Owner Managed Business update – December 2019


Welcome to our December edition of Owner Managed Business update.

Finding and keeping the best people

Recruiting and motivating the right people is key to the success of any business.  To perform at their best, staff need to be properly engaged and incentivised and achieving this involves a mix of law and best practice

As well as being legally compliant (a must if you want to avoid any disputes) you will need to make sure that you incentivise your staff to perform to their best and to stay with you.  But loyalty is inspired not just by meeting your legal obligations and offering financial incentives, but also meeting employees' wider needs, such as flexibility and work / life balance. 

Rights to comply with

Any employees you take on will have a right to a written statement of terms and conditions within the first two months of their employment.  This will include details of the job role, the employee's responsibilities and their benefits, and will generally define the working relationship.

Employees have the right to 5.6 weeks' paid holiday per year (in other words 28 days for someone working a five-day week). It is possible for you to count bank holidays as part of that annual leave entitlement.  They will also be entitled to other statutory payments; namely maternity pay, adoption pay, shared parental pay and paternity pay.

In addition, employees are entitled to receive statutory sick pay (SSP) provided that they are unable to work due to sickness for four or more days in a row.

What about pensions?

Employers are under a statutory duty to enrol their workers into a pension scheme which meets certain minimum standards, and to pay a minimum level of contributions into that scheme on behalf of the worker.  This process is known as auto-enrolment.  In additional, financial security is often a critical part of a good employer's wellbeing strategy.

All "eligible jobholders" are entitled to be automatically enrolled.  In order to be eligible the workers must meet certain requirements in relation to their age and their qualifying earnings.  Those who don't meet the requirements will still have the right to opt into a qualifying scheme.  If they elect to join then the relevant scheme is a defined contribution scheme, and the employer must pay a minimum level of contributions to the scheme on their behalf. 

Take a flexible approach

Another way of encouraging staff loyalty is to allow them to take a flexible approach to their work.  The idea of coming and sitting in an office for five days a week is becomingly increasingly outdated, so flexible working options, which are easier to offer now as a result of better technology, are worth considering. 

Not all jobs can accommodate complete flexibility, but technological developments have meant that many roles can now be done at different times and in different places.  Staff may prefer to work from home some days, or work flexible hours, rather than the traditional 9 to 5.  Giving them more freedom to fit their work round their other commitments will give them a greater sense of autonomy when it comes to their organisation of their working day.

Support your staff

To ensure that the people you take on feel engaged and motivated you should make sure that they feel comfortable asking for the support they need.  Providing meaningful work and opportunities for personal development and growth is one way of making staff feel valued as well as making them see that they are an important part of the business's success.

Listen to your staff and any concerns they raise, and make sure that you are responsive to those concerns.  Encouraging healthy working hours and a positive work/life balance will also help retain staff.

Offer financial incentives

To attract and retain talented employees, and to create a sense of loyalty you may wish to consider offering bonuses.  This will keep your staff incentivised to do their best.  Bonuses can take many different forms, and schemes based on commission or other performance incentives are a useful tool for employers.

In the case of some roles, commission or bonuses based on targets are harder to design, so it may be worth considering lump sum discretionary bonuses, though the discretion must be exercised honestly and in good faith.

Equity incentives

Equity incentives offer an additional means of strengthening the connection between employees and their employer. Such incentives are normally set out by way of an "employee share option scheme". An employee share option is essentially a right granted to an employee to acquire shares in the employer company at a pre-designated price and usually exercisable upon the fulfilment of certain conditions. These conditions can be tailored to the needs of your business, but are frequently tied to performance targets, both of the employee concerned and the business as a whole.

A fundamental benefit of an employee share options scheme is that, rather than simply taking home a regular salary each month as compensation for their work, share options give employees a vested interest in the growth and success of their employer. Furthermore, share option schemes can often yield tax benefits both for the employee and the employer business. For more details on share option schemes, see our article on EMI share option schemes here.

Post-termination restrictions

The quid pro quo for offering generous financial incentives is often a request from the employer for the employee to agree to certain restrictive covenants.  This is certainly something which you should consider when hiring staff.  As your business grows, your staff (who you've invested in and developed) may become attractive targets for your competitors so it's definitely worth looking to protect your assets.

Restrictive covenants can achieve a number of aims, including restricting any departing member of staff from operating in an area in competition with you, and also prevent them from poaching other staff remaining in the organisation. In order to be enforceable, the restrictions must protect a legitimate business aim and be reasonable.

Trowers' Top Tips

  • Make sure you get the basics rights to avoid aggrieved employees.
  • Be as flexible as possible in your working practices to accommodate the needs and preferences of those who work for you.
  • Offer financial incentives to create a sense of loyalty.
  • Get staff to sign up to restrictive covenants so that if they leave your business interests are protected.

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