Employing people: the options

Before spending time and money on employing someone new, you should weigh up whether you really need to recruit. To do this, look at your staffing needs in relation to the wider objectives of the business.

You may need extra help immediately or you may simply be thinking about your future staffing requirements. In both cases it's valuable to plan as far ahead as you can.

Ask yourself the following questions:

• Are you considering taking on your first employee to help you grow your business or handle an increasing workload?
• Are you replacing an employee who has left? If so, why did the previous employee leave and what skills and experience have you lost?
• Do you need to bring in a new skill to your business that none of your existing employees has?
• Has your workload increased? If so, is the workload likely to continue or is it just a temporary increase?
• What will be the impact of taking on a new staff member? Do you have somewhere for them to sit? Will you need to buy new equipment for them?
• Do you need cover for yourself in the long term?

Alternatives to taking on new staff

Since recruitment can be expensive and time consuming, other options you could consider include:

• re-organising the company structure
• sharing work among existing employees
• promoting existing staff
• asking part-time employees if they would consider full-time work
• improving the efficiency of the business, perhaps by rearranging tasks
• offering overtime
• adopting flexible working arrangements, eg allowing some staff to begin earlier/later to provide cover for a longer part of the day
• hiring temporary workers from an employment agency
• offering short-term graduate internships

Regardless of whether your employees are full time or part time you will have responsibilities to them. Some apply straight away, others after a minimum period of continuous employment.

You must give your employees:

• a written statement of the main terms and conditions of their contract of employment.
• at least the national minimum wage
• Statutory Sick Pay (SSP), if they are off sick for more than three days
• an itemised pay statement at or before the time of payment.
• a minimum level of paid holiday, a maximum length of working week and minimum lengths for rest breaks
• maternity, paternity and adoption pay and leave, as well as parental leave during the first five years of their child's life

You must also:

• make sure the working environment is safe and secure
• have insurance to protect against claims for any illnesses, injuries or diseases your employees may pick up as a result of working for you.
• register as an employer with HM Revenue & Customs (HMRC) to set up a payroll, deducting tax and National Insurance contributions from your employees' pay and forwarding the money to HMRC
• consider any requests from parents with children aged sixteen or under
• treat your employees fairly and avoid discrimination.
• make 'reasonable' adjustments to reduce or remove the impact of physical features of your business if your employee is disabled

There may be times when it's best for your business to take on somebody on a fixed-term contract. This is one which either:

• lasts for a specified time, set in advance
• ends with the completion of a specified task
• ends when a specified event does or does not take place

For example, if you're a shopkeeper you may want to take on someone for just three months to cover the busy run-up to Christmas. Or you may wish to employ someone specifically to cover for another person who is on maternity, paternity or adoption leave.

Pros and cons

Fixed-term contracts give you the advantage of bringing in specific skills as and when they are needed.

It's important to remember that unless there are special circumstances that can be justified, you must treat fixed-term employees in the same way as comparable permanent employees. This means you must give them:

• the same pay and conditions
• the same or equivalent benefits package
• the same or equivalent pension scheme
• the same opportunity to apply for vacancies for permanent posts in the business

Fixed-term employees also have access to the same employment rights as their permanent equivalents.

Any employee who has been on a fixed-term contract for four or more years (excluding any period before 10 July 2002) will usually be classed in law as a permanent employee if their contract is renewed, or if they are re-engaged on a new fixed-term contract. This does not apply to apprentices, students on work experience of a year or less or people on certain training courses and temporary work schemes.

The only exceptions to this are when employment on a further fixed-term contract is objectively justified to achieve a legitimate aim and is also a necessary and an appropriate way to achieve that aim, or the period of four years has been lengthened under a collective or workplace agreement.

Tax matters

You will need to make the same tax arrangements for fixed-term employees that you would for permanent employees.

Using agency staff can be ideal, especially when you need emergency temporary cover. It can cost more than employing a temporary staff member directly, but a big benefit is that all of the administration is handled by the agency.

You usually pay the agency and the agency pays the worker. The rate the agency charges you could include elements of National Insurance payments, holiday and sick pay, as well as an administration fee and profit margin.

It is the agency's responsibility to ensure agency workers receive the rights they are entitled to.

Agency workers are entitled to access to the same on-site facilities as comparable employees and information on relevant job vacancies within your business. After 12 weeks' continuous employment in the same role, agency workers become entitled to the same terms and conditions as comparable employees. This includes terms relating to pay, working time, night work, rest periods and breaks, annual leave and pregnant workers.

You should provide the agency with information on your terms and conditions so that the agency can ensure agency workers receive the same terms and conditions as if they had been employed directly by you.

Finding an agency

You should do some research before using an agency to ensure you are happy with the agency's reputation. Any poor experience the worker has - such as not getting paid on time or the right amount - could reflect badly on your business.

One way your business can take advantage of extra skills and labour without taking on many of the responsibilities of an employer is to use freelancers or outside contractors. These are workers who are self-employed or belong to separate outside companies.

For example, you might use an outside IT contractor to build your business website, or hire a freelance PR consultant when you want a promotional push for your business.

Pros and cons

An advantage of using freelancers and outside contractors is that in many cases they look after all their own income tax affairs and National Insurance contributions. But it's always a good idea to check that you won't be responsible for deducting tax and National Insurance from their payments.

People who are genuinely self-employed may not be entitled to the same rights afforded to employees. However, depending on the contract under which they are providing services, they may qualify as workers. Under these circumstances they would be entitled to workers' rights such as holiday pay. If you are in any doubt about a person's employment status, you should seek professional advice.

Freelancers and contractors still have a right to the National Minimum Wage. But if they are being paid by their own firms, this will not affect you.

As an employer you still have responsibilities for the health and safety of freelancers and contractors. You should also check whether your insurance is affected by having non-employees working on your premises.

Remember too that you should avoid discrimination against anyone who carries out work for you, whether they are employed by you or self-employed.