Hiring your founding team is one of the most exciting parts of your journey as a startup founder: your ideas will soon come to life! Your team will soon become your company's biggest asset if you hire correctly and it is crucial to ensure that you follow the guidance and regulation set out below as well as ensuring you keep your legals in order.
1. Register as an Employer
First things first, when a founder incorporates their company they should register as an employer, even if, at this stage, they are only employing themselves as, for example, the director of a limited company.
A company must register before the employee's first pay day and can register with HMRC as an employer up to eight weeks before they pay their staff. To register, limited companies with 1 to 9 directors simply need to visit Gov.uk.
2. Employment Insurance
As soon as you are considered an employer, you will need Employers' Liability (EL) Insurance that must cover at least £5million. This insurance is designed to help cover accidents at work that might require compensation and similar compensatable losses your employee might experience as a result of their employment.
Ensuring that you have adequate insurance is extremely important as it can be an expensive mistake from first time founders who are using their first funding round to hire their team. Companies can be fined £2,500 per day if they are found to have inadequate insurance and £1,000 if they refuse to display their EL certificates or make it available to inspectors.
Choosing EL insurance can be daunting so gov.uk recommends that companies might want to consider using an insurance broker to help a company find appropriate cover. However, if a founder decides to choose EL insurance on their own they must ensure that:
- Get coverage as soon as they are considered an employer;
- The policy covers at least £5m, and;
- The provider are authorised on the Financial Conduct Authority register
3. Workplace Pensions
Employers also must provide eligible staff a workplace pension as soon as the first member of staff starts working. Employers must therefore enrol and make their contribution for all new hires that are:
- 22 years and older;
- Earn more than £10,000 per annum, and;
- Are based in the UK (even if they travel abroad for work).
The Pensions Regulator's ’s tool for employers offers useful guidance on how to set up your company's workplace pension scheme.
As well as enrolling their employee's, employers must also pay at least 3% of the employee's 'qualifying earnings' into the scheme and must deduct contributions for staff pay each month. These contributions must be paid into the pension scheme by the 22nd day of the following month.
Like insurance, failing to have adequate process in place for workplace pensions could be an expensive mistake for first time founders so making sure you have one in place, with good bookkeeping, is a sure way to mitigate risk.
4. Define the roles
Before you start the hiring process, it is crucial that business owners ensure that they consider the positions that they will need. You will want to think about the skill sets needed for certain roles and the types of individuals you want to attract. As your founding team, these new hires will define your company's culture and will also have an influence on the type of potential candidates you will attract in the future.
When defining the roles, you will want to create an accurate job description to ensure that you have not only defined the roles correctly, with little overlap, but that you attract the right candidates for the position.
Once you have worked out who you will need to hire, you will need to recruit those hires. Depending on the nature of the role you might want to consider different platforms for advertisement to ensure you have access to top candidates. Depending on the role, you could creative and even consider job posting on social media job boards. You should advertise the new role, along with the job description, on relevant platforms. You will also want to outline the skill sets that are required to ensure that job seekers can get a greater understanding of the position and to ensure that you only receive interest from qualified candidates.
You should also provide details of 'next steps'. For example, you might request that those interested in the position send a CV or cover letter that will be assessed before you invite people to attend your interview process which might include skilled tests. For example you might get a developer to complete a code review.
In your recruiting process you will want to ensure that your interview questions are relevant to understand:
- The candidate's skill set and how it compares to the candidate pool;
- The likelihood of retention;
- Whether the employee has the skills and mindset to drive your small business forward;
- Whether you think the candidate will be a cultural fit, and;
- Whether the candidate has relevant experience or the ability to quickly learn on the role.
For more specific information on recruitment, read our article on 'how to hire a team quickly'.
Create lawyer-approved contracts for free for 7 days
6. Check your wage obligations
When hiring a new team, you will need budget in order to pay for that team's expertise. Aside from the obligations above, an employer, when deciding who and how many to hire, will need to make sure they pay close attention to national minimum wage requirements. Employers can use the Government's calculator to ensure that they are paying the correct minimum wage and can also use tools on LinkedIn to compare salaries of similar roles to ensure that the company attracts the best candidates.
7. Legal Right to Work
Employers are also required to check that prospective new employees have the legal right to work in the UK. Like Right to Rent checks, an employer will have to check an employee's passports, permits or registration cards to ensure that they pass the right to work check. Failure to do so could result in serious penalty and getting some form of identification off prospective employee's is also a good way to fact check some of the information they have provided.
8. DBS Checks
Whilst this might not affect the majority of startup founders, when hiring for a particular position, founders should check whether they need to apply for a DBS check (formerly known as a CRB check) before hiring new staff for the position. DBS checks will be required if the business operates in security, healthcare or with vulnerable people, such as children.
To carry out these checks, an employer must ask for the employee's consent and carry these checks out, provided they have consent, even where they are not legally required provided that they have a policy on employing ex-offenders.
9. Formalise the relationship
Once you have found a suitable candidate and have done the following steps, you will want to formalise your relationship with the prospective employee.
Firstly, you might want to make your job offer to the job candidate by providing them with an employment offer letter that provides information about the role. This letter can be conditional on them passing the relevant background checks above and should outline the basics of the position.
When you are ready to hire, you will want to provide the employee an employment agreement, even if they are part time or zero hour staff. Whilst employment contracts are not a legal requirement, it is best practice to provide one. It will ensure the relationship between the employer and employee is clear and, more importantly should provide the company's ideas with protection. It is crucial that your employment contracts contain clauses that protect your company's ideas and limit the employee's ability to take your ideas to your competitors. Whilst it might not be something you foresee, especially as startup hires might often begin by connecting to your existing network, this is an important step, especially when it comes to fundraising. Besides, you must supply an employee who will stay at the company for more than one month a written statement of employment. Using downloadable templates online might not offer you this protection.
Furthermore, you might wish to draw up a staff handbook to outline the company's procedures and policies so that the employee is clear not only on their role but on the company and the work environment.
10. Onboard, welcome and grow!
On the first day of your employees new job you will want them to feel welcome, understood and that they understand the company and their role. If your employee is not your first, you will want to introduce them to your current employees and give the new team member an onboarding process that outlines the above. You will want to set them up with an email, give them access to relevant files and documents (with your IP and confidential information protected by clauses in your Legislate employment agreement) and give them time to understand their role. After the first week, it might be good to arrange a meeting with the new employee to give them another opportunity to ask questions and feel welcomed into their new role.
Hiring a great team doesn't need to be difficult but you could make it difficult (and costly!) if you fail to take the necessary steps and precautions.
Legislate is a contracting platform where business owners can create contracts to help grow and develop their business, minimising the error for expensive mistakes. Legislate's lawyer-approved contracts are suited for startups and technology companies due to their wide IP and confidentiality clauses that traditional templates don't address and our online platform powered by patented technology will set a good impression to your future employees right from the start.
The opinions on this page are for general information purposes only and do not constitute legal advice on which you should rely.