- Reasons for employing people
Entrepreneurs setting up a new business need to employ people for a number of reasons:
- Only in the smallest business does the owner have the capacity to carry out all the tasks necessary to provide the finished product or service. In most business, it is necessary to employ people. As a business grows, it needs to ensure that it can meet demand by increasing the number of staff it employs.
- An entrepreneur setting up a new business will not often have all the skills required to run a business. The same applies to a partnership, or even a limited company. Most businesses require specialist expertise in relation to the production of their goods or services, the marketing of them, and the management of their finance and will therefore need to employ appropriate people.
- Some businesses are seasonal in nature; the demand for their products will peak at certain times of the year and drop away at other times. Examples are strawberry growers (spring and summer), cafes and restaurants in tourist areas (summer), and gift shops (Christmas). A business needs to ensure that it can meet demand during a peak season by employing additional staff.
- A start-up business that wants to expand will need to consider outsourcing, training existing staff or taking on new staff.

- Types of employee used in small businesses
People can be employed in a number of different ways and a business owner needs to think carefully about this in order to ensure that the business is run as efficiently as possible. Decisions depend on how constant the work is, how long the work will last and the number of hours of work required each week. They also depend on the level of responsibility and obligation that the business is willing to take on in relation to employing people. Contractually, the following options are available:
- Permanent employees. These can be full time or part time and they have an open-ended employment contract with the business, which has extensive obligations to them.
- Temporary or fixed-term contract employees. These have an employment contract with the business, but it is for a predetermined time or until a specific task has been completed.
- Employees on zero-hours contracts. Such contracts allow a business to have people on-call to work whenever necessary and mutually convenient. Generally, a business is not obliged to offer work, nor is there a responsibility for the workers to accept any work.
- Employment agency staff. These workers have contracts with the employment agency that supplies them, but the business still has certain legal responsibilities towards its agency workers.
- Self-employed freelancers, consultants and contractors. These give a business the minimum of employer obligations.

Permanent or temporary employees
An important decision for a new business is whether staff should be permanent or temporary. Staff who are required throughout the year and whose services are necessary to the day-to-day running of the business are likely to be permanent employees. This includes management, such as the sales or operational managers, factor operatives and sales assistants, and administrative staff. Permanent staff tend to be more loyal to the business and more motivated than temporary staff.
Where additional staff are needed – for example, to meet the seasonal demand for goods or services, or to complete a particular task or cover a particular event – they are more likely to be employed on a temporary basis. For Example, many strawberry growers now employ large numbers of young people from eastern European countries such as Poland. They are hired for the season, and once this is over their employment contract ends. Similarly, a toy shop might take on additional staff for the 3 months running up to Christmas. It would be inefficient for a business to employ these staff on a permanent basis because for most of the year they would have little to do. Hiring temporary staff can be also be useful when a business needs someone to cover the specific job of an employee who is on maternity leave.
Some businesses make use of temporary staff supplied by agencies. The worker supplied is usually under the control of the business that is employing them, but is paid by the agency. For example, office staff from an agency might cover the jobs of permanent employees while they are on holiday or ill.
Full-time or part-time employees
The business also needs to consider whether people should be employed on a full-time or part-time basis. This depends on the nature of the job and the needs of the business, but it also depends on the individual employee. Some jobs clearly need to be full time, such as a machine operator in a factory, or a telephonist, but others might require only a few hours’ work per week. For example, a cleaner would only be required for a few hours each morning or evening, so he or she might have a permanent post but one that is part time.
A business could also introduce job sharing, where two or more people share the responsibilities, pay and benefits of a full-time job in proportion to the hours they work. This may be an invaluable way of retaining staff who can no longer work full time and may otherwise wish to leave.
The advantages of employing part-time workers include the following:
- It is an efficient way to keep costs down in areas where full-time cover is not necessary.
- It is a way of building in flexibility, allowing a business to respond to changes in demand more easily.
- If part-time work suits employees, they may be more motivated, absenteeism and stress may be reduced, and productivity may increase.
- The availability of part-time work may create a wider pool of candidates for recruitment.
- The opportunity to work part-time may mean the business is able to retain valued employees.
However, employing part-time staff may involve potentially higher staffing costs as a result of extra induction, training and administrative costs.
External consultants, contractors and advisers
In addition to employees, a business might hire the services of consultants, contractors and advisers. Since these people are self-employed or belong to a separate company, this is a useful way of benefitting from extra skills and labour without taking on many of the responsibilities of an employer. For example, except in a reasonably large business, an accountant is unlikely to be an employee of the business. A small business will probably hire the services of an accountant and pay them an hourly or annual fee for the service provided.
Other consultants might be brought in to give advice on a particular issue. For example, a design consultant might be hired to advise the business on particular aspects of packaging design, working with the business for a few weeks only. Similarly, an outside IT contractor might be hired to build a business website, or a freelance public relations (PR) consultant might be hired when a business needs to run a promotional campaign. Other advisers, such as Business Link and Prince’s Trust mentors, provide their services free to start-up business.

- Drawbacks and difficulties of employing people
Despite their obvious contributions to the successful operation of a business, employing people has drawbacks for a small business, which include the following:
- The cost of employing people. This is a major problem for small businesses. As well as the actual wage or salary paid, businesses also incur other costs, such as national insurance contributions, possible pension contributions and extensive administrative costs. These costs include the time that needs to be spent to ensure that payment systems, including tax deductions and national insurance contributions, are organised effectively.
- Meeting the range of employment legislation requirements. This is often seen as a real burden for small businesses, most of which do not have in-house human resources departments that can advise on their employment responsibilities under the various pieces of legislation. In addition to the requirements of employment legislation (such as contracts of employment, grievance and disciplinary procedures, equal pay and equal opportunities legislation, minimum wage and working time requirements), a business must also ensure that the working environment is safe and secure, and meets the requirements of health and safety legislations.
- Managing staff. Leading and managing staff effectively is important in ensuring that employees are well motivated and perform their jobs well. The entrepreneur in a start-up business will not necessarily have the skills or experience to do this.
- Employee absence. Because start-up businesses tend to employ few people, the absence of any one employee can have a significant negative impact on the business.