A web based source of all the hr information required to support small to medium sized businesses
A web based source of all the hr information required to support small to medium sized businesses
Every small business needs to stay compliant with the various statutory and contractual rules when recruiting, managing and retaining their people and teams. This guide gives you an overview of HR compliance for small businesses and will help you minimise regulatory and legal risks when starting out in business. It also acts as checklist, defining some of the key areas to focus on when it comes to ensuring your organisation stays on top of its legal obligations. It is also important to mention that failure to do so could result in costly Employment Tribunal claims, or penalties and fines from other regulatory bodies, such as HMRC and the Home Office.
There are 4 types of HR compliance:
If a Company is big enough to afford an HR Manager or Department, the responsibility for HR compliance predominantly lies with them. However, most SMEs can’t afford a dedicated resource. Ultimately, the buck stops with the Directors of the business in the “eyes of the law” but best practice teaches us to train and develop all Leaders and Managers to own HR and give them collective accountability for the treatment of their individuals and teams.
Detailed below are some of the key areas to focus on when HR compliance, ensuring your organisation stays on top of its legal obligations.
HR Compliance starts at the point you advertise and recruit for your first employee. It involves ensuring you operate a fair and robust selection procedure to mitigate any claims of race and sex discrimination. The other key element when recruiting is ensuring any potential employee is legally authorised to work in the UK.
You must complete Right to Work (RTW) Checks to ensure an individual is legally authorised to work in the UK, a RTW check must be completed before they start work. This will ensure that the employer has a ‘statutory excuse’ if it is later found that an employee is working illegally, preventing significant financial and other penalties.
Under the Employment Rights Act 1996 any contract of employment should be issued on or before the first day of work. According to the same Act Contracts of employment/offer letters should contain a statement of the principal terms of employment. Failure to provide this could result in an award of up to four weeks’ pay if the employee later brings an Employment Tribunal claim and includes the failure to provide such particulars as part of their claim. Perhaps even more importantly, providing a clear contract of employment with the appropriate contract clauses will ensure employees clearly understand what is expected of them and the terms of their employment. This protects the business as much as the employee preventing costly disputes.
Under the Working Time Regulations, there is a standard 48-hour limit on weekly working hours (calculated over a 17-week reference period) unless the employee has signed an opt out agreement. It is important any business maintains records of hours worked for every employee.
Employers must ensure they are paying at least the relevant National Minimum Wage rate to all employees. Failure to do so can result in significant penalties/fines and reputational damage. There are various rates set by age bracket. Employees 21 years old and over should receive what is now called the National Living Wage. In addition, there are published pay rates for 18- to 20-year-olds, 16- to 17-year-olds and Apprentices. These rates are reviewed annually and come into effect in April or October of each year. There may also be questions of what amount of time is actually ‘working time’ for the purposes of the regulations, such as where employees travel from site to site, or are on callout or standby rotas.
All employees have the statutory right to receive 5.6 weeks’ paid holiday each year, equating to 28 days for those working five days a week. This includes any national bank holidays. This continues to be the case when they are on sick or family-related leave. For part-time employees, this will be pro-rata. Pay for the first 4 weeks of the 5.6 weeks of a worker’s statutory holiday entitlement must include commission payments which are intrinsically linked to the performance of tasks which the worker is obliged to carry out under the terms of the contract, and other payments, such as overtime, which have been regularly paid to the worker in the 52 weeks preceding the calculation date. Employees are expected to take all their allocated holiday leave in each holiday year and cannot carry it over.
Clear policies should set out how and when sickness absence should be reported, details of Statutory Sick Pay (SSP) and any company sick pay schemes etc. Employees are currently entitled to SSP from day 4 of absence. However, changes to SSP in the Employment Rights Bill include the removal of the 3-day waiting period so it will be payable from the first day of sickness absence, and the removal of the current exclusion of employees who earn less than the lower earnings limit for NI. The right to SSP is a day one right for all employees.
Under the Worker Protection (Amendment of Equality Act 2010) Act 2023, employers have a legal duty to take ‘reasonable steps‘ to prevent sexual harassment in the workplace. This involves having a clear policy and procedures when managing the workplace as well as evidence of training for all Line Managers in managing an employees workplace. Compliance will provide the basis on which to establish a statutory defence against related tribunal claims, whilst failure to comply could result in employers facing a 25% uplift in related compensatory awards.
Employers should follow the ACAS Code of Practice on Discipline and Grievance when dealing with such issues. Failure to do so can lead to successful claims in the Employment Tribunal and financial penalties. The procedure should be published and rigorously followed when dealing with any form of disciplinary issue.
Data protection impacts many aspects of HR compliance. It is essential that employers are aware of their obligations and potential liabilities under data protection laws. Data privacy statements must be issued to all employees and prospective employees.
Changes being brought in by the Employment Rights Bill mean that all employees will soon have the right to bring an unfair dismissal claim, regardless of length of service (they currently require two years’ service before being able to make any claim unless for sexual or race discrimination. To avoid claims of unfair dismissal, employers need to follow fair dismissal processes which will vary according to the reason. Where the dismissal is in relation to conduct or performance, the employer must adhere to the ACAS Code of Practice on Discipline and Dismissal, and failure to do so could lead to higher fines in compensation in any related unfair dismissal claim. There are minimum periods of notice which apply to dismissals according to the employee’s length of service, albeit that the contract may provide for more.
Maintaining compliance is an essential but ongoing challenge for SMEs. Here are some recommendations:
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