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SME Roadmap Part 2 | Business Legal Advice for Start-ups

October 23, 2018

The SME Roadmap

We recently published the SME Legal Roadmap – Part 1 where we discussed those early developmental stages of a business start-up.  LawBite is an experienced and trusted provider of expert business legal advice for start-ups and SMEs. This blog article is not a replacement for business legal advice, but more a helpful reference point to help you understand the scope of what you should consider while operating as an employer. For further information, you’re welcome to enter an enquiry and receive a free 15-minute consultation

Here, in Part 2, we move a little bit farther along the SME road with a look at some of those key legal areas of business which you need to ensure are in place and operating correctly to be successful.

Except for in one-man bands, you will need to work with others to set your business on its journey to success. This may mean the use of contractors, non-executive directors (NEDs) for independent advice and employees.

Let’s start with some of these people who you work with…

Contractor Agreements

Contract working is a very popular method of working in the UK. This is undoubtedly one of the areas of working relationships that you will need to contend with.

These contractor relationships must be genuine. Her Majesty’s Revenue and Customs (HMRC) are on the look-out for disguised employment through the Tax Act also known as the ‘IR35’ legislation. If a contractor fails, the IR35 tests they may have to pay 12 per cent more in taxes than an employee earning a similar wage. Meanwhile, on the employer’s side the risk is that a contractor may be able to make a claim for unfair dismissal if they have been, in fact, operating as an employee such as if they have had two years continuous service with you.

What defines a contractor for the HMRC

No mutuality of obligation – you, as an employer, have no obligation to offer work and a contractor can, in turn, pick and choose their work
Substitution – contractors can provide a substitute to do work in their place
Control – you cannot decide how the work of the contractor is done
Use of equipment – contractors provide their own equipment
Alternative work – if you ask a contractor to work for you solely, the relationship may become that of employer/employee
Financial records – normally by invoice when work is completed
Separation of services – keep a separation between your business and the contractor’s services
Level of liability – contractors have their own public liability insurance
Employee benefits – employment legislation protects employees but not contractors
Tax – you do not need to make deductions for PAYE or National Insurance (NI)

Employing People

Top 5 Tips Working with Staff

  1. Stay aware of current legislation – it changes all the time and employers’ obligations are growing
  2. A ‘consultant’ may have a different meaning to the HMRC than it does for you
  3. Have a written agreement with all your employers and contractors
  4. Use a staff handbook so that you do not have to repeat all your policies in every employee contract
  5. Be careful when employing temporary staff and the use of interns and zero-hour contracts which can end up costing rather than saving you money in the long run.

Contracts of employment

A contract of employment is a legally binding document between employer and employee.

Some of the main commercial terms to be included are:

Job title and description
Hours of work
Pay and benefits
Holiday entitlement
Notice period and termination

Terminating employment

SMEs tend to disproportionately end up in employment tribunals with former employees, a situation which can be quite damaging, and one you certainly want to avoid. There are two main claims which are for wrongful and unfair dismissal which employees may bring against you.

Wrongful dismissal usually occurs when there has been a breach of the employment contract when the dismissal is actioned. The only defences to this are that you did carry out the correct procedure or that the employee was guilty of gross misconduct.

Unfair dismissal, as its name suggests, is when an employee believes they have been dismissed unfairly, without a valid reason. This normally only applies to cases where the employee had been employed for at least 2 years, but there are certain circumstances where the length of employment term is irrelevant.

Your online responsibilities

If your business has a website it must have a set of Terms and Conditions (Ts and Cs). Ts and Cs are normally bundled up with other required legal documents: Acceptable Use Policy, Privacy Policy Cookies Policy and others. And if you don’t have a website, then why on earth not?!

Terms and Conditions detail the contractual and legal relationship between you (as website owner) and your site’s Users. We have a GDPR ready Ts and Cs and Website Use Template on our site.

Obligations to your workforce

As an employer, you have several responsibilities and obligations to your workforce determined by some very important legal acts. Here are some of the key ones of which to be aware:

Health and Safety Act, 1974
Equality Act, 2010
Working time Regulations, 1998
Statutory Sick Pay (SSP)

Other key SME Roadmap considerations

Other important elements for a business to consider as a priority involve the protection of your brand and/or idea and the efficiency of the contracts which you have in place with external suppliers and clients. As your business grows and you begin to enjoy the successes of scaling up, these are two vital business legal elements of which you should be aware.

Protecting What You Own: Intellectual Property

Intellectual property or IP is potentially one of the most valuable parts of your business, even so, many SMEs may not realise it because it’s often something you cannot actually touch or see. The recent survey of our SME investor network revealed 4 Surprising Stats on the importance of IP protection.

The four types of IP are; copyrights, trademarks, patents and design rights. If IP protection is not something which you’re totally confident about, you may want to consider making an IP enquiry and receiving a free 15-minute consultation on your business legal options.

Supplier and client contracts

The flow of revenues in businesses between suppliers and customers comes based upon mutually agreed arrangements. These arrangements are covered in contracts which are put in place between the two parties.

In general, contracts all cover the 4Rs of:

rights – given by the supplier to the business customer
responsibilities – duties and obligations of both sides
rewards – payments the business client must make to the supplier for their products or services
risks – covers potential problems

This is a quite complex area of business law and one which we have discussed in significant detail elsewhere on our blog, a good place to start would be by having a look at our Q4 Planning post on the key consideration for your business contracts.

Next steps

In the third and final part of this 3-part series designed for our SME client network we will take a look at some of the sources of legal risk which you might face and potential exit strategies.

For expert business legal advice and a free 15 consultation, please do enter an enquiry or call us today on 020 7148 1066 to speak to a member of our friendly Client Care Team.

Journey further

Business Contract Review Service
LawBite Document Templates
Prepare Your Contracts for a ‘No Deal’ Brexit
SME Roadmap Part 1

The author of this blog post is LawBite’s Michael Jaiyeola. The article has been adapted from ‘Law For Small Business for Dummies’, by Clive Rich, LawBite Founder, A Wiley Brand