Recruitment is a major challenge for 60% more entrepreneurs than those who expected it
SME finance expert offers “how to” guide for founders looking to hire
Hiring new talent is the most unexpected challenge faced by entrepreneurs when running a small business, according to new research.
Against the backdrop of the Great Resignation and an increasingly competitive market for employers, recruitment issues were listed by almost one in six (13%) small business owners as their greatest challenge.
With the potential to stifle growth if resource gaps are left unfilled, 60% more business owners found recruitment a challenge versus those who expected it, equating to as many as 737,000 SMEs that have found staffing stressful. The Expectation vs Reality report by The Accountancy Partnership, sought to reveal the disparities between what entrepreneurs anticipated and experienced when running their businesses, with finding reliable suppliers, and honing their leadership skills also listed as top challenges.
On average it takes 42 days to fill a vacant position, however this can be longer in some industries that have longer notice periods. The process of employing staff and meeting the various legal and HR requirements of doing so can also be time consuming for entrepreneurs.
Lee Murphy, managing director of The Accountancy Partnership, said: “As start-ups grow, employing good people to support the extra work and aid further expansion is critical. Without being able to hire well, there is the risk of the business stagnating or the founder becoming overloaded as they can’t manage the workload on their own.
“By making the basic steps to hiring employees more readily available to small business owners, the headache of compliance can be minimised. Owners should also view recruitment and the costs that can be associated with it as an investment to support the future of their enterprise.”
The Accountancy Partnership’s research also revealed that managing staff once employed was an unexpected challenge, with more than a fifth (21%) of entrepreneurs experiencing it as a challenge than those who thought they would.
Lee continued: “Hiring doesn’t end when the employee is onboarded and there is the ongoing role of ensuring these people are properly trained, managed and supported so that they are getting the most out of being a start-up employee and in turn committed to and working hard for the business.
“Just as being unable to hire can be counterproductive to small businesses, poor management, an unhappy team and high staff turnover can also be incredibly damaging. If SME founders do decide they need and want to hire, they must ensure that they understand how this changes their role and the responsibilities that come with having employees. For those who have never had to manage people before, a management course would be a great place to start to give them a foundation of skills to be a good leader.”
Following the results of the Expectations vs Reality report, The Accountancy Partnership wants to make those setting up their own business more aware of the realities before they start and have compiled a guide on how to make first hires.
A ten-step guide for small business owners hiring staff
- Consider the financials of employment
Hiring staff is a business investment – it can be expensive but will also create a return for the business. There are two strands to consider here: wages and “the cost of employment”.
When setting staff’s salary, it should reflect the value the individual brings to the company, not just the importance of the role in the business. Founders should research pay levels for similar roles in their sector and geographical area so they can price the role to attract the right talent. Business owners will have to decide whether they pay a regular salary or an hourly wage and whether there will be performance-related pay or commission involved at all.
The “cost of employment” refers to other financial obligations that come with having staff: pension contributions, National Insurance contributions, potential payroll costs and employee benefits. There is an Employment Allowance which allows eligible employers to claim up to £5,000 from HMRC to help cover the cost of Class 1 National Insurance contributions.
This free online salary calculator helps to work out the true cost of hiring someone.
- Create a full job description
In the hiring process, not only is an entrepreneur choosing the right person for them, but prospective employees need to choose the business too. It is important to advertise a full job description complete with duties involved, special requirements, and pay rate and structure.
Having this job description will help founders to manage their staff once in place as they have a clear guide on what each role should be doing and achieving.
- Develop a fair, non-discriminatory recruitment process
It is crucial that the process of looking for new employees is fair and doesn’t break any discrimination rules. The ACAS website explains what owners need to be aware of while hiring, and details rules about who is recruited and how.
There can be no discrimination against applicants unless the job description has very specific requirements that justify it. This may for instance include not interviewing someone with mobility issues if the work requires being in hard-to-reach places, or only accepting applications from people with particular experience, qualifications or membership to a professional body.
- Carry out work checks
It is an employer’s responsibility to ensure their employee can legally work in a particular role. Checks should be carried out once the person to fill the job has been selected and it needs to be made clear that any employment offer is subject to these checks.
The right to work in the UK is the first check that needs to take place as employers can face hefty fines if they have not checked this properly. If someone is not a British Citizen, their visa needs to allow for work as some immigration permissions are issued on the basis that the person cannot work, can only work for a specific employer or immigration ‘sponsor’, or with restrictions on the type of work or number of hours. More detail on a right to work checks can be found on the GOV website.
Employees working with young or vulnerable people need to have a Disclosure Barring Service (DBS) check. The report flags any convictions or cautions on a person’s record and additional information if a more thorough check is required. Full details of DBS checks can be found here.
Some roles may legally require the employee to have certain qualifications or a membership to an industry body. Business owners need to ensure these are in place and match the identity of the employee. It is also sensible to check the references supplied.
Some of these checks are not just one-offs and need to be revisited throughout employment, such as visa expiry dates. Processes need to be put in place to stay up-to-date and compliant.
- Think about employee benefits
To attract the best talent, business owners may want to consider staff perks such as a company car, mileage, free lunches or a gym membership if they can afford it. These benefits are deductible, meaning that you can claim tax back on them.
Employers need to alert HMRC of any staff benefits so that the business and employees are both paying the right amount of NI contributions on their equivalent value. These are known as P11D reporting requirements.
- Be health and safety compliant
Employers have a duty to prevent risks to the health, safety and wellbeing of staff. It is also expected to give proper training to employees so they don’t pose a risk to themselves or others.
The Health and Safety Act legally requires measures to be in place to keep staff safe and well both physically and mentally. This includes fire safety, first aid training and equipment, reporting and monitoring processes, reasonable adjustments in the workplace for employees with disabilities or health conditions, providing safety kit and training where applicable, and ensuring access to equipment, tools and welfare facilities.
Employers may also want to think about occupational and mental health in the workplace and provide access to counselling services or an occupational health practitioner.
It is a requirement to have an Employers’ Liability Insurance Policy which covers at least £5 million. This is so compensation payments can be made to employees who become sick or injured by their work. Not having this in place will incur fines.
- Inform HMRC of the hire
Business owners need to register with HMRC as an employer when they first take on staff and then alert HMRC when each new employee starts, when they stop working for the company, and about Pay as You Earn (PAYE).
PAYE is where the employer works out how much tax and NI an employee owes, deducts it from their wages and pays it on to HMRC. Founders need to set up PAYE before the first payday. A full PAYE guide can be found here.
- Set up auto-enrolment and workplace pension schemes
Workplace pensions were introduced by the government to help employees save for the future. Employers need to set up a workplace pension scheme and automatically enrol every eligible employee when they start working.
The employer must also pay at least 3% into these workplace pensions when employees are contributing, but employees can choose to opt-out and non-auto-enrolment-eligible employees can choose to opt-in.
- Put a payroll plan in place
Staff rely on their wages from their employers, and especially whilst we face a cost-of-living crisis. It’s important that employers meet their obligations, so that staff receive the correct amount of pay on time, and that this is accurately reported to HMRC.
Some business owners, if only hiring one or two people, may decide to run payroll themselves using payroll software to calculate, record and report pay. Some may find it more beneficial to have an accountant or payroll provider manage their payroll processing, but they need to be aware of the cost of this.
The best option for payroll will vary from company to company, but it is essential that processes are robust to ensure employees get the right pay at the right time.
- Draw up offer letters, contracts and employee handbooks
There are certain documents that must be given to employees, such as employment contracts, and some that it is best practice to have, such as offer letters and staff handbooks.
Offer letters should include a reminder of the job title, description and pay so that it is down in writing. Staff handbooks are a supplement to this, and typically go into more detail about a wide range of useful subjects – this can include company policies, using the internet and social media, expectations about behaviour, uniform and how to book time off.
An employment contract is an agreement between employer and employee and both parties need to have a copy of it. It describes the terms of employment, such as duties, what employees are entitled to, and the responsibilities each side has towards the other. Employment contracts should contain, for instance, how much notice each party must give to end the employment and what is expected throughout. Templates for this can be downloaded from reliable providers, or an employment solicitor can draw up a contract.
To find out more about how The Accountancy Partnership can streamline the recruitment process for your small business, visit www.theaccountancy.co.uk.