TO EMPLOY OR NOT TO EMPLOY? EXPANDING YOUR BUSINESS SAFELY.
Does your business to do list keep getting longer? Have you reached capacity and run out of hours in the week to move your business forward? If so, it may be time to expand your team in order to grow your business.
Any experienced entrepreneur will tell you that you can’t easily grow and scale a business flying solo. At some point you need to get a team in place around you to lighten the load and free up valuable time and headspace so that you can focus on business development and strategy.
But taking on a team is not always straightforward and is not without risk. There are a number of options available to the business owner when it comes to building a team, and it is important that the arrangements you choose to engage people in your business are supported by solid contractual terms and conditions.
The various arrangements under which you can employ people in your business fall into two main categories; outsourced and direct employment. There are of course pros and cons to each option within these categories, but there will be a best-fit for your circumstances that meets the needs of both your business and the individual worker.
outsourcing
For many small businesses the need for support or additional resources in the team does not initially arise in the form of a full time employee. In fact it is much more likely that the small business owner wants to outsource discrete tasks or specialist functions within the business, such as website maintenance and development, copywriting, social media or other operational tasks. These types of roles usually fall under arrangements which are interchangeably called a Freelancer, Contractor, Service Provider or Self Employed contract. And it is not uncommon for small business owners to engage several different contractors delivering their own specialist skillset for just a few hours a week.
For example, most small businesses engage the services of an Accountant to reduce the burden of HMRC reporting, tax returns and some of the other time consuming but vital financial requirements of running a business. It is likely your Accountant will be contracted under a business-to-business Service Provider contract, as they usually provide accountancy services to a number of clients and will be set up as a limited company in order to take on employees and realise tax efficiencies.
Similarly, many small business owners will engage part time support in the form of a Personal Assistant or, increasingly common, a Virtual Assistant. Again, well established PAs or VAs will usually provide their services to multiple clients and have their own limited company, or at least their own terms and conditions which they will ask you to sign up to when you engage their services.
In all of these circumstances you should read the service provider’s terms and conditions carefully to make sure the provisions of the contract are acceptable to you – whilst many of the clauses will be standard, there may be certain clauses that are written in favour of the service provider, such as payment terms, insurances and liabilities. You need to be aware what you are agreeing to in the contract as you will be bound by these terms for the duration of the contract. If there are any terms that you feel are unreasonable or impractical then you should address these and negotiate acceptable terms for both parties at the outset.
Another possible scenario is that you wish to engage the services of a freelancer or sole trader who does not have their own limited company or their own terms and conditions of business – they might be new to the world of contracting or simply haven’t created their own terms and conditions yet. In these circumstances then you, as the business offering the work, should ensure that you have your own freelancer agreement or contract for services under which you can engage the worker. If you would like your business to have its own set of terms and conditions for taking on freelancers or working with service providers, contact us to get a quote for drafting your own bespoke freelancer terms.
The outsourcing route has clear advantages to the small business in terms of minimising risk and initial set up costs. Freelancers or contractors are not employees of the business and therefore do not carry the same obligations on the employer which arise from a direct employment relationship, such as paid holiday, sick pay, maternity/paternity leave and the requirement to enrol all employees into a workplace pension scheme. All of these obligations go hand in hand with the need to set up a payroll function and pay the appropriate tax and National Insurance contributions. And unlike a direct employment relationship, the business has greater flexibility, being able to give notice and terminate the outsourced arrangement without the need for a managed process such as capability or redundancy.
But outsourcing is not the be-all and end-all for small businesses. Teams that are heavy on outsourced personnel are often associated with less cohesion and productivity, less effective collaboration and lower levels of loyalty and commitment to the business. The flexibility gains to the business are also flexibility gains to the freelancer – they can often choose how and when they work which gives the business less control over workflow and output. And if your business surpasses the threshold for iR35 small companies exemption, you may have to reconsider your outsourcing arrangements to avoid falling foul of the reformed iR35 legislation which came into effect in April 2021 and can have legal or financial consequences for your business.
DIRECT EMPLOYMENT
At some point on an ambitious and successful growth trajectory, it is likely that your business will reach the point where you need to take on a direct employee. Reaching this milestone will be an indicator that your business growth has reached and stabilised at a level which warrants a more permanent and devoted resource in the team. You will be ready to make the investment in the initial set up costs for direct employment in order to realise the longer-term benefits associated with permanent employees. These include greater loyalty and commitment, higher motivation and productivity resulting from better job security and job satisfaction, and the all-important team spirit and comradery which employers are usually rewarded with for investing in people.
There are a several different options and types of arrangement for direct employment, and the needs of the business will determine which type of contract you will offer to the right candidate:
Full time permanent contract. Probably the biggest commitment for a business, offering someone a full time permanent contract will mean from a capacity perspective the business has enough work to provide meaningful employment for 35-40 hours every week. The employee will be entitled to the full range of statutory employment benefits as a minimum, although as an employer you can enhance these if you wish. This arrangement offers the employee the best security and also offers the employer the biggest return in terms of responsiveness, commitment and productivity.
Part time permanent contract. It is common today for many people in our society to want part time employment to meet work life balance needs. Similarly, many small businesses only need some roles to be carried out part time, so this type of contract may be an ideal solution. The part time employee will be contracted for a set number of hours per week, usually with a set working pattern although some employers will allow flexibility around when the hours are worked. The part time employee will be entitled to the same employment benefits as the full time employee, but pro-rated from the full time entitlement based on the number of hours they work.
Fixed term contract. This type of contract may be full time or part time, but it is for a set period with an end date (a fixed term). Fixed term contracts are usually offered to support delivery of a specific project (perhaps a 6-12 month contract to support a product launch or platform roll out) but they are sometimes used by employers to trial an arrangement to see whether there is a permanent need for the role, in which case a permanent contract may be offered at the end of the fixed term.
Zero hours contract. Whilst zero hours contract have received much negative press in the media, this has largely been due to misuse of zero hours contracts by employers to their advantage and at the detriment of the worker. In the right circumstances a zero hours contract can be the ideal arrangement for both employee and employer. Whilst zero hours workers are not entitled to the full range of benefits as other employees, they do have the alternative benefit of flexibility as they are not obliged to accept work offered, just as the employer is not obliged to offer it. If an individual is working multiple jobs they may need this flexibility to manage their own diary and juggle their commitments accordingly.
Whichever arrangement is right for your business, finding the right candidate is the most important piece in determining the success of the hire. Don’t cut corners with your recruitment process – interview candidates based not only on their technical ability to do the role, but also their values, behaviours and working style, as these are the factors most likely to cause you issues if they are not aligned to you and your business.
Another vital but often overlooked part of taking on employees is the onboarding process and the ongoing line management approach. Equipping your employee with the tools and information they need to be successful in their role is essential. This isn’t just providing them with a phone and a laptop and saying ‘get stuck in.’ A proper onboarding process will include; orientation to your business systems and processes; introductions to key people they will work with, both internal and external; clear setting of expectations, both in terms of deliverables and ways of working that you want them to adopt; and an explanation of your company values and identity, to ensure that they operate on brand and in a way that aligns with you and your business.
This early investment should be supported and embedded with a proactive line management approach. That is; having regular conversations with your employees and giving regular and constructive feedback; having structured 1:1 meetings to review performance and development needs; checking on their welfare and asking if they need anything to be more effective and satisfied in their role.
The old adage ‘you get out what you put in’ is rarely truer than in the context of an employer’s relationship with their employees. Investing time and energy is almost always rewarded with significant returns in performance, productivity and loyalty to you and your business.
If it is time for you to grow your business further by taking on direct employees and you want some support in finding the best way to do this, contact us to arrange an initial consultation.