Employee’s rights and employer’s obligations need to be complied with to avoid workplace disputes and claims. The key points taken from Employment law in the UK will be discussed to ensure that you as a Small Business Owner are aware of all your legal obligations to your employees.
As a small business owner, you will need to register as an employer with HM Revenue & Customs (HMRC) and receive PAYE registration details. You must ensure that this is done before you issue your first pay slip to your first employee.
A payroll must be set up and pay slips must be produced for each employee. All
pay slips must show employee’s earnings and deductions for PAYE Taxes, income tax and National Insurance (NI). You will need to report your payroll to HMRC and pay tax and NI contributions on behalf of your employees and your business through a FPS (full payment submission). Some parts of PAYE taxes can be reported through an EPS (Employer Payment Summary).
Please note that as an employer you may be entitled, depending on certain conditions, to an employer NIC (National Insurance Contribution) allowance of up to £3000. This can be used to reduce your PAYE tax liability.
Contract of Employment
A contract of employment must be given to an employee in writing setting out their terms of employment, employees rights and obligations which is legally binding. The contract can be verbally agreed upon but an offer letter in writing is the best option.
If you have reserved the right to change the terms of employment when it was agreed upon you may do so, or you can change these terms with the consent of the employee.
A probation period can be offered for 3-6 months (1 week for short-term contracts) after which an offer of full employment can be given.
National Minimum wage
The National Living Wage is £7.50 per hour for workers aged 25 and over. This applies to workers who are part-time and agency workers as well. The National Minimum wage applies from 1 April 2017. The other categories apply to workers who are aged 21 to 25 at £7.05 per hour; workers who are aged 18 to 21 at £5.60 per hour; 16 and 17-year-olds at £4.05 per hour and apprentices under 19 years old at £3.50 per hour.
Employees may take at least 28 days of paid holiday per year. This is taken as a pro rata amount by part-time workers. Paid holiday is a legal right that starts to gather from the start of an employee’s employment. This continues even if sick leave or maternity leave is taken.
Statutory Sick Pay
Statutory Sick Pay must be paid at £89.35 per week and can be taken for up to 28 weeks. In certain situations, employers will not have to pay SSP i.e. if the correct amount of notice was not given.
Auto-enrolment Pension scheme
Auto-enrolment of employees into a workplace pension scheme must be completed by 2018. All employees must be automatically enrolled into the scheme unless they choose to opt out
View our quick guide on Auto-Enrolment for Small Businesses
Health and Safety at Work
An employer is legally responsible for all their employees under the Health and Safety legislation.
Maternity / Paternity leave
Maternity leave can be taken by new and adoptive parents. This can be taken for 52 weeks. Note that maternity leave can be taken 11 weeks before the birth of the child and for 2 weeks after the birth of the child. The amount to be paid during maternity leave is governed by the Statutory Maternity Pay (SMP) rules. Employees must be paid 90% of average weekly earnings for the first 6 weeks and £140.98 or 90% of weekly average earnings for the next 33 weeks (whichever rate is lower must be paid). Paternity leave can also be taken for 1-2 weeks. Note that ante-natal care classes can also be taken as reasonable paid time off work. Documents showing proof, that time was taken off work for such activities, can be requested.
An employer is legally required to set out all dismissal and disciplinary processes to employees in writing in accordance with the ACAS Code of Practice.
Employee hours of work
All employees over 18 should work a 48-hour week and must include one day off work. Full-time and part-time employees who have worked for more than 26 weeks may ask for flexible working hours through a statutory application. Employees who are under 18 may only work for 8 hours per day and 40 hours per week.
Shoaib Aslam is the co-founder of Pearl Chartered Accountants, a UK-based chartered accountancy firm that has multiple locations across London. They are experts in helping startups and established businesses with all aspects of growth, strategy, scaling up, accounting and tax planning.