December 14, 2010
Family businesses often start out as small, close-knit affairs with the owner(s) and their family carrying out most if not all of the work.
However, as such businesses expand and generate more work, employees are often taken on from outside the family. This raises a number of issues that the family may not have considered.
Communication, training and procedures
Often, the owner of the business will not have any formal HR training or expertise nor experience in the management of others. This can lead to workforce problems being addressed insufficiently, for example by an informal chat or simply being ignored in the hope that they will sort themselves out. A lack of formal procedures can lead to irregularity in the way matters such as recruitment or grievances are dealt with and can even lead to allegations of discrimination or unfair treatment. If the correct legal procedures are not followed, small problems can have very expensive consequences, if they escalate to an employment tribunal.
If there is any doubt as to how an issue should be dealt with, the business owner should engage the services of an HR consultant or solicitor, when the problem first arises. They should also seek professional advice as to the policies and procedures they need to have in place and what these should contain.
Independent contractor or employee?
The business owner should also give appropriate consideration to the basis of employment of its workers. Often, owners of small businesses prefer to employ people on a “self-employed” basis, whilst the business is still growing, in order to avoid the security of employment and legal rights given to actual employees and to avoid having to pay National Insurance and PAYE. However, the situation is not as straightforward as it seems. HMRC has detailed guidance on the factors that point towards a worker actually being an employee, irrespective of what has been agreed between the parties. If the business is investigated or a dispute arises and the reality is that an individual is found to be an employee, the owner can find him/herself with a large tax bill to settle and/or compensation to pay for breach of employment law.
Legal advice should be sought before workers are engaged as to the appropriate terms and conditions for their employment and in relation to the drafting of their contracts of engagement/employment.
