Reply With QuoteDo you need help so you can sit back a bit?
If not carry on as you are, if you do then hire him.
Is there any chance of taking on your friend as a freelancer to mitigate your responsibilities?
I'd welcome any advice from business owners about your experiences of taking on your first employee. Our small family business has been running for around 15 years. We provide educational consultancy and support to schools, a point of sale for musical instruments for educational institutions and others, run two rehearsal studios and offer a teaching programme for various popular musical instruments as part of the community work here in Cheshire. The business has grown steadily in recent years with a turnover of c.£350k and a significant rise in this for the current financial year. I am the sole Director at the moment following the retirement of the other Director around a year ago.
The company has no current employees. It is basically run by myself and a team of freelance consultants. We have very low overheads - basically our business rent and associated costs (around £1k/month).
I've got the opportunity to take on a full time employee to help run the business, in particular the daily activities of the two rehearsal studios, teaching programmes and related activities. The person who has approached me has a good skill set and is a trusted colleague and friend. He has a good attitude and work ethic. On the financial side of things, I can afford to take him on. But I'm cautious about the wider liabilities, particularly in the current climate. I understand that I can reclaim any potential NI contributions (to a maximum of £4k) and I'd have to provide him with a pension (3% of salary I think).
As said, I'd love to hear from other business owners about the benefits or otherwise of making this move. I can see many advantages but it is a major step I think (even the thought of having one other person to provide marks a significant shift in responsibility) and perhaps there are other factors to consider? Thoughts welcomed.
Do you need help so you can sit back a bit?
If not carry on as you are, if you do then hire him.
Is there any chance of taking on your friend as a freelancer to mitigate your responsibilities?
Cheers,
Neil.
I would hire someone on a self employed basis these days, not employ them. Avoid all the PAYE, pension and also possible future redundancy procedures.
Deleted - must read OP more carefully!Originally Posted by Boarder1
Last edited by Peck; 10th August 2020 at 13:09.
I'm sure people do this but it's not necessarily legal.
Whether you are an employee for tax, employment law, health and safety, etc., etc., is dictated by the role and the relationship between the parties. If you incorrectly treat someone as self-employed, they come after you.
My advice is either do it right or don't do it!
Yes, re-reading the OP’s post I guess our situations are quite different. I tend to work on defined projects for a client which can legitimately be ‘subbed out’.
I was going to say something similar, if you are the sole traders / agents only job, you can be classed as their employer I think.
Cheers..
Jase
On such a small turnover can you really support an employee, unless it is an extremely high margin business I cant see it being sustainable.
On a rather simpler level, is employing a friend a good idea?
The legal process is not that much trouble - do invest in some payroll software to ensure you claim employers allowance etc. plus make all the correct payments to HMRC. Ensure you have employers liability insurance in place too.
You have 2 years you can just say "sorry it isn't working out" so don't worry too much about that side of things.
Do not, however underestimate the "management" the employee will need/expect so be prepared to spend some time on training them, giving feedback etc.
We left it too late to take on our first employee in hindsight - they should take work off you and give you a better quality of life but do make sure they have something to do as many employees are not very proactive.
Yes - what is described above would not convince HMRC it is a real self-employment job.
A friend from past experience NO a recipe for disaster
Wages and deductions your accountant should be able to run that for you for little money ( mine ran it for my employees as part of his fees) that way you are not worrying or potentially arguing about deductions etc
As a self employed “ consultant” fine if they are truly SE ie they derive their income from a variety of clients if you are their sole client and income source they are deemed by HMRC to be employed by you.
If you do employ get a properly drawn up contract
Proper liability insurance and health and safety in place
Good luck
Last edited by mart broad; 10th August 2020 at 13:06.
I FEEL LIKE I'M DIAGONALLY PARKED IN A PARALLEL UNIVERSE
Also occurs to me - if you do employ someone - get some advice on the contract - I've seen all sorts of weird and wonderful things over the years with pointless unenforceable terms.
Definitely not a good idea!
When you look long into an abyss, the abyss looks long into you.........
Indeed, my first post was not valid so have deleted it. Some decent advice on this thread OP (not from me however!). Good luck with whatever you decide to do
Never do business with family or friends (in my opinion).
I would likely consider an annual contract for services first, and see how they fit with your plans/expectations.
I’ve had a few consultants work for me, and all but one I wouldn’t have employed full time afterwards, and that’s without the additional expense.
If you are going the employee route, make sure their contract clearly states all possible duties and expectations you have for them.
Good luck
It's just a matter of time...
Many thanks to you all for the helpful comments. Lots to think about. Will take a few days and then let you know how things proceed.
???
£350k and can't afford employees???
You've obviously not worked in the real world or retail/catering!!!
Electronics manufacturing is as real as it gets, how much do you think the recovered cost of an employee is ?
If you don't think a business that turns over 350k can afford to employ people you don't live in the real world.
I have two mechanics working for me. I can easily hire a third one. Enough work for a third person. But, will the shop’s annual income increase with at least a third with his arrival? I don’t think so!
Let’s say his annual wages etc are 60k/yr. Will the annual revenue rise with at least 65k, pref. 80 or 100k?
In my opinion, hiring an employee has to do with growth. It must propel the business into the next level, revenue-wise.
It all depends on how much of that that turnover is profit and more specifically nett profit.
You mention retail; I owned a convenience store for ten years with a GP of around 20% and a nett of under 10%.To pay £20k salary, I’d have to turn over at least an extra £130k per year in order to break even. So no, in retailing (or at least the sector I worked in) £350k turnover wouldn’t allow me to be able to afford to employ someone.
Perhaps you need to join the rest of us in the real world!
I would suggest that you look into the status of all your consultants and taking on someone new - in respect of IR35 (See HMRC guidance).
You may find that some (or all) of them fall within the IR35 net.
(Whereby - they are deemed to be PAYE workers)
It is a bit text book, there is a point when taking on more staff dilutes the overhead, obviously the work has to be there, but taking on one or two employees is a big burden, Years ago I worked in electronics distribution the standard that most companies used for reps was £250k turnover to break even at 30%gp, to cover salary £20-25k, employment costs, car and running costs.for the last thirty years I have employed between 100 and 250 staff balancing the numbers is a difficult game, so far this year all staff have been fully paid and no redundancies.
simply if you pay out a pound at 20% gp, you have to turn over a fiver to get back where you started.
I agree with that question. If the business fails, your friendship will as well
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I love this place some times
£350 k is a small turnover.
What do you think the guys getting paid
Perhaps I should add that margins in the music instrument industry are pretty modest at the moment. I know of many high street music shops that have closed recently (including some significant names here in the northwest such as Dawsons Music). I have no idea how a high street music shop makes ends meet at the moment. Our company is a specialist education supply company with no aspirations to move into retail. I really appreciate the insights that you have offered. Thanks TZ.
It’s turnover, not profit. As mentioned above, the wages of an employee will come out of gross profit which may only be 20-30%. It may be 50% or higher too, we don’t know the OP’s business margins.
If he’s making 20% GP, that’s £70k on £350k from which he had to pay all his running costs, his employee’s wages and all his costs to employ said employee. Only then can he take his own salary.
It doesn’t leave him very much and probably doesn’t make employing him a viable proposition.
It all depends what the business is. IT Consulting selling your personal time then 350k is a huge TO, buying and selling a low margin product then the TO is the same but the potential profit very small.
The old adage turnover is vanity, profit is sanity applies here.
Completely agree with the above. My consultancy was just me & my application of experience to companies. I had no COGs so was highly profitable.
I’d have loved that level of turnover! Minimal outgoings, either from home office / onsite & the usual IT equipment. Nothing else required.
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