An Introduction to Employment Law for Small Businesses

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Taking on your first employee? For many, the prospect of getting to grips with employment law may seem daunting. But once you take a closer look at what’s actually required of a small business, you see that becoming an employer need not mean getting tied down in red tape.

From drawing up an employment contract, through to keeping your employees safe, employment law is concerned mostly with making sure that employers act reasonably. There’s also a very strong business case for taking your responsibilities seriously, not least because a fairly-treated workforce usually makes for a more productive team. With this in mind, so long as you follow the guidelines, sticking to the rules need not be complicated, time-consuming, or costly — and can actually strengthen your business.

The employment contract

Simply put, a new employee agrees to work for you in exchange for payment (remuneration), and this involves each side agreeing to accept certain obligations. The employment contract defines all of this and forms the basis of the relationship between you and your employee.

In theory, the employment contract does not have to be in writing. In practice, however, it should be: under The Employment Rights Act 1996, employees are entitled to a written statement of the main terms of the contract.

Acas provides a useful employment terms template. However, rather than taking a DIY approach to drawing up your first set of employment contract terms, it’s better to seek legal advice. A solicitor specialising in advising small businesses should be able to produce a contract for you that reflects the terms you want to offer your employees, while staying on the right side of the law. You can refer back to this advice and the draft contract if you employ further staff in the future.

Understanding statutory rights

Minimum requirements for notice periods, holiday entitlement, and maternity leave are lawfully part of your employee’s statutory rights. Pay, however, is a good example. It’s up to you and your proposed new starter to agree on a salary or hourly rate. But if you pay less than the statutory minimum (£7.20 an hour for 25-year olds and £6.70 for 21 to 24-year olds from April 2016), you could be liable for a fine up to £20,000 per worker. Ensure that the terms agreed between yourself and your employee do not undermine these rights.

Dismissing an employee

If your employee does something seriously wrong amounting to gross misconduct (such as committing theft or ignoring health and safety rules), you would almost certainly have grounds to instantly dismiss them. Where there isn’t gross misconduct present but where you feel the employee simply isn’t up to scratch, a formal process should be followed before considering dismissal.

Unfair dismissal

If your employee has worked for you for more than a year, they are entitled to claim compensation for unfair dismissal at an employment tribunal. The dismissal could be deemed unfair if it is shown that you did not have a good reason for dismissal, or if you did not follow proper procedures.

Formal disciplinaries

To deal with employees who are underperforming, it’s good practice to have a formal disciplinary procedure in place — even if you have a very small team. Typically, this consists of a series of verbal and written warnings, culminating in dismissal if employees fail to change their ways. Providing that you document all of this, consult with employees before issuing each warning, and apply the procedure fairly, you should be able to justify your actions.

Making employees redundant

Redundancy describes the situation where you no longer need anyone to do the employee’s job. This could be because of a downturn in work, a change in what your business does or, the introduction of new technology.

Help in any way you can

Employees might say that dismissal through redundancy is unfair. To avoid this you should try to find suitable alternative employment for the at-risk employee in your business. If you’ve built up a small team and you need to choose who to let go, draw up a set of selection criteria, and consult with employees as you go through the decision-making process.

Notice period

Once you’ve finished your consultations and made your decision, you must give at least a week’s notice to employees who have worked with you for between one month and two years. If employees have worked for your company for two years or more, this entitles them to a week’s notice for every year of employment. There is a 12-week cap on this. If employees complete two years or more of service, this entitles them to redundancy pay.  For more information on this, take a look at the government’s Making Staff Redundant guide.

Keeping employees safe

As an employer, it’s your duty to provide a safe workplace, a safe system of work, and safe plant and equipment. You must also provide adequate supervision and training. Reasonable steps should be in place to identify risks of injury and measures made to minimise those risks. Specific rules apply to certain types of work such as heavy lifting and to certain types of working environment, such as building sites.

Health and Safety Executive

The Health and Safety Executive (HSE) has a number of useful resources designed to help small businesses make sense of the rules that apply in different industries. The law requires you to have employers liability insurance in place to meet the potential cost of any claims in this area. Your insurers or brokers are another useful source of help with matters such as risk assessments and making your workplace safe.

Avoiding discrimination

The effects of The Equality Act 2010, following on from earlier acts of parliament on matters such as equal pay, mean that you must not treat someone less favourably because of certain protected characteristics. Even to someone with no knowledge of equality law, certain actions would stand out as quite obviously discriminatory (sacking someone because they become pregnant, for instance).

Things to look out for

In other areas, you should avoid inadvertently falling foul of the rules. Examples might include referring to ‘ambitious, young graduates’ in your job ads or using a ‘first in, first out’ method of redundancy selection. People could construe this as discriminating against your youngest members of staff.

The ACAS Equality Act 2010 – guidance for employers publication gives a very good practical summary of the current position.

For more in-depth articles on the rules concerning employees, pay and tax, or any other of your business related queries, check out our help centre.

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