or more should qualify for statutory sick pay (‘SSP’) (currently £88.45 p.w.) and payable for up to 28 weeks. Until 2014, employers could usually reclaim SSP from the Government, but that is no longer the case – which means the wording of the contract can be crucial to manage your costs. Remember also that annual leave is still accrued while an employee is off sick.
7 Don’t dismiss unfairly
You can only dismiss someone if you have a good reason. Dismissal is normally only fair if an employer can show that it is for one of the following reasons:
- a reason related to an employee’s conduct (e.g. failure to comply with policies, serious errors or customer complaints).
- a reason related to an employee’s capability or qualifications for the job (including long term sickness, although extreme care is required if the employee has a disability).
- because of a redundancy situation (there is insufficient work or roles are being restructured)
- because a statutory duty or restriction prohibits the employment being continued (e.g. an employee is convicted of an offence or becomes bankrupt where this prevents them holding that role).
- some other substantial reason of a kind which justifies the dismissal (for example, the employee is sent to prison).
But you must also show that you have acted fairly and reasonably in handling the process. In practice, this means you must:
- inform the employee of any problem that you with their conduct or performance
- carry out a proper investigation
- if it’s a redundancy situation a fair and transparent selection process must be used
- hold a meeting to discuss the problem
- allow the employee to be accompanied
- decide what the appropriate action is (perhaps a verbal or written warning before dismissing)
- provide the employee with an opportunity to appeal (ideally to someone unconnected with the initial investigation or problem).
In order to make an ‘unfair dismissal’ claim an employee must normally have been employed for at least 2 years, however, there are exceptions if the dismissal relates to an ‘automatically unfair’ reason (see below), where no qualifying period applies.
Some types of dismissal are regarded as ‘automatically unfair’, regardless of the reasonableness, if an employee is exercising specific rights to do with:
- pregnancy: including all reasons relating to maternity
- family reasons: including parental leave, paternity leave (birth and adoption), adoption leave or time off for dependants
- trade union membership grounds and union recognition acting as an employee representative
- pay and working hours: including the Working Time Regulations, annual leave and the National Minimum Wage.
Employees are normally entitled to at least one week’s notice if you intend to dismiss them, unless a longer period applies. This minimum period rises to two weeks after two full years service and then by one week per year up to a maximum of 12 weeks. It may be possible to pay an employee in lieu of notice if you include this right in the contract. This may be appropriate in certain sensitive roles where it is preferable if the employee leaves immediately.
Sometimes you may dismiss someone without notice on the grounds of gross misconduct. This occurs when an employee has committed a serious act such as theft, violence, physical abuse, serious breach in health and safety or gross negligence. But it is still important to follow a fair procedure as for any other disciplinary offence.
Employees have the right to ask for a written statement of the reasons for their dismissal within 14 days. Having exhausted the internal appeals procedure, an employee may consider bringing an employment tribunal claim. They must normally bring the claim within 3 months of the dismissal. The introduction of fees for tribunal claims since 2013 has been a significant deterrent: the number of claims fell by 60% in the first six months after the fees were introduced. The fee for issuing a claim is £160 for simple claims relating to unpaid wages or time off, or £250 for unfair dismissal or discrimination cases. In addition, the claimant has to pay a hearing fee of £230 or £950 respectively. Before the claim can proceed there is a mandatory process of involving ACAS as an independent conciliator to resolve the dispute.
If an employee is successful at tribunal, the tribunal can order the employer to pay compensation, pay tribunal fees and witness expenses, alter the employee’s working conditions, or to give the employee their old job back, if appropriate. Compensation can be made up of the following elements:
- a fixed sum for the unfair dismissal – this is known as a ‘basic award’ – this is based on the claimant’s age and length of service multiplied by their weekly pay (up to maximum of £475 per week).
- compensation for the financial loss the employee has suffered if they have been unfairly dismissed. This is called a ‘compensatory award’.
- a fixed amount to represent the money owed by the employer for unpaid wages, holiday pay, notice pay or redundancy pay, or for an unlawful deduction from wages
- compensation for discrimination – this can be money to pay for financial losses the employee has suffered because they have been discriminated against, injury to feelings, personal injury, aggravated damages and interest. There is no statutory limit to this amount.
According to the Ministry of Justice, the average awards of compensation for different types of claims in 2013/14 were: unfair dismissal £11,813, sex discrimination £14,336, disability discrimination £14,502, age discrimination £18,801. Legal costs would be payable on top of these amounts. It may be possible to obtain insurance for these costs.
Don’t underestimate the costs, distraction and management time required to defend a tribunal claim. Sometimes employers will take a pragmatic view and enter into a confidential ‘without prejudice’ settlement.
8 Understand holiday entitlement and working time rules
Almost all workers are legally entitled to 5.6 weeks’ paid holiday per year (known as statutory leave entitlement). You can choose to include bank holidays as part of statutory annual leave, but they do not have to be given as paid leave. So most workers who work a 5-day week must receive 28 days’ paid annual leave per year. This is calculated by multiplying a normal week (5 days) by the annual entitlement of 5.6 weeks. For part time workers it will be pro-rated, so for someone who works 3 days per week leave is calculated by multiplying 3 by 5.6 = 16.8 days of annual paid leave.
The law says that employees can’t be required to work more than 48 hours a week on average – normally measured as an average over 17 weeks. Under 18’s cannot be required to work more than 8 hours a day or 40 hours a week. There are some exceptions to this. Employees can be required to work more than 48 hours a week on average if they work in a job:
- where 24-hour staffing is required
- in the armed forces, emergency services or police
- in security and surveillance
- as a domestic servant in a private household
- as a seafarer, sea-fisherman or worker on vessels on inland waterways
- where working time is not measured and the employee is in control, eg a managing executive with control over their own decisions
Over 18’s can choose to ‘opt out’. You can ask employees to ‘opt out’, but you can’t force them, dismiss them or treat them unfairly for refusing to do so.
The ‘opt out’ can be for a certain period or indefinitely. It must be voluntary and in writing. Workers in certain sectors cannot opt out- e.g. airline staff or road transport workers.
9 Communicate for success
Communication plays a vital role in giving employees a sense of control over their work and increasing their levels of commitment to your organisation. Time spent on a proper induction process, updates from management and regular feedback reviews will pay dividends in the long-run. A structured appraisal or review process provides a vital opportunity to take the temperature of the relationship, review progress, identify any problems or training needs. Experience shows that problems with performance can be more difficult and expensive to manage if they are left to fester for years unchallenged and then later surface as a grievance or dispute. In judging the reasonableness of dismissal of a long-serving employee for poor performance, the tribunal will be looking to see whether the employee was given any previous warnings or an opportunity to improve.
10 Maternity, Paternity and Flexible Working
Female employees have the right to 52 weeks’ maternity leave, regardless of how long they have worked for you. Employees don’t have to take the full 52 weeks, but must take at least 2 weeks after the baby is born. They also have the right to 39 weeks’ statutory maternity pay (SMP). This will be 90% of average weekly earnings (before tax) for the first 6 weeks and then £139.58 or 90% of their average weekly earnings (whichever is lower) for the next 33 weeks. SMP is paid in the same way as wages (e.g. monthly or weekly). Tax and National Insurance will be deducted.
As an employer, you can usually reclaim from the Government 92% of employees’ SMP, Paternity, Adoption and Shared Parental Pay. You may be able to reclaim 103% if your business qualifies for ‘Small Employers’ Relief’. You get this if you paid £45,000 or less in Class 1 National Insurance in the last complete tax year.
Remember also that employment rights are protected while on Statutory Maternity Leave. This includes rights to:
- pay rises
- build up holiday
- return to work
Employers must give pregnant employees time off for antenatal care and pay their normal rate for this time off. A father-to-be or pregnant woman’s partner also has the right to unpaid time off work to attend 2 antenatal appointments.
Employees whose partners are having a baby or adopting are entitled to
- 1 or 2 weeks’ paid Paternity Leave
- up to 26 weeks’ paid Additional Paternity Leave, if the mother does not take her full allowance.
- Shared Parental Leave – i.e. the right to take up maternity leave or maternity pay unused by the mother
Employees can only get Additional Paternity Leave or Shared Parental Leave if their partner returns to work. The shared leave can be taken in blocks separated by periods of work, instead of taking it all in one go.
All employees now have the legal right to request flexible working – not just parents and carers – by ‘making a statutory application’. Employees must have worked for the same employer for at least 26 weeks to be eligible. The employers must deal with the request in a ‘reasonable manner’. This would include:
- assessing the advantages and disadvantages of the application
- holding a meeting to discuss the request with the employee
- offering an appeal process
If an employer doesn’t handle a request in a reasonable manner, the employee can take them to an employment tribunal. An employer can refuse an application if they have a good business reason for doing so.
Examples of flexible working patterns could include:
- Job sharing – two people do one job and split the hours.
- Working from home – it might be possible to do some or all of the work from home or anywhere else other than the normal place of work.
- Part time – working less than full-time hours (usually by working fewer days).
- Compressed hours – working full-time hours but over fewer days.
- Flexitime – the employee chooses when to start and end work (within agreed limits) but works certain ‘core hours’, e.g. 10am to 4pm every day.
- Annualised hours – the employee has to work a certain number of hours over the year but they have some flexibility about when they work. There are sometimes ‘core hours’ which the employee regularly works each week, and they work the rest of their hours flexibly or when there’s extra demand at work.
- Staggered hours – the employee has different start, finish and break times from other workers.
- Phased retirement – the compulsory default retirement age has been phased out and older workers can choose when they want to retire. This means they can reduce their hours and work part time.
In my experience, most problems in the workplace stem from poor communication, lack of clarity about roles or expectations of new recruits, or failing to tackle performance issues when they arise. With payroll costs typically averaging 60%-75% of total costs for most enterprises, this is a high risk area worthy of intensive attention. Time spent getting your documentation, contracts, policies and procedures in order will pay dividends in the long run. Although the introduction of employment tribunal fees has deterred some legal claims, an employment dispute can be damaging for morale, costly in terms of time and resources and can have a very negative impact on an organisation’s reputation, including ramifications when bidding for external contracts. Time spent getting your house in order could be time well-spent.
Mark Johnson is an experienced solicitor and chartered company secretary supporting SMEs, charities and social enterprises with legal and governance issues. He offers a range of fixed price packages to help your organisation flourish, whilst staying compliant. Find out more elderflowerlegal.co.uk.
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