How to avoid costly HR mistakes, often made by small business owners

27th January 2018

Want to know how to avoid the most common mistakes that business owners, make when it comes to HR? I share my top 7 examples, based on real life experience working with a range of small businesses .

65% of UK businesses are at risk of being fined or sued

And the number one reason is because of a lack of HR Knowledge, according to recent research.

It’s so easy to make mistakes if you don’t have dedicated HR support, especially as the law is complex and it keeps changing. But with the worst fines being imprisonment and unlimited fines, it’s more important than ever that you take proactive steps to protect your business.

So, here’s 7 of the biggest mistakes companies make, and what you can do to avoid making them!

1. No Employment Contracts

You need to issue a contract ideally before someone joins your company, but the law states employees are legally entitled to a written statement containing the main terms and conditions of employment within two months of starting work.

Having a contract is important because it sets out the terms of employment. The hours to be worked, location and salary. Not having these important details written down often leads to misunderstandings, disagreements and conflict.

However, contracts can also help you to protect your business. I’m sure you don’t want your employees sharing your trade secrets, your customer list or setting up in competition with you, once they’ve learnt all they can from you.

You can get a contract template from around £20, but it will be very basic. Most exclude some very important clauses that protect your business so make sure you check what you get before you buy. It’s definitely worth investing money in having an employment contract that actually protects your business, if the worst were to happen. You only have to pay once, and then you can use this template for all your employees.

I offer a downloadable contract of employment template, which include the important paragraphs and come with instructions, so you can tailor it to suit your business needs. I also offer a done-for-you service, if you’re short on time.

2. No HR Policies

It’s not a legal requirement to have HR policies, but it is a legal requirement to deal with workplace issues in a certain way and explain to employees their rights if they need to make a complaint, are discriminated against or bullied, call in sick etc. So the way that companies achieve this is by having a range of HR Policies, which cover different topics e.g. one policy for absence and one for bullying and harassment etc. Often companies put all their HR policies into a single document, called an Employee Handbook or Staff Handbook, for convenience.

If you don’t have HR policies, it’s unlikely you have provided written guidance for employees and management on how to handle a range of employment issues, which can lead to a failure to follow the correct process. Another risk of not having policies is that you can treat people differently, which can lead to potential discrimination claims if a female employees feels they are treated differently than a male employee. It can also lead to misunderstandings, if for example an employee assumes they will be paid if they are off sick, but you don’t pay them.

In terms of how many policies you need, that’s entirely up to you. What’s important is that you have the ones that map out the legal process you need to follow. I would recommend as a minimum you have Absence, Grievance, Disciplinary, Equality, Maternity/Paternity, Flexible Working and Anti-Bullying.

Employee Handbook HR Refresh UK

3. Not having the right insurance

If you plan to hire any employees and/or sub-contractors other than yourself and your family members, you are legally required to take out Employers’ Liability insurance, even if you only hire occasional or temporary staff.

This will protect your business and your employees in the event of any work-related injury, illness or disease whilst on or off site.

Nowadays it is very easy for employees to access ‘no win no fee’ legal services to claim compensation from their employers. This increases the likelihood of many companies experiencing employers’ liability claims for accidents or illnesses. The potential costs of legal representation, let alone paying compensation to successful claimants, could severely damage your company and even lead to bankruptcy.

4. Not checking references or the right to work

All employers in the UK have a responsibility to prevent illegal migrant working. Which means there is a very strict process you need to follow for every employee, to check they are allowed to work in the UK.

This is a hot topic right now with Brexit looming, and in 2016 the law changed to crack down on illegal working and make it easier to punish companies that employee illegal workers. Employers convicted under this offence may face a large financial penalty, and/or a maximum prison sentence of five years (up from two years).

The offence applies regardless of whether the illegal worker is employed as an employee or as an apprentice, and whether the worker is employed through a written or an oral agreement.

If you’re unsure what you need to do, you can purchase my downloadable checklist and FAQ guide, that covers everything you need. Click here for more details.

5. Firing someone without going through a disciplinary procedure first.

If you need to fire someone, for any reason, you must go though the disciplinary procedure first. No exceptions. Even if you caught them red-handed stealing from you, you must go through the disciplinary procedure before firing someone.

Think of it like a criminal court. Even if the police catch someone stealing something, there would still be a trial before they went to prison. It’s a human right to have a fair trial. And this is the view that employment tribunals take. It’s innocent until proven guilty.

So by holding an investigation and disciplinary process, you are going through the motions to prove the allegation and if there’s no evidence that disproves it, then you can fire the individual. The only difference is that in employment law, you don’t have to have 100% proof to take action. So, if you’re 90% sure the event took place, and you had reasonable evidence to support the fact an employee stole from you, the dismissal should be deemed ‘fair’ and an employment tribunal may not accept the case if the individual make a claim.

However, if you haven’t gone through the disciplinary process, you may find you need to prove it was a fair thing to do, in front of a jury, which is a lot of time and expense you could have avoided.

6. Not taking employee complaints seriously.

Sometimes employees can have a negative attitude and can whinge about everything. The weather, the coffee, the customers etc. So if they complain about something to you, you may shrug it off and choose to ignore it.

But, if it’s something they repeat often, it’s of a serious nature or if they put a complaint in writing, you do need to take it seriously and follow the ACAS Code of practice grievance process.

You can try and solve their issue informally first. You just can’t ignore it

If you don’t follow the correct process, this will be taken into consideration if the issue goes to an employment tribunal. Tribunals have the power to adjust awards by up to 25% for failure to comply with the Code, so you can be financially penalised.

7. Not nipping poor performance in the bud.

If you allow people to under-perform, you are setting yourself up for a problem. Of course, everyone will have days where they aren’t on top form, but don’t let it carry on for weeks / months / years on end.

If you let it continue, either your overall performance as a business will suffer, or you’ll find that it will become harder to manage in the long-run because you’ve tolerated it for so long.

I know it’s difficult to tackle issues like this. You don’t want to cause tension or conflict when it’s such a small team. But try asking for what you want instead, so you can tackle it in a positive and respectful way.


What do you think? I’d love to hear your thoughts in the comments.


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