Staying in line with UK employment law is serious business and you must be aware of laws when hiring employees for your startup. Legal mistakes in hiring and managing staff can be costly. These mistakes can lead to lawsuits, government fines, and a dysfunctional workplace and business culture.
In the worst case scenario. but one that is not unheard of, violating employment laws could actually ruin your startup financially while also ruining your reputation as an entrepreneur. It’s crucial you understand the key employment laws when hiring employees for your startup.
In this blog post, we’re going to shed some light on the most common legal mistakes to avoid when hiring employees for your startup.
1. Violating Minimum Wage Payments
If you want to almost guarantee that your business will face heavy fines and/or be shut down by the authorities, then this legal mistake will do it. Every employer in the UK must meet the minimum wage hourly payments for their employees based on their employment classification of casual, part time, or full time for each employee.
Failure to meet the minimum wage hourly payments will attract heavy fines, potential closure of your business, and may result in you being banned from ever running a company again. This ban can range from a set period of time to a ban for life. Then, of course, there is the huge damage this has on your reputation as an entrepreneur that may be impossible to come back from.
Make sure you know what the minimum wage rates are for your industry and make sure that you always pay your employees their legally entitled wage no matter what.
2. Incorrectly Characterising Employees And Contractors
When employing staff, you can either classify them as employees (whether it be casual, part time, or full time employees) or as contractors (freelancers). The classification you choose impacts the kind of salary packages you can offer and the amount of tax you’ll pay each financial year.
So it’s important you classify your staff correctly to avoid any legal issues. There have been cases where companies have classified employees as contractors when they actually were not. Now the government is cracking down hard on those companies that are making ‘bogus contractor’ claims. So it’s crucial that you understand this distinction if you want to avoid legal issues when hiring employees for your startup.
3. Not Using Employment Agreements Or Contracts
Every startup needs to be using some form of an employment agreement. These agreements should cover areas like termination, rights and responsibilities, working hours each week, confidentiality, payments, and much more.
Without this document, you’re leaving your business exposed to a myriad of legal problems and uncertainties in the future. Don’t deal with the hassle. Avoid any potential problems in this area by using legally valid employment agreements or contracts when hiring employees for your startup.
4. Not Enforcing Non-competition And Non-solicitation Provisions
An employment agreement should generally also include non-competition provisions that prevent employees from working for your competitors for a certain period of time after leaving your company. Non-solicitation provisions prevent employees from hiring any of your staff away from your company.
It’s important to note that some of the restrictions you may want to impose on employees in any agreement may not be legally enforceable. For restrictions to be legally enforceable, they generally must satisfy the following three criteria:
- Be reasonable
- Necessary to protect your business’ interests
- Last for a duration no longer than is necessary to protect those interests
5. Inadequate Equity Compensation
Offering stock options are a popular and effective way for startups to increase loyalty and encourage long-term commitment from their employees. But, these need to be administered correctly so that the stock options are in line with UK government laws. There are many things that need to be considered with this form of equity compensation. For example, offering stock that is not lower than market value or else it will trigger tax consequences.
Make sure you apply plenty of legal due diligence to your equity plan in in the beginning to avoid legal issues in the future when hiring employees for your startup.
Final Words: Legal Mistakes To Avoid When Hiring Employees For Your Startup
This blog post has revealed the most common legal mistakes to avoid when hiring employees for your startup. Do your due diligence in this area and seek appropriate legal expertise because this is not an area of the law in which you can afford to mess up.
If you’d like expert legal advice for your startup then book a free startup legal session today.