How to employ someone (for the first time)
There will come a time during your entrepreneurial journey where you’ll need some help. This is especially true for solo-founders and small business owners who are looking to scale beyond themselves.
Hiring your first employee can relieve some stress and help your small business grow even further. From operations to sales and marketing, there are plenty of talented professionals out there to help take your venture to the next level.
Here is a handy overview of the main steps you’ll be going through during your hiring process:
To help you with the legal frameworks, recruitment costs and other recruitment tasks, we’ve organised all you need to know about hiring your first employee in this easy step-by-step guide.
You can work through the steps in sequence, or go straight to the one you need right now.
- Step 1: Calculating hiring costs
- Step 2: Full-time or freelancer? Deciding who to hire first
- Step 3: Complying with legislation
- Step 4: Starting the recruitment process
- Step 5: Writing an employment contract
- Wrapping up
Step 1: Calculating hiring costs
Employing staff for the first time is an exciting milestone. But without the proper process, it can quickly become a sunk cost with hours of time wasted.
Therefore, it’s important to know the cost of hiring staff before you start the recruitment process.
Calculating your hiring costs will help you create and track a budget for recruitment. Part of employing staff is knowing what it costs you to find and hire them in the first place.
Let’s dissect what you must consider when figuring out the total cost of employing a new member of your team:
Calculate the cost of recruitment
Your recruiting costs can quickly become the biggest investment. For example, if you plan to bring on board 3 people over the next 12 months, and your cost per hire is £2,000, you can estimate a total spend of £6,000 for recruiting alone.
Here’s a simple formula to calculate your total recruiting costs:
Internal recruiting costs are expenses your small business has to pay for. These include salaries for HR or operational roles (or anyone else involved in the recruitment process).
External recruiting costs go towards things like job board fees, advertising costs, recruitment agencies or background checking services.
Decide on your new hire’s salary
The salary for each role will often depend on the seniority for the role, experience needed and the industry you’re hiring in. According to the Office for National Statistics, the annual average salary in the UK is £28,600.
Have a look at career boards such as LinkedIn, Totaljobs or Glassdoor if you’re not sure what to offer. Look for similar job offers and work out what other organisations and competitors in your industry are advertising.
Indeed provide salary estimations based on employees and users, as well as past and present job advertisements. Just search for relevant companies or job titles to get a rough salary estimate you should be aiming for.
Don’t forget National Insurance
Every employer is required to pay towards their full-time employees’ National Insurance (NI). At time of writing, the rate is set at 13.8% of any salary above the National Insurance Secondary threshold, which is set at £166 at time of writing, and includes bonuses and any over time accrued.
The Employment Allowance, an annual amount that is currently available to all businesses and charities (with some exclusions), reduces the amount of National Insurance employers have to pay by up to £3,000 per year. You can find out if you’re eligible on HMRC’s website.
Pension auto-enrolment or PAYE
- At least 22 years old
- Not yet at state pension age (you can check the relevant official State Pension Age for employees as this differs between men and women)
- Earns at least £10,000 per year (for the 2018/19 and 2019/20 tax years)
- Working in the UK under a contract of employment
Office space and equipment
Investing in an enjoyable work environment will enable and empower your new employees to do their best work. This includes your chosen office space, desks and even the software you’ve chosen to get the work done. A well set up workplace contributes enormously to your employees productivity and overall work happiness.
Invest in the right equipment for your employees to do their jobs. From computers and stationery to furniture and plants, the right equipment will empower your team to be more productive while creating a happy and enjoyable environment for them to work in.
In the infographic below, BE Offices provide a data-driven estimate of the true cost of hiring new talent:
Everything listed above should be taken into account as your total cost of hiring. According to Glassdoor, the average employer in the UK spends about £3,000 and 27.5 days to hire a new worker. The amount you should invest in will depend on their position and the industry you work in.
Employee benefits must also be accounted for. Common benefits include healthcare, education, the ability to work from home and away days. These small touches can attract the best talent while contributing to a work culture that fosters loyalty to your company.
Don’t fret too much over the costs of employing staff. Instead, focus on the value, ROI and growth they will bring to your business. If your business can afford the initial costs of hiring, then your investment will be worthwhile. For an accurate cost per hire amount, check out this calculator and see what you should be budgeting for.
Pro Tip: Your costs per hire and employee wages are expenses to consider when doing your accounting. If you’re still unsure how to get started, here’s your guide to small business accounting.
Training and investing in your new talent
Proper training and onboarding will help new hires get settled into their new role quickly and competently. Furthermore, education and staff training helps improve retention rates, as your employees will feel you’re invested in the advancement of their careers.
Training costs include any materials needed (workbooks, courses etc.) as well as time spent during work hours (which should also include any travel expenses).
Step 2: Full-time or freelancer? Deciding who to hire first
Figuring out whether to hire a full-time employee or freelancer can be a tough decision. Part of learning how to employ someone is knowing who you need first because pay rates, leave and other entitlements can vary.
You’ll also need to take employers’ liability insurance into account, which you must get as soon as you become an employer. You can learn more about this over on GOV.UK here.
Here, we’ll run through the pros and cons of hiring a contractor vs. full-time employee.
Hiring a contractor or freelancer
A contractor or freelancer is a person who is self-employed and not necessarily committed to a particular role in the long-term.
According to IPSE, there are more than 2 million freelancers in the UK, a number that is growing year on year. Hiring freelancers, as opposed to full-time employees, enables companies to spur growth by becoming leaner, especially in the early stages of development.
So, is hiring an independent contractor the right choice for your small business? First, let’s look at the pros:
- They’re cheaper: Not only in terms of remuneration, but it alleviates the burden of health insurance, desk space and pensions. Even with an hourly rate, expect to save 20 to 30 percent annually when you hire a contractor.
- They’re easy to source: Thanks to platforms such as Freelancer.com and Upwork, the process of hiring contractors is effortless. These websites allow you to post your job, browse through candidates and chat with potential hires about your needs. These platforms provide access to a pool of global talent that you wouldn’t otherwise be able to access locally.
- Instant access to high-quality talent: Contractors are just like you, they run their own small business. This means they understand the importance of repeat work built on customer satisfaction. Freelancers know the contract is subject to renewal, so they will always strive to do their best work and maintain strong relationships.
If you’re just starting out, then hiring a freelancer or contractor can seem like a good option. But what are the downsides of hiring on a freelance basis?
- Training & supervision: Without proper briefing and onboarding, freelancers may miss crucial details that would be obvious for in-house employees. A freelancer might also choose to perform the work outside of normal business hours, which means you won’t be able to monitor their progress in real-time as you might be off while they are working.
The solution is to have systems and processes in place for onboarding, training and monitoring the progress of your contractor. Platforms like Upwork have built in tracking available which makes it easier for you to collaborate, receive automatic updates, set milestones and pay in stages according to work delivered and targets achieved. If the role requires regular long-term collaboration, consider hiring a full-time or part-time employee.
- Company culture: Most freelancers manage multiple clients at once. Their loyalty and investment to your business may not match the one a full-time employee.
- Availability: An independent freelancer might be too busy developing their business and juggling too many clients. Therefore, you need to make sure they’re available well ahead of time. Make sure you agree on deliverables and timelines before a contract begins, and always have other freelancers as backup.
Ben and Rob founded Provius, a Leeds-based website and app design agency. Rob is the design genius, a trained illustrator and user-experience expert, with a masters in graphic design. Ben is the project manager, adept at agile development and content architecture.
They’ve built a network of talented freelancers across Europe. Whatever a client needs, a team is built for precisely their requirements:
“We’ve got an incredible network of freelancers…Across Istanbul, Barcelona, Athens and Zurich. There’s also a lot of digital talent in Leeds!”
Ben Kamara, co-founder Provius
They use tools for communication and collaboration, such as Skype and Dropbox, to help remote workers collaborate efficiently. But they’re always happy to jump on a plane when needed:
“I went out for an entire week to work with our guy in Athens,” says Ben with a smile. “There’s no better way to get to know someone, and it’s as easy as renting an Airbnb. We’ve got three projects on the go because of that trip.”
Ben Kamara, co-founder Provius
Hiring a part-time employee
Today’s workforce want more flexibility in how they work, and that includes working remotely or part-time.
In the UK, a part-time job is classed as any role that involves fewer working hours than a full-time job. Employees are considered to be part-time if they work fewer than 30 hours per week.
Employing staff for the first time implies structuring your team and deciding if you should offer a part-time option. Let’s take a look at the biggest benefits of hiring a part-time employee:
- Seasonal support: If you need extra support during certain periods of the year, then hiring a part-time employee as your first employee makes sense. For example, a software company that needs the help of a finance director for one or two days a week.
- Cost-effective: In the UK, part-time employees offer savings compared to their full-time colleagues as salary. For example, some benefits and pensions are applied pro-rata. This makes hiring a part-time employee a great way to ease into full-time staff.
- Extended pool of candidates: Part-time employees are usually more diverse. These include students look to make a side income while completing their degree, mothers transitioning back into work or retired workers who are not quite ready to give up the hustle.
Hiring for part-time staff allow you to reach a larger pool of talent that can help you grow your business while working by your side. Once you build your team, you might want to consider offering part-time options in the future, as it would help you increase employee retention.
What about the downsides of hiring part-time employees?
- Risk of inconsistent work: It’s important to test your part-time staff for consistent, high-quality work. One way to ensure great work from part-time employees is to communicate about any performance issues before or as they arise. Listen carefully and try and help them address the root of the problem and understand what you can do to support them and improve results. Set a timeline and objectives for a follow-up review.
- It’s harder to build a strong company culture: Since part-time employees spend less time interacting with you and others in your business, they might get less involved and may find it easier to leave. If you decide to hire other people full-time, there might be a disconnect between part-timers and full-timers as interactions are limited. Create regular opportunities for full-time and part-time employees to interact with each other and stay updated on what everyone is working on.
One downside of hiring a part-time employee is the amount of time you can invest in them. As mentioned above, communicating about issues can help improve performance, but this might take longer, as you’re not working and collaborating with them on a regular basis.
Pro Tip: Looking for specialist part-time hires? Check out Doyenne, who help to bring women back into the workforce with flexible working careers.
Hiring a full-time employee
A full-time employee is employed on average at least 30 hours a week, or 130 hours of service per month.
Hiring your first employee full-time might seem like a big commitment. Most part-time or freelance hires will come in and do what’s needed for a limited amount of time. Hiring full-time means working side by side with your first employee, come sun or rain.
Let’s have a look at the biggest benefits of hiring full-time:
- Continuous expertise and service: If your business is in need of constant expertise, then bringing someone in full-time might be the best choice. If you’re running a service-based business, having a familiar face that your clients can interact with will be beneficial.
- Strong company culture: Full-time employees often feel pride in their position and being part of a team. Having job security means full-time staff will be more invested in developing your company (especially your first employees). This is especially true if they can fully identify with your culture and company goals.
- Investment in training that lasts: No need to constantly train a flow of new talent. Once initial onboarding and training is complete, you gain a long term partner that understands your business and what needs to be done from the inside out.
Finally, let’s lay out the biggest downsides to hiring talent on a full-time basis:
- Full salary compensation: A full-time employee will always need to be paid a salary, regardless of whether your business is having a low period. You should factor in additional costs like National Insurance and pension contributions.
- Benefits and additional perks: If you decide to hire your first employee on a full-time basis, then expect benefits like holiday pay and maternity leave to be added to your final bill. While these costs might be worth it to get the help and expertise needed, your small business needs to plan for them.
During your first year of business, hiring a contractor will reduce the risk while allowing you to scale and grow. Once you have a better idea of what your company structure should look like, then you can invest in full-time employees.
Should I hire friends and family as my first employee?
It would seem like an ideal situation to work with close friends and family members. You can’t imagine people who would be more invested in your personal and professional success.
But they need to understand that business is business. So the answer to this question depends on your circumstances and personal preferences.
Xanthe, Hugo, William, and Patrick are the co-founders of Pilcro, a webapp designed to help companies get all their brand assets in one place. And they are siblings.
“You know where you stand with siblings…Trust is so important. You could meet your co-founder at a networking event, and that can be very hard. When times are tough you can 100% rely on your family.”
Xanthe Woodhead, co-founder Pilcro
“If someone’s not in the office,” says Hugo, “You don’t think, ‘Oh, where are they?’” It actually took us a bit of time to adjust. In your old job if there’s nothing to do you’d pretend to work. No point doing that here!”
“We did get our parents to do a couple of days of email marketing at one point,” says Xanthe. “But the results didn’t justify the sort of parental stick we got, so we drew a line under that!”
If you do decide to hire family as your first employees, make sure you carefully weigh up the pros and cons first.
Step 3: Complying with legislation
When employing staff for the first time, you might find the list of legal rights and responsibilities daunting. But complying with the law and looking after your employees will make you more efficient, profitable and more attractive to the best talent.
Here, we’ve laid out a clear checklist on what’s required of you as an employer.
Check they have the right to work in the UK
You are legally required to check that your new employee has the right to work in the UK before you actually employ them. You can either:
- Check the applicant’s original documents, or
- Check the applicant’s right to work online, if they’ve given you their share code
Follow the guidance on the Gov.uk website to find out if your future employee has the right to work.
Find out if they need a DBS check
To prevent any unwanted surprises, you may need to check your applicant’s criminal record. This is a legal requirement if they’ll be working in healthcare or with children. This process is known as a “Disclosure and Barring Service (DBS) check”.
To learn more on the different checks you can make and how to run them, head to the UK gov’s website.
Register with HMRC
When you hire for the first time, you must register as an employer with HMRC on or before their first payday. Follow these steps before paying your first employee:
- Check if you need to pay them through PAYE (more on that later)
- Get employee information to work out their tax code – if you do not have their P45, use HMRC’s ‘starter checklist’ (which replaced the P46)
- Find out if they need to repay a student loan
- Use these details to set up your new employee in your payroll software
- Register your employee with HMRC using a Full Payment Submission (FPS)
Meet the national minimum wage
You’re required by law to pay your staff at least the minimum wage. Keep in mind that the minimum hourly pay rates vary according to age and employment status.
If you decide to pay your employees a real living wage, then you should plan for £19,201 per year in London or £16,380 per year outside London (that’s £10.55 per hour in London or £9 per hour outside London).
The real living wage is an hourly rate based on the basic cost of living in the UK and is calculated by the Living Wage Foundation.
Enroll into the PAYE scheme
PAYE is HMRC’s system to collect Income Tax and National Insurance from employment.
You usually have to pay your employees through PAYE if they earn £118 or more a week (£512 a month or £6,136 a year). You do not need to pay self-employed workers through PAYE.
Pro Tip: Complying with employment laws is just one piece of the legal puzzle. To make sure you avoid unnecessary risks, here are our top tips to avoid legal headaches in your small business.
Step 4: Starting the recruitment process
Before hiring your first employee, you should establish a process to make sure you find the most qualified candidate for the role and reduce costs down the line. A rushed hire can lead to staff turnover and missed opportunity costs.
Let’s tackle what you need to know when preparing your recruitment process.
Writing a job description
Job descriptions help communicate the job you’re looking for, what your new hire will be doing and the type of person who would make a great fit for your company.
You stand a better chance of attracting the best talent if there is a well-documented description of the role. This will also help you to define exactly what you’re looking for.
When writing a job description, make sure you do the following:
- Introduce yourself and your company: The difference between top talent applying to your job over others might be your company and your values.
- Include the job title and position: This helps potential employees find your job description and apply for the roles they’re looking for, as the title is usually what they search for on job sites. Make sure the title reflects the actual position rather than advertising something you do not have the budget for only to attract more people as this will only lead to disappointment later on for both sides.
- List the core responsibilities: Descriptions of duties should be no more than two or three sentences in length and should be outcome-based, containing an action, an object and a purpose (eg ‘responsible for building and maintaining responsive websites to support our brand and marketing efforts on our website.’).
- List the required skills and competencies: Include the required skills needed to do your job (whether from a qualification or experience. Competences are the traits or attributes you expect your first employee to display in the role (eg. inquisitive, detail-oriented and proactive).
- Give a salary range. Rather than assigning a particular number to the position, work out a salary range that aligns with the going rate for that role. You can always change this and refine once you’ve found your first candidates. Respond to their feedback and be sure to take seniority into account.
With these things in mind, here are some things you should avoid doing in your job description:
- Exaggerate the importance of the role. You need to manage expectations so there’s no disappointment when your new starter comes in.
- Advertise a higher salary than what you can offer. Don’t inflate the salary range and benefits. You’ll end up wasting candidates’ time who are likely to get their desired salary elsewhere.
- Use a boring template. Although getting inspiration from other companies can get you started on writing your own job description, don’t write “[Company] is seeking [Position] to do [General Job Description]”. Interesting and passionate job descriptions attract like-minded candidates.
- Use gender-coding. Research has shown that women are put-off jobs that are advertised with masculine-coded language. You can check if your job description has any discouraging gender coding here.
As we are growing our team we are advertising a number of different roles online. We do this through our website as well as third-party platforms. You can find an example of what our job descriptions look like below. If you happen to be interested in our open roles have a look at our careers page.
We open the description with who we are, what we believe in and the mission we’re on. We then go on to describe what a typical day in the life of a Tidean looks like, which paints a picture of the work candidates could be doing for us.
Once you’ve posted your job description to relevant job sites (Indeed.com, LinkedIn etc.), then you’ll start generating applicants.
Screening for the best applicants is an important step when looking to employ the right person for the job. Your goal here is to create a shortlist of appropriate candidates to invite for an interview.
According to Ideal, the entire screening process can take up to 23 hours. Here are the things to consider when looking for the strongest candidates:
- Format: CV’s should only contain the most relevant information about your candidate, with no more than 1-2 pages. It should be clutter-free and easy to read.
- Language: Too many grammar and spelling mistakes show that your candidate isn’t detail-oriented. If the position has very little to do with writing or language, then feel free to be lenient.
- Previous work experience: Pay special attention to past roles and the companies they worked for. This will inform you of your candidate’s ability and fit to do the job.
- CV fit: One of the most common mistakes candidates make is sending out the same CV to all job applications. Those who spend more time tweaking their application to fit your job description deserve to make it to the next stage of the application process.
If you’re considering having a quick chat with your candidates before moving on to the actual in-person interview, here is a list of potential phone screening questions to ask them.
Interviewing your potential first employee
The interview is the most important stage of hiring your first employee and any other employee thereafter. It will help you get to know them on a deeper level and find out if they have the chops to work with you.
Choosing the right person to do the job can be challenging. You need to ensure your candidate is a strong match for your position as well as for your company. After all, you will be spending a lot of time together so it is important they are a good fit for you as much as you are for them.
This is the first conversation you’ll have with a potential employee, so make sure you do the following:
- Read your interviewee’s CV and application before the meeting
- Prepare questions you want to ask them
- Be a good listener and take notes during the interview
- Be ready if they have any questions
- Redirect the conversation to the topics you consider important
- Ask questions that help you measure them as a fit for your culture
To avoid scaring top talent away, don’t do the following:
- Talk in a rude or overly-familiar fashion
- Look at your phone and computer while they are talking
- Ask closed questions (“do you want this job?” instead, ask the candidate “why do you want this job?” )
- Forget to talk about what the next steps of the hiring process are
Don’t forget to share your new role on social media. Not only is it free, but your followers might be or know the perfect candidate. Here is one of our job postings on Twitter:
Step 5: Writing an employment contract
An employment contract legally defines the relationship between you as an employer and your new teammate as an employee. Both parties have to sign and agree to the contract before the employee can start working.
Writing an employment contract is a necessary part of employing staff. Even if you’re not planning on giving a written contract, you’re required to hand your employee a written statement outlining your main employment terms.
While most employment contracts are in writing, they can also be verbal agreements. Oral contracts have the same legal authority but it can be much harder to prove.
Thus, having a written contract provides more certainty over your new employee’s status and can make it easier to resolve any disputes. These are the most important elements you should include in your employment contract:
Employee and employer names
A contract is only binding and legal if both parties referred to in the contract sign it.
Job title and date of employment
This is the same as the job title and description specified
in any job description or communications between you and your future employee.
It should also include the date your new staff member will start working for
It is important to include a statement saying that employment with any previous employer does not count towards various rights that are usually gained after one or two years of employment. In other words, your new employee is starting from zero with you.
Hours of work (including overtime)
Your employee’s hours are specified in the contract as follows. However, the employee can also agree to work additional hours if you reasonably request it.
Include your employee’s gross salary before tax, national insurance and any other deductions. This section also specifies when payment is made.
You must pay employees £94.25 per week for up to 28 weeks if your employee is too ill to work. This is known as Statutory Sick Pay (SSP). Your employee needs to be off work sick for 4 or more days in a row (including non-working days).
This clause details when the holiday year will run from and how many days your new employee can take (a statutory minimum of 28 days). It’s up to you to decide whether bank and public holidays are included or excluded from this.
You should also include details about rolling-over holidays into the next year and pro rata payment instead of any unused holiday entitlement.
The notice period is usually decided by you, the employer. This clause is an important element of the contract because it provides a detailed list of actions that constitute gross misconduct allowing you to terminate it without giving notice.
Pro Tip: You can download an employment contract template here for further details on elements to include (which includes all information in the four images above).
Transitioning from business owner to employer can seem overwhelming. But it can be just as exciting a milestone as starting your business in the first place!
As long as you comply with the legal requirements and make sure you have a foolproof hiring process, you will find the best talent to help take your business to the next level.
If you’re still unsure whether to hire your first employee, here are three signs you should:
- You feel there isn’t enough time in the day and you feel overwhelmed with the workload
- A new project or revenue stream has started and you need support or a specific skill set that you don’t have
- You’ve been turning down work or need extra support to bring in more
If one or more of these situations feels just like you, then you should definitely follow this guide to hire your first employee.
Congratulations on this important step! We wish you the best for your venture. Looking to cut down on your administration tasks? Join Tide today, and open a free business bank account.
Photo by Helena Lopes, published on Unsplash
Read more from our business startup series:
1.1 How to start a business in the UK: 10 steps to build from scratch
1.2 How to find the perfect name for your small business
1.3 How to register a business? A simple guide
1.4 How to start a business without capital
1.5 10 ways to fund your business
1.6 How to create a business plan: 9 things to consider when starting