As soon as you employ anyone, even only one part-time employee, you inherit a raft of legal obligations.

This guide gives an overview of the main issues to be aware of. However, changes are happening all the time. New regulations in some areas are due to be introduced, others are currently subject to consultation, and some details change year by year – for example, the level of the National Minimum Wage.

Always check the latest details with your professional advisors or your Business Link or national equivalent.

Recruitment

Your legal obligations begin the moment you start to recruit someone. For example, the law demands that hiring practices do not discriminate on grounds of race, colour, nationality, ethnic origin, religion, beliefs, disability, pregnancy, gender or marital status or trade union membership, for example, by offering different terms of employment. Discrimination is defined very broadly.

Similar rules apply when advertising and interviewing externally or internally for promotion. Nothing in an advertisement should indicate that a candidate of a particular race or gender is envisaged.

Similarly, you must be careful in interviews. You cannot use words that might be discriminatory against a particular gender or race. For example, it is most unwise to ask an ethnic candidate: ‘Do you have a good command of English?’, or to ask a woman, ‘Do you have plans to start a family?’

Bear in mind, too, that the Government is planning to introduce legislation to combat age discrimination by October 2006.

Immigration

The onus is on you to check that your employees have a right to work in the UK. The Government has recently made changes to the types of document which employers must check to avoid employing illegal workers. It is very important to comply with these checks as they give you, as an employer, a statutory defence against conviction for employing an illegal worker.

Step 1 You should ask all of your potential employees to provide one of the original documents included in List 1 (the Lists are available on the Home Office’s website). List 1 includes such things as a passport or document showing the holder is a national of a European Economic Area country. Alternatively, you can ask employees to provide two of the original documents in the combinations given in List 2 which includes documents such as a full birth certificate, P60, P45 or National Insurance card.

Step 2 You should satisfy yourself that the your potential employee is the rightful owner of the documents by checking any photograph is of that employee, dates of birth are consistent with their appearance and so on.

Step 3 You should make a photocopy or scan of the parts of the document that show your potential employee’s personal details (e.g. photograph, signature) and any page containing a United Kingdom Government stamp. It is now a criminal offence for employers to employ anyone who has no right to work in the United Kingdom.

Contract of employment

When you employ someone, a contract of employment is created automatically by default. An oral agreement to employ someone at a certain rate is still a binding agreement, except there is no written proof of what you agreed, which can create difficulties later. Employees have the right to be supplied with basic terms of employment and you are required to issue this within the first two months of employment or be potentially liable to pay compensation for failing to do so. Written terms also protect you, the employer, because they prevent confusion as to what the agreed terms are.

When you issue a contract it should include such details as:

• the date continuous employment began,
  
• place of work,
  
• job title or description,
  
• remuneration,
  
• when you will pay your recruit,
  
• hours of employment,
  
• holidays,
  
• sick pay,
  
• disciplinary, grievance and appeal procedures,
  
• pension information,
  
• notice periods,
  
• collective agreements,
  
• work outside the UK.

You may also consider including post-termination restrictive covenants in senior employees’ contracts. As in any contract, you must include the full names and addresses of the parties involved, signed and dated.

Life would be simple if all the obligations between employer and employee were listed in the contract. However, the contract is just the start. Note that:

• Nothing in a contract can detract from an employee’s statutory rights and the employer’s statutory obligations – for example, you cannot agree to opt out of something like the National Minimum Wage.
  
• If the contract does not mention an employee’s rights in a particular area, that does not mean they do not have any.

Job description

Ideally, you should provide a formal job description, which lists the duties of the post in question. You may wish to make it clear where the employee will be working, whether special clothing is required, the level of risk involved and any supervisory duties amongst any other details specific to that role. It is advisable to draft job descriptions very widely so as to enable you to require your employees to carry out a number of different tasks without breaching their contract.

It is important to ensure that the employee does not later complain, ‘This is not the job I agreed to do’. If you try to change the nature of an employee’s job, it may be considered to be a breach of contract and ‘constructive unfair dismissal’, and you could face an Employment Tribunal claim.

Temporary fixed-term contracts

Where no time period is specified in the contract, it will be assumed that a post is permanent. However, you may want to employ someone for a short fixed-term period – for example, to work on a specific project or to cover for someone who is sick or on maternity leave. In such a case, you must be specific about this in the employment contract.

You can employ the same person time after time, as a regular stand-in, say. However, there is little advantage in using a series of consecutive fixed-term contracts as a substitute for a permanent contract. An Employment Tribunal may well treat a series of fixed-term contracts as if they were a permanent contract. Also, from late 2006, any renewal in a series of fixed-term contracts which have run consecutively for four years or more may entitle an employee to claim permanent status.

Furthermore, those on fixed-term contracts now have most of the rights of those on permanent contracts and may not be treated less favourably than permanent employees. They also have a right to be informed of any permanent vacancies which arise within your business.

Probation

You may wish to incorporate a probationary period of, say, four weeks into permanent contracts. If things do not turn out as you had hoped in this period, you may be entitled to end the employment immediately because there is no statutory right to notice in the first four weeks of employment. After four weeks, an employee is entitled to receive statutory minimum notice of dismissal.

Hours

There is a statutory limit of 48 hours that may be worked per week in most jobs, as well as regulations in respect of night work, daily rest, days off per week and so on. Workers can agree with you by signing standard wording to work longer by ‘opting out’ of the Working Time Regulations, but be careful to comply with your duty to protect your employees’ Health & Safety considerations and keep up-to-date records of the hours your employees are working.

Part-time workers

Part-time workers are entitled to the same benefits, bonuses and opportunities as full-time workers (calculated on a pro-rata basis). In other words, they should get the same rates of pay, holiday entitlement and training opportunities as full-timers. Failure to offer equivalent pro-rata benefits, bonuses and opportunities may constitute less favourable treatment on the grounds of part-time status or sex discrimination, and you may face claims in Employment Tribunals.

Qualifications and skills

You are, of course, obliged to ensure that all workers have the qualifications and skills that are legally necessary to do their particular jobs – whether it’s a medical degree or training in food hygiene. You must ensure they have any up-to-date practice certificates and professional insurance their work requires. Remember to keep certificates or copies on their personnel file.

Pay

Pay statements

As an employer you are legally obliged to give each employee a written itemised pay statement setting out their gross salary, any deductions and their net pay.
National Minimum Wage (NMW)

The National Minimum Wage is enforced by the Inland Revenue. It applies nationwide and no business is exempt. Nor is there an opt-out right. Profit and performance-related pay that go through the payroll may be included in the amount.

There are three rates of NMW: the main NMW, a development rate for those aged 18-21 and a NMW for 16-17 year olds.

Equal pay

The work of a more skilled or senior worker may be deemed to be of better quality and so attract a higher rate of pay. However, you must be especially careful to see that men and women are paid at the same rate for doing similar work, unless any pay differential can be justified by genuine and objective material factors.

Equal pay also extends to different types of work that are deemed of ‘equal value’. It is, therefore, a wise precaution to grade each post in terms of level of supervision, skills and qualifications, risk, initiative and so on, before setting a rate of pay.

You could be especially vulnerable to equal pay claims if one job, which tends to be done by women, is paid at a lower rate than another which involves little extra skill, for example, but which tends to be done by men.

Paid holidays

All employees are entitled to take paid holidays. It is up to you to set out how much reasonable notice employees must give before taking holiday leave. You can require employees to take all or any holiday leave at specified times provided employees are given notice of this requirement in advance (usually in their contracts). Currently, employees are entitled to a minimum of four weeks’ holiday per annum, which may include statutory and bank holidays. Holiday entitlement accrues from the beginning of employment.

Employees are not necessarily entitled to take bank holidays off, though many employment contracts include entitlement to a holiday on those days or other days in lieu. Any right to time off or extra pay on bank holidays depends on what is agreed in the employment contract.

Employees must be given pay in lieu of any accrued but untaken holiday if they leave your employment.

Sick pay

You are not obliged to pay employees if they are off sick. However, they are entitled to Statutory Sick Pay from the fourth consecutive day they are off if they meet the qualifying conditions.

If someone is off sick regularly or for a very long time, it is possible to dismiss them but it is necessary to handle such a case with great sensitivity and procedural fairness – not only for ethical reasons but because you could be liable to pay compensation for unfair dismissal and/or disability discrimination.

Tax

You must inform the Inland Revenue whenever you employ someone. It is then your responsibility to deduct PAYE (Pay As You Earn) income tax and National Insurance contributions.

You may also be responsible for deducting money ordered by a Court (for example, to pay a fine or as part of a divorce settlement) or by the Child Support Agency. Other deductions could include GAYE (Give As You Earn) contributions to charity, contributions to the pension schemes, or repayment of a student loan.

You must provide your employees with a P60 tax form every year and a P45 at the end of their employment, with details of their pay and deductions for their own tax returns.

Finally, you must provide the Inland Revenue with an annual return for every employee in addition to the return for the business itself and/or your personal return. The Inland Revenue will also want to know about benefits-in-kind enjoyed by employees. These are non-cash benefits such as a company car and health insurance and these may be taxable.

National Insurance

National Insurance is generally collected at the same time as PAYE income tax. However, you may be obliged to respond to direct requests for information from the Contributions Agency, which is separate from your usual tax office.

Pensions

It may be good practice, especially for senior or key employees, to contribute towards a pension – but you do not have to. However, if your business employs five or more people you are required to provide everyone with access to a pension scheme or face a fine. You must collect contributions on behalf of the pension company from employees, but need not contribute to their pension yourself. This is the ‘stakeholder’ pension requirement.

Health and Safety

The two general duties in health and safety law stem from the Health and Safety at Work Act. These require employers to ensure, as far as is reasonably practicable, the health and safety at work of all employees and of those who may be affected by the firm’s activities.

Further and more detailed information on health and safety can be obtained from the Health and Safety Executive.

Insurance

Accidents and injuries do occur in the workplace and therefore insurance to protect employees and members of the public is recommended, and in some cases compulsory.

Employer’s Liability Insurance

This is required to protect an employer’s liability to its employees. It is compulsory and is renewable annually. A current certificate stating that the business is insured is given to you by the insurance company. This must be prominently displayed in the workplace where employees can see it.

Public Liability Insurance

Public Liability Insurance is not compulsory but seeks to protect a business against liability incurred in relation to people affected by the business, for example visitors and members of the public.

Conduct in the workplace

Discipline and grievances

You are required to take measures to establish discipline in the workplace.

By law all employers have to set out their dismissal, disciplinary and grievance rules in writing for their employees. These procedures must reflect new minimum statutory requirements.

However bureaucratic this sounds, stick to it rigidly. Then you have something to point to if you have to dismiss someone who subsequently claims unfair dismissal. Compensation for failing to adhere to these minimum requirements may be awarded against you by an Employment Tribunal if you fail to adhere to them.

Discrimination

Neither you nor any member of your staff may discriminate against other employees or potential employees on grounds of sex, sexual orientation, marital status, race, colour, nationality, ethnic origin, religion, beliefs or because of a disability, pregnancy or because they are a member of a trade union. This applies in recruitment, promotion, pay and conditions. Your grievance procedure may be used against you if you do so and you must be able to demonstrate that such complaints are taken seriously, fully investigated and dealt with appropriately.

From 2006, age discrimination will also become unlawful.

Harassment

You may be liable if an employee suffers sexual, racial or other harassment or bullying at work – even if you had no knowledge of it.

Since October 2005, new regulations have made sexual harassment – as well as harassment on the grounds of sex – explicitly unlawful in employment. Sexual harassment might include insensitive jokes, displays of sexually explicit material, and lewd or sexual comments or gestures.

It is your responsibility to ensure procedures are in place to discourage such behaviour. This includes a proper grievance procedure and preferably a bullying and harassment policy. If you do nothing, you could be held responsible along with the bully or the harasser.

Leave

Employees are entitled to certain time off work over and above holidays and sick leave.

Maternity leave

Every employee who has given her employer proper notification of her pregnancy is entitled to:

• Time off for antenatal care.
  
• Ordinary Maternity Leave of 26 weeks.
  
• Employees who have had more than 26 weeks’ service prior to the end of the 15th week before the expected week of childbirth are entitled to Additional Maternity Leave of a further 26 weeks.
  
• All her normal terms and conditions of employment except wages or salary when on maternity leave.
  
• Employees who have had more than 26 weeks’ service prior to the end of the 15th week before the expected week of childbirth are entitled to Statutory Maternity Pay (SMP) throughout their Ordinary Maternity Leave, even if she does not intend to return to work after the birth of her child. However, the Government reimburses most or all of this.

Adoption Leave

• An employee may be entitled to take Ordinary (26 weeks paid) and Additional (26 weeks unpaid) Adoption Leave following the placement of an adopted child, provided that they have 26 weeks’ continuous service within your business at the point at which an approved adoption agency certifies that a match has been made.
  
• Statutory Adoption Pay is currently paid at the flat rate of £106 per week, which may be recovered in the same way as SMP.
  

Paternity Leave

An employee who is a secondary carer is allowed to take a single block of either one or two weeks leave within 56 days of the birth or placement for adoption. They are entitled to be paid Statutory Paternity Pay at the current rate of £106 per week on a similar basis to SMP.

Parental leave

There is also an entitlement to unpaid parental leave for employees who have been with you more than 12 months. This is in addition to Maternity, Adoption and Paternity Leave. Unless you specify individual arrangements in the contract of employment, the Government’s fallback scheme of 13 weeks’ leave prior to the child’s fifth birthday (or 18th birthday where the child is disabled) automatically applies.

You are obliged to hold the employee’s job open for them or, at the very least, provide them with a broadly similar job on their return if they were absent from work for more than four weeks in any one year.

Emergency leave

All employees have a right to take reasonable time off work to deal with emergencies involving a dependant.

Other types of leave

Time off must also be allowed for employees to perform public duties, union activities or training. You must also allow employees time off for job-hunting or arranging training when their role is at risk of redundancy.

Jury service is compulsory, unless you can demonstrate an absolute need for the employee to be present and that the business would be threatened as a result of their absence. You need not pay the employee for this time unless you have agreed this in the employment contract. Instead, the employee claims loss of earnings expenses from the Court.

Flexible working

If your employee has been continuously working for 26 weeks and has a child or children under the age of six then they can make a request for flexible working. You must hold a meeting to discuss this within 28 days. You do not have to agree to the request but you must put your reasons in writing. These reasons must be objectively justified and fall within one of the reasons set out in the legislation. Failure to properly consider or justify a refusal may also amount to indirect sex discrimination for which compensation is unlimited.
Young people
There are separate rules for workers under 18 years old. These cover issues including parental consultation and consent, hours, the obligation to carry out a risk assessment before employment, and higher standards of health and safety.

Redundancy

It is a potentially fair reason to dismiss someone whose post is redundant – ie where the job (rather than the person) is no longer economically viable or necessary and the business has a reduced requirement for employees to carry out work of a particular kind. However:

• You may be liable to a claim for unfair dismissal if it can be shown that the situation was not really a redundancy but a pretext for dismissal for other reasons.
  
• You may be liable to a claim for unfair dismissal if it can be shown that you failed to adopt a fair procedure in selecting an employee for redundancy.
  
• You will have to make a redundancy payment to employees who have been with you for more than two years.

Redundancy selection must be objectively fair. This is a complex area and you are strongly recommended to take professional advice before you act.

The burden of red tape

In fairness, the burdens on an employer are not as great in the UK as they are in some other European countries, but:

• There are many of them, relating to different areas.
  
• They are administered by different authorities, including the Department of Trade and Industry, the Inland Revenue, and the Health & Safety Executive.
  
• This whole area has been subject to many significant changes recently. Moreover, since it remains an area of major difference between the main political parties, and an area of increasing activity on the part of the European Union, more significant changes can be expected.
  
• There is therefore no clear list of all obligations from one source.
  
• Leaflets and websites provided by the various authorities do not always give information in a clear, useable form.
  
• In individual cases, a lawyer’s opinion may be a better indicator of what may happen than what the formal rules say.
  
• Ignorance of the legislation is not a defence.

If you are concerned about a particular issue, get the latest up-to-date leaflet from the relevant authority, usually the Department of Trade and Industry, the Inland Revenue, or the Health & Safety Executive.

If you have an actual difficulty arising from any of the issues mentioned, you are recommended to consult a solicitor who specialises in employment law, especially if you want to dismiss someone.

If all these rules put you off employing anyone at all, it is possible to run a business using a network of consultants, sub-contractors and freelances to whom the rules do not apply – but beware: the authorities treat anyone who looks like an employee as an employee, whatever you may call them.

Useful contacts

Lawyers for Your Business

Run by the Law Society, this scheme has 1200 participating solicitor firms in England and Wales who will give a free half-hour consultation on the legal issues and pitfalls to avoid when starting up a business or growing one.

113 Chancery Lane,
London WC2A 1PL.
T: 020 7242 1222.
W: www.lfyb.lawsociety.org.uk

Immigration Advisory Services

For a full list of the documents that are acceptable as proof of entitlement to work in this country, contact the Home Office Employers' Helpline on 0845 010 6677 and ask for the leaflet, Changes to the law on preventing illegal working: short guidance for United Kingdom employers. Alternatively, visit their website at www.ind.homeoffice.gov.uk

Business Link (or national equivalent)

Business Link (England)

T: 0845 600 9006
W: www.businesslink.gov.uk

The Department of Trade and Industry

Enquiry Unit T: 020 7215 5000
W: www.dti.gov.uk/employment

ACAS – the Advisory, Conciliation and Arbitration Service

ACAS produces a code of practice on disciplinary and grievance procedures (download a copy from the Publications section of its website)

Helpline: 08457 47 47 47
W: www.acas.org.uk

Health & Safety Executive

HSE Infoline: 0845 345 0055
W: www.hse.gov.uk

Inland Revenue

New Employers’ helpline: 0845 607 0143
W: www.hmrc.gov.uk

The Employers Forum on Age

T: 0845 456 2495
W: www.efa.org.uk

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