As your team expands, so do your responsibilities as an employer. In this section you’ll find a variety of FAQs about employment contracts, workplace policies, employee rights and managing HR issues.
Employees and workers are entitled to a statement of their terms and conditions of employment that is in compliance with section 1 of the Employment Rights Act 1996.
This statement must be given no later than the beginning of the employment, however, certain prescribed particulars may be given in instalments not later than two months after the beginning of the employment.
Whilst the section 1 statement is the minimum requirement, this is not suitable for employees that are senior or key to the business (i.e. directors or in sales generating roles) as these will not cover aspects such as shareholdings, bonus and commission arrangements, intellectual property and post-termination restrictions. We would therefore recommend that more comprehensive employment contracts are put in place for these employees.
Generally speaking, if you are an executive director, your relationship with the company would be governed by a service agreement and your directorship would be linked to your role as an employee.
If on the other hand, you are strictly a non-executive director, your relationship with the company should be governed by a non-executive director appointment letter. It may also be possible for you to provide separate services to the company as a self-employed individual under a consultancy agreement. Neither a non-executive director nor a genuinely self-employed consultant should be involved in the day to day running and operations of the company.
Whilst there is not a specific statutory requirement to have a consultancy agreement in place (unlike the requirement for a statement of terms for employees and workers), we would recommend putting a consultancy agreement in place to govern the relationship between your company and the individual and to ensure that there are appropriate provisions in place to safeguard your confidential information, intellectual property and business interests.
A consultancy agreement that properly reflects the reality of the relationship whilst also demonstrating self-employed status will also assist with any challenge on employment status.
The off-payroll (IR35) rules need to be considered where you intend to engage a consultant via an intermediary such as a personal services company i.e. Joe Bloggs via Joe Bloggs Limited. Where this is the case, you will need to comply with your obligations under the off-payroll rules and carry out a status determination statement. That is unless your company is considered to be a small company by meeting two or more of the following criteria during a 12 month period:
If that status determination statement concludes that the individual is “inside IR35” i.e. they would be regarded as an employee of your company “but for” the presence of their limited company, then you will need to make relevant deductions for tax and NI.
As your business scales, legal challenges can quickly become complex. These FAQs provide straightforward guidance to help you navigate the key issues. For further resources, visit our Business Scale-Up Hub, or learn more about how our employment team can support you with specialist advice.
