Pay and pensions

While you are broadly free to offer the pay you think necessary to attract and motivate employees, by law you must pay at least the minimum wage and equal pay for work of equal value. You must also honour employees' entitlements to statutory sick pay and maternity, paternity or adoption pay.

The minimum wage applies to almost all workers, but not to those who are self-employed. The rate of minimum wage payable will depend primarily on the age of the employee. There are different rates of National Minimum Wage (NMW) and National Living Wage (NLW) - including a rate specifically for apprentices.

Employees are also entitled to 5.6 weeks' holiday pay (pro rata for part-time employees). The method for calculating holiday is quite complicated, especially if your employees do not work regular hours or their pay is partly made up of bonuses or commission. It is advisable to take legal advice.

You can only make deductions from employees' pay that have been agreed in advance (eg as part of their employment contract) or that you are legally required to deduct (eg PAYE tax and National Insurance contributions). You are legally required to give all employees a detailed pay slip.

Employee share schemes

Employee share option and share schemes can help to align the interests of employees and shareholders, by giving employees a direct interest in the financial performance of the company. Smaller businesses and start-ups can use share schemes to attract and reward high-calibre staff without having to pay salaries the business cannot afford.

Approved share schemes that meet HM Revenue & Customs (HMRC) requirements offer tax and National Insurance advantages to both employer and employee, but they can involve a significant administrative burden. You can also tailor your own, unapproved share scheme to meet your particular objectives, but without the tax advantages.

Employee-shareholders are given shares in the company for which they work worth at least £2,000. In exchange for these shares, the employee is required to give up some of their employment rights. Find out if employee-shareholder contracts are right for your business. The tax advantages associated with employee-shareholder status are no longer available to entrants joining after December 2016.

Pensions

Pension reforms require all businesses to automatically enrol (known as auto-enrolment) eligible employees into a suitable qualifying pension scheme (unless those employees chose actively to 'opt out'). Employers are required to pay a minimum employer contribution (based on the employee's 'qualifying earnings') and collect and pay employee contributions.

Employers can opt to provide access to a 'personal account' (aimed at low to middle-income workers) or an equivalent occupational pension scheme. The administrative burden involved in setting up and running an occupational pension scheme is such that they tend to be offered by large employers. Smaller businesses often opt instead to provide access to personal pensions run by a pension provider.

Stakeholder pensions are personal pensions that meet specified requirements, such as accepting low monthly contributions, being portable when an employee changes job and strictly limiting the fees that the pension provider can deduct from the scheme.

Different pension schemes may be appropriate for highly paid employees, company directors and owner-managers. For example, some employers offer executive pension plans (EPP) tailored to individual executives. High-earners can also be offered a self-investment pension plan (SIPP), which provides greater investment flexibility. For owner-managers, a small self-administered scheme (SSAS) may be an option. Schemes such as this can use the pension fund to support the business, for example, through owning your commercial premises.