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Advice on Hiring Your First Employee

A few days ago, I was asked on Instagram whether I had any advice when it comes to hiring your first employee. It took me back to nearly a decade ago when my husband and I moved into our first little basement office, with space for just 3 desks and we decided to hire our first employee – an administrator who’s role it was to look after the office, assist with admin tasks and help handle client coordination. I remember how nervous we were knowing we were committed to paying someone, that we had to keep busy and, more shockingly, that we had to turn up to work on time! Fast forward 10 years and our team has grown but, looking back, we definitely made some mistakes. Here I’ll share some advice with you to make your first hire as effective and successful as possible as well as avoid some of the mistakes we made.

1.1 Understand the Costs

Hiring an employee isn’t as simple as paying them just their gross salary. By law, you’ll need to pay employers national insurance and pension contributions at 13.8% and 3%, respectively, of their gross pay (and these percentages do tend to rise year on year). So make sure you budget for these additional costs, although it’s worth remember that your employee’s salary, employers NI and pension contribution are all tax-deductible expenses.

On top of these costs, you’ll also need to provide them with all the tools they need to do their job such as a laptop, desk and even upgrade your subscriptions so you can add them as users. Go through your budget and add in all these additional costs so you can check the impact on your profit margin.

1.2 Running Payroll

If you have ever worked for someone you’ll no doubt remember receiving a payslip every time they paid you, with details of deductions they have made from your gross pay. As an employer, it’ll be down to you to arrange for these deductions to be calculated and a payslip to be issued, as well as paying any deductions over to HMRC.

You can do this by enlisting the help of an accountant or payroll company, alternatively, if you feel confident enough you can run the payroll yourself using a software like Quickbooks for a small upgrade fee. Personally I’m a fan of outsourcing payroll because if I get sick, I have peace of mind an external company will take responsibility for payroll and my employees won’t be affected.

1.3 Register as an Employer

You’ll need to register as an employer with HMRC so they know who is working for you and to expect tax deductions to be made on their behalf. You must register before the first payday and it can take up to 5 working days to get your employer PAYE reference number (but you cannot register more than 2 months before you start paying people).

Ideally try to register a month before your first payday, because that should give you sufficient time to be accepted by HMRC and your employer’s reference number to be issued.

1.4 Get a Handle On Your Cashflow

When you employ someone by law you have to pay their salary, on time, as agreed. That means you’ll need to make sure you have the cash in your bank account to do so and, if cash is tight, you’ll have to pay them ahead of yourself. In addition, you’ll need to pay over the tax you’ve deducted from their salary and employers NI by 21st of each month as well as their pension contribution to your workplace pension scheme by the 10th of each month.

There are many stories of businesses getting into trouble because they’ve not paid over tax and pension contributions due to cash flow problems, resulting in hefty HMRC fines. So make sure you understand your responsibilities and set up direct debits so the money leaves your account automatically.

1.3 Take Out Insurance

Once you take on an employee you’ll need to have Employers Liability (EL) in place. In a lot of cases, EL is included in a lot of standard business insurance policies which give professional indemnity and products liability. But it’s important you check you have EL in place in the event that something happens to someone that works for you, under the rules of the Employers’ Liability (Compulsory Insurance) Act 1969. You can find out more about business insurance here if you are unsure about the different types available or get an instant quote from Simply Business.

1.5 Get an Employment Contract

All employees require an employment contract, which is a signed contract between your business (you, if you are a sole trader) and each person you employ. It’s a legal document that confirms details of the job role, salary, holiday days, sick pay and termination. It’s critical to your business you get this right, for both you and your employee. You can consult with a solicitor, which is the recommended approach but there are also websites that have very standard contracts that you can buy and download such as SimplyDocs. Again, this may attract a cost, so make sure you budget for paying this as part of your first hire.

2. Hiring Tips

2.1 Start Slow – Hire Freelancers

Hiring an employee brings with it huge responsibilities and time commitment, if you haven’t already, consider starting small by hiring a freelancer. It’s a good starting point for you to check how busy your employee will really be, which tasks work best for someone else versus yourself and whether you need someone full-time or part-time.

Be careful, you can’t always hire a freelancer to work full-time for you on a long-term basis. This is known as IR35, which you may have heard of. It stops employers from hiring people to work for them as self-employed because they avoid employer obligations like sick pay and employers NI (take a look at the recent Uber case). So even if you start with someone as a freelancer and decide to move to a formal arrangement, you may need to set them up as an employee.

I use freelancers regularly for help with this website. Through a bit of trial and error, I’ve managed to build a bank of tried and tested freelancers, each with their own strengths on Fiverr.

2.2 Don’t Hire a Friend (or friend of a friend)

I am always wary of mixing business with pleasure. Don’t get me wrong, you should always make sure you get along with whoever you work with. But if you are going to be the boss, you need to make sure you have the right relationship from day one because your hire needs to tow the line, do what you ask and be corrected if they make a mistake.

You don’t want to feel awkward if you have a problem and then see them the next day for dinner with friends! So whoever you recruit, make sure they are easy to get on with AND have the skills you need.

2.3 Make Sure they Have the Right Experience

Read and re-read their CV. There’s no rule saying you can only do two interviews either, so don’t be afraid to do more and even written tests too to really give yourself peace of mind. Our most recent hire went through an extremely rigorous interview process because, as an accountant, the role was so pivotal to our business. The person we eventually hired didn’t mind either because it demonstrated how seriously we took our company.

Don’t rush in if you have any element of doubt, there’s plenty more fish in the sea’.

2.4 Brush Up on Your Interview Techniques

There is an art to interviewing and asking the right questions. Try googling the role you are looking to fill for your industry and chances are you’ll find lots of good advice on questions you should ask specific to your role.

If you haven’t interviewed someone before, then do a little more reading and ask friends or family with experience in interviewing to give you some advice.

2.5 Consider Using an Search Agency

Depending on the size of your business you could use a recruitment agency to find your employees. Typically search agencies will charge either a flat rate search fee per job role or a fee that is a percentage of your employees gross salary. Depending on the industry you operate in, this percentage can be as much as 20% and while this may sound like a major cost they do carry out initial checks and review CVs. That way you only receive details of possible candidates that most relevant to you, meaning you aren’t bombarded by CVs on platforms like Indeed.

Of course, if a recruitment agency isn’t right for you, then using platforms like Indeed are a great option. Some do have a charge, others let you post for free and pay to boost your ad, so potentially you’ll need to pay something but it won’t be as much as a recruiter. -Before you spend any money just check which platforms the potential employee you are looking for is hanging out on this platform. There’s no point looking for a web developer on an accounting recruitment site!

2.6 Set up a Killer Job Description

Your job description contains everything you expect your employee to carry out for you on a daily basis. Getting this right is crucial to you finding the right applicants and so that, whoever you ultimately hire, is capable of doing what you need and doing the work they expect.

2.7 Call the References on the CV

A good CVs should contain references. If you can’t find any, then ask your potential hire to provide you with at least two references then contact them to discuss what they did and how they performed, preferably by phone. Any reluctance to provide references, without good reason, could indicate a problem.

3. HR Thoughts

3.1 Set Your Probation Period

It’s normal to include a probationary period in your employment contract. Normally this is a period, typically of three to six months, where an employee can be dismissed if they fail to meet expectations. In most cases, you’d need to give one week notice and the employee will have little ability to fight your decision except in exceptional circumstances for example discrimination due to age, sex or race.

3.2 Prepare Your Systems & Processes

When you work alone you may not have the most robust systems and processes in place because it’s just you and you know where you keep everything. Once you begin to recruit you’ll need a way to share files, manage what they are doing and create an onboarding process to help get them started. The sooner you start doing this the better, that way you can put your employee to work effectively from day 1.

3.4 Make Sure They Bring You Value

Hiring the wrong person will cost you time and money. Make sure whoever you bring into your business adds value, helps you make more profit and is part of your wider business strategy. Taking someone on full-time should allow you to do bigger and better things, not just reduce your workload.

About Anita Forrest

Anita Forrest is a Chartered Accountant, spreadsheet geek, money nerd and creator of www.goselfemployed.co - the UK small business finance blog for the self-employed community. Here she shares simple, straight-forward guides to make self-employment topics like taxes, bookkeeping and banking easy to understand.