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Employment law - a guide for start-up businesses

Although the laws covering employment are extensive, the main issues for small and start-up businesses are fairly straightforward.

By sticking to a few rules, you can avoid most of the pitfalls and prevent problems arising. This briefing focuses on four key areas:

  1. Employment contracts.
  2. Discrimination.
  3. Sickness.
  4. Dismissals.

1 Employment contracts

1.1 Every employee has a contract of employment, either in writing, oral or implied. You should assume that everyone who works for you is an employee, unless you have good reason to think otherwise.

  • Partners in a partnership are not employees, but salaried partners may be.
  • Consultants and sub-contractors may not be employees, even if taxed under PAYE.

1.2 The terms of the contract are governed by what you have agreed with the employee.

The terms will usually be covered by:

  • The letter you send making a job offer.
  • The written statement you give an employee.
  • The implied terms of the contract.

1.3 You need to seek agreement with employees if you want to make significant changes to their contracts.

  • Terms and conditions of employment cannot usually be changed to the employee's detriment if all or part of a business is sold or contracted out.

2 Terms and technicalities

2.1 You must give each person you employ (full-time or part-time) a written statement of the main terms of the employment.

  • A new employee must be provided with a written statement of employment particulars within two months, as must any existing employee who asks for one.

2.2 The written statement must include a number of specific details.

  • Names of employer and employee.
  • Date the employment started.
  • Job title and description of main duties.
  • Place of work.
  • Pay rate and how often paid.
  • Hours of work.
  • Holiday entitlement (days and pay).
  • Date the employment will end (unless the employment is permanent).
  • Notice periods.
  • Sick pay and pension arrangements.
  • Grievance and disciplinary procedures.
  • Details of any collective agreement which affect the employees.

2.3 The written statement can refer to other documents (eg a disciplinary manual).

  • These other documents must be made available for the employee to read.

2.4 Some common sense terms are implied.

  • The employer must ensure employees' health and safety at work, have a safety policy and carry out risk assessments. You must treat employees with respect. Harassment, bad language or humiliating treatment may lead to claims for constructive dismissal and discrimination.
  • Employees must obey reasonable instructions, use skill and care in their work, and act faithfully and honestly.

2.5 Put all the important terms in writing. Without a written agreement, you will lose three advantages:

  • Flexibility (eg the ability to move an employee to a different job).
  • Certainty (eg if anything is unclear, this could lead to disputes).
  • Protection when an employee leaves (eg terms preventing former employees from revealing confidential information).

Hours and leave

With certain exceptions, employees have the right to a maximum working week of no more than 48 hours, normally averaged over a 17-week period.

  • Workers who agree to work more than 48 hours a week must sign a written agreement to do so. Birth or adoption entitles each parent or carer to 13 weeks' unpaid leave during the early years of a child's life.
  • Employers must keep records and must not press workers to sign opt-out forms.
  • Mothers have a right to ordinary and additional maternity leave, regardless of length of service.
  • Fathers (or those with responsibility for bringing up children) who have worked for you continuously for at least 26 weeks by the end of the 15th week before the baby is due can take up to two weeks' paid paternity leave. (Paternal leave and pay is due to be extended, for those eligible, in April 2011).
  • One member of a couple who adopts a child can take up to 39 weeks' paid ordinary adoption leave and 13 weeks' unpaid additional adoption leave, if they have worked for you continuously for at least 26 weeks by the time the child is matched.
  • You must 'consider seriously' any request and may only refuse an application if there is a clear business reason.
  • Workers can take 'reasonable', unpaid time off to deal with an emergency involving a dependant.

All workers are entitled to 5.6 weeks' annual leave pro rata.

Both male and female employees have a right to take different types of time off for the birth and care of their children.

 

Birth or adoption entitles each parent or carer to 13 weeks' unpaid leave during the early years of a child's life.

  • Mothers have a right to ordinary and additional maternity leave, regardless of length of service.
  • Fathers (or those with responsibility for bringing up children) who have worked for you continuously for at least 26 weeks by the end of the 15th week before the baby is due can take up to two weeks' paid paternity leave. (Paternal leave and pay is due to be extended, for those eligible, in April 2011).
  • One member of a couple who adopts a child can take up to 39 weeks' paid ordinary adoption leave and 13 weeks' unpaid additional adoption leave, if they have worked for you continuously for at least 26 weeks by the time the child is matched.
  • You must 'consider seriously' any request and may only refuse an application if there is a clear business reason.
  • Workers can take 'reasonable', unpaid time off to deal with an emergency involving a dependant.

An employee who is a parent or carer of a child under 16 or a disabled child under 18, or a carer of a dependent adult, has a statutory right to make a request for flexible working.

  • You must 'consider seriously' any request and may only refuse an application if there is a clear business reason.
  • Workers can take 'reasonable', unpaid time off to deal with an emergency involving a dependant.

All employees are entitled to dependant care leave.

  • Workers can take 'reasonable', unpaid time off to deal with an emergency involving a dependant.

3 Discrimination

3.1 It is illegal to treat someone less favourably on the basis of their race, sex, age, disability, sexual orientation, religion, philosophical belief, membership or non-membership of a trade union, marital status (including same sex civil partnerships), pregnancy, childbirth or care responsibilities or part-time status.

  • You can have a normal retirement age (which must be at least 65), but must consider requests from employees who want to continue working beyond this.

3.2 Requirements or conditions of employment should not discriminate against any group.

  • Do not advertise or ask interview questions in a manner that discriminates.

3.3 Men and women are entitled to equal pay for similar work, or work of the same value.

  • Promotion and training opportunities must also be non-discriminatory.

3.4 Positive discrimination (eg in favour of women) is also likely to be illegal, because it is discriminating against someone else.

Training may be an exception.

3.5 You can be responsible for discrimination practised by employees, including sexual harassment or racial abuse.

3.6 Employment tribunals can award unlimited compensation to victims of discrimination.

Handle with care

A pregnant woman has a number of rights:

Paid time off for ante-natal care.

26 weeks' statutory ordinary maternity leave and 26 week's additional maternity leave (AML), during which all her contractual rights (except remuneration) continue.

  • It is illegal to let a woman return to work within two weeks of childbirth, or within four weeks, if the work is in a factory.
  • You must pay SMP for 39 weeks. SMP is not payable for the last 13 weeks of AML.
  • Women who are ineligible for SMP can claim maternity allowance from Jobcentre Plus based on their recent employment and earnings record.
  • If she is dismissed, you must give written reasons, without having to be asked.

Statutory maternity pay (SMP), if she has completed 26 weeks' service by the end of the 15th week before the expected week of childbirth.

  • You must pay SMP for 39 weeks. SMP is not payable for the last 13 weeks of AML.
  • Women who are ineligible for SMP can claim maternity allowance from Jobcentre Plus based on their recent employment and earnings record.
  • If she is dismissed, you must give written reasons, without having to be asked.

The right to claim unfair dismissal, if she is dismissed for any reason to do with the pregnancy or childbirth.

  • If she is dismissed, you must give written reasons, without having to be asked.

4 Sickness

Workers are entitled to statutory sick pay (SSP), usually after four or more days' sickness.

4.1 SSP is the minimum level of payment you must make to any qualifying worker.

  • SSP is payable for up to 28 weeks for any one period of sickness.
  • The current payment is £79.15 per week subject to income tax and employee's NI.
  • Many employers pay higher sick pay.

    If your company's arrangements are more generous than the statutory minimum, you can offset your payments against the SSP you would have had to pay.

  • You can get money back from HMRC if the SSP you pay exceeds a set level. If it is more than 13 per cent of your gross NI contributions in any month, you can reclaim the extra in full.

4.2 Most workers who are unfit to work will qualify for SSP.

  • They must earn more than the NI lower earnings limit (£97 a week).
  • Part-timers, full-timers and agency workers qualify, as length of service is irrelevant.

4.3 From April 2010 the new 'fit note' will replace the 'sick note' issued by doctors and will indicate whether an individual is:

  • Not fit for work.
  • May be fit for work.

A 'may be fit for work' statement would be given if the doctor believes your worker's health condition may allow them to work, if you give them appropriate support.

4.4 You can withhold SSP if you reasonably suspect the worker is not ill.

  • An worker who has recently drawn a statutory benefit (eg incapacity or maternity benefit) may not qualify.

4.5 If you want to stop paying SSP to someone who has been away more than four times in a year, seek an adjudication from HMRC Medical Services.

  • You need the worker's written consent. A refusal may justify stopping SSP.

5 Dismissals

5.1 If the contract of employment does not specify a notice period, an employee is entitled to a 'reasonable period of notice'. In either case, the employee is entitled to at least the statutory minimum notice period of one week after one month's employment. After this, entitlement increases at the rate of one extra week per year, to a maximum of 12 weeks after 12 years' employment.

5.2 If you dismiss an employee without the right notice, this will be wrongful dismissal.

  • The employee is usually entitled to normal remuneration (both salary and benefits) during the notice period. This applies even if you wish to end the employment immediately, unless there was gross misconduct or the employee suffers no financial loss (eg by immediately starting a new job at a better rate of pay) or if you have reserved the contractual right to pay salary in lieu of notice without benefits.

5.3 If an employer breaches the contract, the employee may be able to resign immediately and claim constructive dismissal if the breach was material, going to the root of the contract.

  • For example, if you reduce pay without agreement, or tell the employee to resign.

5.4 An employee (even a part-timer) with one year's continuous service who is dismissed without a fair reason and reasonable treatment can claim unfair dismissal.

  • From 6 April 2009, you have been required to act 'fairly and reasonably' when dismissing an employee (or carrying out any other disciplinary procedure).

    Acas have produced a Code of Practice on Disciplinary and Grievance Procedures that provides practical guidance and principles to help you act fairly.

  • If a dismissal is unfair, an employee can ask the tribunal to order re-employment or award compensation.

    The basic award is £11,400 (depending on age and length of service) and compensation for financial loss up to a maximum of £65,300.

  • If you unreasonably failed to follow the Acas Code, the compensation awarded against you (if you unfairly dismissed an employee) can be increased by 25 per cent.

    Equally an employee that unreasonably failed to follow the code could have any compensation reduced by 25 per cent.

Where possible, seek professional advice before dismissing an employee.

5.5 If an employee chooses to leave your business, as opposed to being asked to leave, you can usually require him or her to work out the full notice period.

  • If the employee refuses to work out the notice period, he or she will not be entitled to be paid for it.
  • If you insist the employee must stop work immediately, or before the notice period ends, you must still pay what would have been earned during the notice period.
  • If you both agree that the employment should end straight away, no further payment needs to be made.

5.6 Employees who are made redundant are not entitled to claim redundancy pay until they have over two years' service.

  • Tax is not payable in respect of statutory redundancy pay.
  • Payments to an employee in lieu of notice used to be tax-free (under £30,000). Check with your legal adviser.
  • Avoid claims that a redundancy is unfair dismissal by ensuring that it is genuine. In general, the job must have disappeared.
  • The employer must also select employees for redundancy on a fair and objective basis, after reasonable consultation, and with adequate notice and a fair appeals procedure.

6 Other rights

6.1 Employees have the right to the national minimum wage which stands at £5.80 for employees aged 22 and over.

  • There is a lower minimum wage of £4.83 for those aged 18 to 21 and £3.57 for those aged 16 and 17.
  • Casual staff, agency staff and home workers also have a right to this wage.
  • Service charges, tips, gratuities and cover charges paid to a worker through payroll do not count towards national minimum wage.

6.2 Each employee must get a pay statement.

  • This must show total gross pay, deductions and net pay.
  • Deductions must be itemised. Apart from income tax and National Insurance (NI), deductions can only be made with the employee's agreement or to correct previous overpayments.

6.3 When a business is transferred to a new owner, all employee rights usually remain.

6.4 Trade unions and their members have extra rights (eg time off for union duties).