How to take on your first employee and how much does it really cost?
Are you ready to take on your first employee ?
If your business is growing, there will come a time when you contemplate employing your first member of staff. This is an exciting prospect but comes with much responsibility and a certain degree of risk. This article will guide you through that decision making process and help you enjoy your first journey into recruitment.
Let’s assume that your reason for employing someone is because you are personally bogged down with too much administration. You need a secretary come administrator come bookkeeper, so that you can focus on marketing, sales and growing the business.
You might be forgiven for going straight down the job centre and employing yourself a PA. However, there may be a more cost effective and flexible solution.
Have a think about the following :-
How much support (in hours) do I really need ? Is there a viable full or part time job ?
Is the job likely to remain permanent ?
Are the hours likely to be regular ?
Where are they going to work ?
Who will cover when they are ill or on holiday ?
How much am I going to have to pay to get good applicants ?
Have I got the infrastructure to look after an employee, i.e. employment policies, contract, payroll, health and safety, employers’ liability insurance etc ?
If you need someone for x days a week, doing regular work, requiring little supervision, you have desk-space, accommodation and the ability to pay them, manage them and keep them safe, then employment might be the answer. However, if in answering the above questions some doubts have crept into your mind and you have started to visualise a grotesque X Factor audition of poor candidates, long days of training, constant questions, phoning in sick, tripping over wires and personal injury claims, you might want to consider some other resourcing options, which are outlined later in the article.
If after assessing the pros and cons, recruiting an employee is the right way to go…..
How much does it really cost to employ someone?
When you take time to analyse it, the overall costs run deep. Firstly you have the recruitment and training costs. Then there are the ongoing or “on-costs”, in terms of office space (if the work cannot be done from home), equipment, payroll, pensions, other statutory benefits and employer national insurance etc ! You could quite easily add 30-40% to the salary bill, to estimate the total cost of taking on a permanent employee.
On top of this you also have to factor in the “one off” cost of recruiting and training the individual. In a specialist occupation this may well need agency fees of around 30% of the salary.
As the business grows further, you may think you need a specialist in such areas as Marketing, finance, HR, IT. How many businesses will perhaps take the plunge and go straight to the recruitment option, when perhaps the workload is not yet big enough?
Organisations who are growing should look seriously at outsourcing their non-core activities before taking on their first permanent employee in specialist areas.
It won’t be right for all organisations and the timing in the business’s life cycle is critical, however, based on the “total cost” of employing someone there can be huge savings in buying the resource you need, when you need it.
You can also get access to a wider breadth of experience and the security of absence cover, which is not possible when employing an individual to carry out a support function. An individual specialist can also feel isolated without access to peers to bounce ideas.
Outsourcing ; There are lots of firms of all sizes willing to do your spare work for you via an outsourcing arrangement. This could range from a “Virtual PA” service, through to specialist HR, Finance, and IT outsourcers. There are even websites that act as a type of eBay for freelance resources. The advantage of outsourcing in our example would be that the outsourcer would be available to do the work, flexibly when the work is required. You pay only for what is done. You would not need to pay them for “waiting time” and they would automatically cover sickness and holidays within their own outsource team. You also avoid the additional costs of employing someone such as employer’s national insurance.
For routine work, large savings can also be made by outsourcing the activity offshore.
Agency Workers; If you do not have the infrastructure or desire to set up your own payroll, you could engage a “worker” via an agency. They would be supervised by you but would be employed and paid by the agency. If the work diminishes or the worker’s performance is poor, you can just ask the agency to take them away. You would still however need to look after their Health and Safety and provide workspace and equipment.
Casual Workers; This type of worker is engaged on an “as and when” basis and would have no employment contract with you. You may have a written agreement on how the arrangement operates when engaged, but there would be no obligation for you to provide work or for the casual worker to accept it. However, you would need to have a payroll and look after their Health and Safety whilst they are working for you.
A variation on the casual worker arrangement is a “Zero Hours Contract”. This is an employment contract and there is an obligation to provide work, but the amount is flexible and therefore not specified in the contract.
Associates and Self Employed Contractors; There is a degree of overlap between this group and outsourcing, however I will differentiate for the purpose of this article. Outsourcing work will generally involve handing the work over to another organisation to carry out on your behalf. Engaging an associate or contractor often involves an individual working for you (but with freedom to accept or turn down work) and then sending you an invoice for payment rather than receiving wages. An associate or contractor may be engaged on a “contract for services” which dictates what they need to do for you and may specify a number of hours or days. However, that contract must not confer employment rights, nor should you control the associate or contractor’s activities, as this might lead to them being able to claim employment rights through an implied contract or cause tax complications. The associate / contractor should have the freedom to carry out the work in the contract for services in their own time and in their own way, substituting other people if that is appropriate.
The associate / contractor route provides people that you can build a relationship and work with on a regular basis, but without the need to have an employment infrastructure such as payroll etc.
In its simplest form a family member or friend could register as self-employed with HMRC, work for you and submit a periodical invoice for payment. You would just need to ensure that the behaviour of the parties does not imply an employment relationship otherwise the individual may, later, claim employment rights. The key is to ensure the individual has control over when and how they do the work.
Hopefully that has given you a flavour of some of the alternatives to taking on your first employee. If after much consideration you decide that the time is right to become an employer, then what do you need to do ?
I will split the requirements into 4 categories :-
- Infrastructure
- Preparation for recruitment
- Recruitment
- Management
Infrastructure
A lot of the infrastructure you will need to employ someone is driven by law.
Payroll ; Firstly you will need to pay them. Payroll and taxation are governed by HMRC regulations, and it is advisable to speak to an accountant or payroll consultant about setting up your first payroll. Most accountancy firms will run outsourced payrolls, and this might be the best route if you don’t already have financial expertise.
Employment Contract ; It is a legal requirement that every employee has a “Principle Statement Of Employment” or employment contract. The content is also governed by law. The statement is not actually the contract, which can exist and be implied by the behaviour of the parties. However it is written evidence of what was intended at the time of employment and must be delivered to each employee on day one of their appointment.
HR Policies And Procedures ; A full suite of HR policies is not essential when taking on your first employee, but there are some mandatory policies such as discipline and grievance, and Health and Safety. However, as your business grows, the consistency with which you manage people will be critical in avoiding disputes and tribunal claims. When you take on your first employee it is worth investing some time to establish your policies on such things as sickness absence, staff benefits, various types of leave, discipline, grievances, and equal opportunities. You will need to decide if you are going to provide minimum legal entitlements or enhance things such as salary, holiday, sick pay, maternity pay etc. This will ensure that the culture of the business starts to get formed immediately you start to employ people. It is common to keep the policies together in a simple “Employee Handbook”.
Health And Safety ; All employers are obliged under the Health and Safety at Work Act 1974 to look after the health and safety of their employees. This will include the working environment, hazardous substances, fire, display screen equipment (computer monitors), providing first aid and anything else that could affect the health and safety of employees. It is a complex area, and you should engage a specialist consultant to do a risk assessment of your working environment before taking on an employee.
Insurance and Pensions ; As an employer you will need to take out “Employers Liability” insurance and provide an auto-enrolment pension plan for eligible employees.
Preparation For Recruitment
So, you have everything in place to make sure your employee is paid, legal and safe. So what’s next?
You need to prepare for recruitment. You could use a recruitment consultancy to do all this for you and find candidates, but it is an expensive service often involving a fee calculated as a % of the salary to be offered.
There are 4 key pieces of preparation :-
Job Description ; Think through and document exactly what you will expect from this person. This should include the tasks they need to complete, levels of responsibility for money and resources, relationships they will need to maintain and the scope/size of the role.
Salary and Benefits ; You should research the job market (local or national as appropriate), often called salary bench-marking, and decide how much salary to pay and what benefits to offer. Make sure you understand the law around minimum wage and equal pay !
Person Specification ; What type of person are you looking for ? List the key areas of knowledge, skill and experience you require and indicate whether individual factors are either “essential” or “desirable”. This document will be a critical tool for short listing applicants for interview, designing interview questions.
Assessment Pack ; This document should evolve from the job description and person specification. It should include any selection activities you wish to put the candidates through, plus appropriate interview questions. Selection could range from an interview only, to a full “Assessment Centre” including verbal and numeric reasoning tests, role plays, written exercises, presentations or case studies.
Within the pack you should also design an objective scoring system so that you can clearly differentiate between candidates, and more importantly show a tribunal why you chose a particular candidate without the risk of inadvertent discrimination.
Recruitment
With the preparation done, where do you go looking for candidates ?
There are a number of routes into the recruitment market, varying in time commitment, cost and effectiveness. It will really depend on the type of role, as to where you go to source your candidates.
For basic administration roles with a short training curve, you may want to try the local job centre or put an advertisement in the local media or on social media. You may have candidates searching for work in your personal networks, or you could use social networking sites such as Linked-In or Facebook.
For more specialist roles, the market may widen geographically to regions or even UK wide. Again use the internet; social networks and also job sites such as Indeed.co.uk and Totaljobs.com. These are inexpensive ways to advertise.
For more senior specialist or management roles you may need to spend more money and advertise in specialist magazines or trade journals, or even the national press.
Finally if these strategies have not worked, or you don’t have the time or resource to do the recruitment yourself, you could outsource it either to a HR Outsource firm or a recruitment consultancy.
Management
So your chosen candidate has accepted your offer. What are you going to do with them ?
It is important that you induct your employee into your business well. If you don’t, you may find they become unhappy and leave quickly meaning that you have the expense and hassle of starting the recruitment and training process all over again.
First impressions count, therefore it is imperative that you get this bit right and ensure the new hire experiences the culture you wish to portray.
Make sure day 1 is a great experience for them. It’s a milestone for both of you. They need to feel that you are prepared for them and value their arrival. Therefore clear the diary and make sure the day is devoted to the recruit. Don’t just leave them reading the Employee Handbook !
Make sure you cover all the hygiene issues such as work environment, health and safety, fire regulations etc.
Arrange meetings with all the key staff the new recruit will need to interact with.
Go through the job description and make sure you convey how important those tasks are to the business.
Agree some measurable objectives or service levels linked to what you want to achieve as a business.
Make sure your behavioural expectations eg timekeeping, sickness reporting etc are clear.
Train the person well, provide reference material and make sure your door is open for questions.
Review progress regularly and give balanced feedback.
Build some team spirit and have some fun while you work, even if it’s just the two of you !
Having taken care of that lot and become an “employer”, you can now grab a cup of tea, sit down and plan how you will generate the income that will support the next recruit !
Target HR are expert in helping growing businesses prepare for and engage their first employees.
If you would like help or to discuss how best to resource your business, please get in touch via the contact page (insert hyperlink or button)