Legalities of Opening a Business
First there’s the registration. Then the licensing, and before you know it, you’re surrounded by a massive pile of documentation ready to be signed, analysed, and submitted. Yes, it seems the legal requirements for starting a small business are more challenging than the business itself. Legal processes can appear very daunting and confusing. Using the UK as a case study, lets learn how to open a business with all the legalities in place, read on.
Before you’re ready to rumble, your business needs to be registered legally for operating. This means choosing what type of an entity it will be – self-employed, limited company, or partnership. Each type has a different process, and you can find out more at GOV UK.
Insurance is vital for protection, should anything go wrong. The Employers’ Liability Insurance is a legal mandate for all businesses except for freelancers or family businesses. It covers compensation costs that cover workplace injuries or illnesses.
Employers who discriminate on characteristics such as gender, ethnicity, or age engage in unlawful activities. During the recruitment process, employers can inadvertently make these mistakes at multiple stages. Therefore, it’s important to read up on discrimination laws in the workplace.
Data law compliance
Right to work
Hiring an employee without checking whether they have the right to work in the UK will attract a severe penalty with fines of up to £20,000 per employee. Request a Right to Work eligibility at time of the first interaction itself.
Disclosure and Barring Service (DBS) check
All employers should carry out DBS checks on new employees. It will provide information on any criminal records, history and convictions. However, if you are going to use DBS checks, ensure that your reasons are documented and can be justified if necessary.
All employers need to provide employees with an employment contract stating terms and conditions of employment within two months of their joining date. The clauses that should be included are employer details, starting date, job title, working hours, pay, holiday and sickness entitlement, notice period, pension arrangements, and disciplinary & grievance procedures.
Health & safety policy
Businesses with five or more employees must have a written health policy. These policies should outline aims for creating a safe and hygienic workplace, their implementation, and the person responsible for doing this.
National minimum wage
All workers above 25 years are eligible to receive at least the National Minimum Wage as prescribed by the UK Government. In case an employer is found violating this, fine up to £20,000 per individual can be levied upon them.
Payment reports to Her Majesty’s Revenue and Customs (HMRC)
Payrolls are complicated systems. If you run them yourself, a report needs to be sent to HMRC on a monthly basis. This report must contain details of wages paid to each employee and Income Tax (Pay As You Earn, PAYE) and Insurance Deductions. The HMRC should also be intimated if you hire a new employee and when an employee reaches the State Pension Age. Apart from this, an annual report is also expected of you containing any benefits of expenses.
Employees over 22 and having an annual earning of over £10,000 would also need to be enrolled in a workplace pension scheme. This should be put into place as early as your first hire and at least 3% of the qualifying earnings of your employee must be paid into it.
So, there you go. 11 legal prerequisites if you are looking into How to Open a Business. What do you think? Share with us in the comments below.