Hiring staff: What are the different employment options for your business?

From permanent employees to employing self-employed staff or freelancers, we look at the pros and cons of each staffing option available to your business start-up

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There’s a tendency for businesses to think that the recruitment process is exclusively for taking on a full-time, permanent employee. That’s a big commitment and, for many people, a daunting prospect.

But a conventional full-time contract isn’t the only option. There are a number of ways you can employ people, depending on what best suits your business and your circumstances. Monday to Friday, 9 to 5 may work well, for example, if you run an office-based business where customers and clients expect to be able to contact you during normal weekday working hours.

A retail business, however, might be open long hours, seven days a week, and would probably need a team of part-timers working a variety of hours to cover late nights and weekends. Some industries, such as the media, typically find their need for staff fluctuates depending on the ebb and flow of projects that come in. Other businesses, such as tourism, may experience seasonal peaks and troughs.

It’s important to be really clear about exactly when and how often you need people to be working for you before you make the decision about which employment option to go for. Otherwise, you may find yourself struggling to cope with a heavy workload with too few people – or with employees who are sitting around twiddling their thumbs because there isn’t enough for them to do.

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Key questions to ask

Try asking yourself the following questions:

  • How many hours do I need someone to work each week?
  • Will I need that number of hours all the time – or only some of the time?
  • Am I sure there will be enough work to keep a new employee fully occupied during those hours? … Is the workload likely to vary enormously – or only slightly – from week to week?
  • Are there likely to be seasonal peaks and troughs? If so, when are the key times?
  • Can one full-time person meet my needs – or would I be better off with a combination of people working under different arrangements (full-time, part-time, temporary, etc)?

These questions may seem obvious, but it’s surprising how many businesses rush into contractual arrangements that don’t actually meet their needs. A bit of careful thought at this early stage can save a lot of time, money and angst in the long run. The following are the employment options that are available, depending on your needs.

Permanent employees

A permanent employee can be full-time or part-time. They have an ongoing employment contract with you and you have to fulfil a range of obligations to them (paid holiday, sick pay, etc) depending on how long they have been with you and on the terms of the contract you enter into with them.
The pros: predictability, regularity, loyalty, potential.
The cons: management time, full range of legal obligations, lack of flexibility.

Fixed-term contract employees

A fixed-term contract employee has a contract with you, but only for a set time (such as six months) or until a specific task or project has been completed. They have the same employment rights as a permanent member of staff – but your obligations to them only last for the duration of the contract. This can work well in a number of scenarios. You may want to take someone on to cover a seasonal peak (in the retail or leisure industry for instance). A party planner might need an extra pair of hands for just a few months in the lead-up to a big event. Or a consultant may need to take on extra resources to deliver a big project on time.
The pros: predictability, extra resource only when you need it.
The cons: management time, full range of legal obligations.

Zero hours contract employees

A zero hours contract means you can effectively have people ‘on call’ to work when you need them. It’s important to recognise, however, that this is not a one-way street. You are not obliged to provide these employees with work – but, equally, they are not obliged to accept the work if it doesn’t suit them at the time. Your obligations as an employer will depend on the kind of contract you draw up. This kind of arrangement can work well in industries such as the media, for example, where work can be unpredictable and skilled staff are often needed for sustained periods at short notice.
The pros: flexibility, limited employer obligations, cost-effective.
The cons: lack of loyalty, unpredictable resources.

Temporary agency staff

Many fledgling businesses choose to dip their toe in the recruitment waters by using temporary staff supplied by an employment agency. This is a low-risk way of trying people out and getting a clear idea of the amount of time/resources you need – but it is of course a more expensive option than employing someone directly as you will be paying agency fees and commission. Typically, your contract is with the agency, which will pay the individual and deal with issues such as National Insurance Contributions (NICs). You do, however, still have certain legal responsibilities towards temporary staff – providing a safe working environment and appropriate rest breaks, for example. Bear in mind that legislation which came into force in October 2011 means that agency workers will be entitled to the same basic pay and benefits as permanent employees after 12 weeks in an assignment (Agency Workers Regulations).
The pros: flexible, available at short notice, limited employer obligations.
The cons: more expensive, quality of people may vary, lack of commitment/loyalty.

Freelancers, consultants and contractors

Many businesses decide to fill their resource needs by bringing in freelancers, consultants or contractors. A building company, for example, might call on a range of contractors with specific skills (plumbing, carpentry, etc.) to help them complete a new build or refurbishment. Publishing is an industry where freelance writers, editors and designers are often brought in to work on specific projects or to meet tight deadlines. Professional services firms or small consultancies often call in other consultants, whose skills are complementary to their own, to help meet client needs. This is not an employment relationship, but it is relevant in this context as it can help you decide what needs your business has. The freelancer or consultant is self-employed, selling their services to you, and your legal obligations are minimal.

If you go down the route of employing self-employed staff, however, it’s important to make sure that the individual concerned is legally defined as self-employed. It’s a complex area. If you are unsure, HMRC’s guide Employment Status: Employed or Self Employed? is available online to give further guidance. There’s also an online employment status indicator you can use to help you decide. The definition of “self-employed” relies heavily on what the people are doing for you, how they do it and where they do it. It’s important to recognise that it is your responsibility to establish the correct employment status of someone who works for you. Ignorance will not be regarded as an excuse.

It’s also recommended to have a contract with any self employed staff that sets out the main terms and conditions of your relationship.

There are special rules about employing contractors for the construction industry. Full details of these can be found on the HMRC website.

Taking on staff is a big decision for any start-up or small business so it’s important to ensure you assess both the reason behind why you need to take on staff and most importantly, how that can be effectively fulfilled.

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