Chapter 14   Recruiting
Chapter 14   and employing
Chapter 14   staff

Many people who are setting up a new business already have the technical and product knowledge that will enable them to produce or provide their goods or services. A smaller proportion of them will also have acquired some basic sales or marketing skills along the way. Some may also have been involved with staff management and supervision, including the recruitment and selection process. Normally, however, unless they have worked for a relatively small organization, they will have relied on the advice and support of a personnel specialist to guide them through the legal nightmare of the recruitment, selection and employment legalities and processes. Even before the advent of the European Union, this was not a matter for the faint-hearted, but nowadays the legal requirements and obligations demand an extensive and detailed knowledge of the subject to avoid the risk of overlooking the smallest of details.

I am sorry if this sounds like bad news but, quite simply, employing people is now becoming a hazardous and difficult procedure, in spite of repeated government boasts about how small firms will be the employment growth area of the future. The imposition of the European Social Chapter and various directives relating to working hours, minimum wages, leave entitlement etc., actually mean that employing staff is becoming an increasing nightmare in the UK, and yet in comparison with mainland Europe, the UK is still relatively employer-friendly. This is clearly evidenced by the sheer number of enquiries in recent years to Kent-based enterprise agencies from continental companies who still see the UK as a cheaper and more attractive option in employment terms, compared with employing staff in France or Germany where national insurance rates are over 40 per cent and where sacking even the most unsuitable of staff can be a costly and difficult process.

This chapter also relates to the NVQ Level 3 Business Planning qualification Unit A10 ‘Assess the needs for any additional personnel in the first years of trading’. This unit is concerned with planning the staffing needs of the business, assessing the impact of employing staff for the business operation, planning the process and programme of recruitment, and the subsequent appraisal and monitoring of staff performance. In reality it is very difficult to predict these needs beyond the first year, as there are simply so many variable and imponderable factors involved, particularly because of the very fact that it is the first year of trading. In later years, the planning and forecasting process should prove somewhat easier, once the new business has stabilized.

Politics and Europhobia aside, the objectives of Chapter 14 are to examine how to assess the personnel requirements of a business in its early stages, and how to go about the process of selecting and recruiting suitable staff. We have already examined the processes of skills gap analysis in Chapter 4, along with the personal skills and capabilities of the business proprietors. Where the skills of the owner-managers are either inadequate to meet the full range required, or where to utilize them would not be cost-effective (e.g. the owner-manager should not be typing letters or filing instead of selling the products or planning production), then it is appropriate to consider employing alternative staff. If we consider the primary objectives of the business, then the owner-managers’ efforts should be focused on these and should not be spent on more mundane administrative matters which can be delegated to less expensive staff, who will probably do the job better anyway. Once we have carried out a skills gap analysis to determine questions of what skills or staff the business really needs, then, if those needs cannot be filled internally by delegation of staff development, it will be necessary to employ someone for that purpose.

The first of a number of questions that we must ask is whether of not we really need to employ staff. Do we have to employ them directly, or could we make use of casual, temporary or agency staff? Can we afford to pay the wages on a regular basis? Will the extra staff generate enough income to cover their costs, or will they release the owner-manager to spend more time working to produce extra profit? Will employing staff push up other overhead costs, such as insurance or protective clothing? Will there be a need for extra expenditure on furniture, machinery or equipment for them to use? Will there be enough work to keep them fully occupied? Can they be trusted in the owner-manager's absence? What will be the costs to the business or the effects on profit if they are not employed, e.g. will contracts be lost? How difficult or costly will it be to get rid of them if things go wrong? How soon will they be needed? What induction, training or supervision will be needed, and will this interrupt other work?

So, assuming that we have already identified the nature of the skills deficit and then asked and answered these important questions, we can start to look at the process of recruiting staff, and the further implications for the business.

The first implication of employing staff is the extra time and cost involved in meeting statutory requirements. In addition to the legal requirement to take out employer's liability insurance, once staff are employed there is the need to set up and maintain a PAYE (pay as you earn) system, to deduct income tax and national insurance contributions from the employees’ pay, and to remit these to the Inland Revenue on a monthly basis. In addition to the deductions from pay, the employer must also pay an employers’ national insurance contribution, currently 12.2 per cent of employees’ pay, but which is subject to change in the Chancellor's annual budget. Staff are also entitled to be paid for holidays, sickness and maternity leave, and whilst away from work, other temporary staff still have to be paid to cover the absence. In addition to the financial implications, there are, as we have seen in Chapter 5, legal implications in terms of health and safety which have to be met, particularly once more than five staff are employed in the business. In the early stages of a new business there may only be a need for one or two employees, but as the business expands and extra staff are taken on, the legal implications can easily be overlooked, particularly if the owner-manager is not familiar with employment law or procedures. The significance of this may not be obvious immediately, but a year or two down the line, when the employees are protected from unfair dismissal etc., an overlooked issue may turn into an expensive industrial tribunal. It is important, therefore, that when staff are employed, their job descriptions and terms and conditions of employment should be clearly defined.

Of all of the resources utilized within a business, staff tend to be the least reliable in terms of the return they offer on the time and money invested in them. When a manager buys a piece of production machinery, the capital cost and expected annual running costs are known, as is the expected productive lifetime of the machinery. Unfortunately people are less predictable. The cost of recruiting staff can be high, and there is always an initial period of inefficiency when they are training or learning the job. Staff also have the annoying and inconvenient tendency to fall sick, to take holidays, to become pregnant or to leave for better pay elsewhere, and usually at the most inconvenient times. Is it any wonder then, that manufacturing industries prefer to use robotic systems on their production lines? Whoever heard of a robot suffering from PMT or taking an afternoon off to go to a football match? Seriously though, it is often hard to find staff who are willing to work hard and be committed to the business, and it sometimes even harder to keep them. Levels of commitment and motivation in staff are invariably linked to remuneration and reward – if you pay peanuts, you get monkeys, and the monkeys will soon move off to join someone else who is offering more peanuts. A business which has a continuous turnover of disaffected staff will never reach its full potential of efficiency or profitability, and will certainly suffer problems in achieving consistent standards of product quality and customer care.

To reiterate, recruiting and training staff is an expensive and time-consuming process and, in order for the investment in time and money to be recouped, it is essential to define most carefully the nature of the job and the type of person required. The recruitment and selection process should be a two-way situation. On the one hand it must be carried out objectively to match the candidates with the job requirements. On the other hand the remuneration package of the job itself, and the terms and conditions of employment, must be sufficiently attractive to the candidates to stimulate their initial interest in the job and to retain their services in the longer term. In this respect we are talking about job satisfaction and organizational culture, as well as pay and conditions, contributing to staff retention. For some people, high wages will adequately compensate for unpleasant conditions and boring work, whereas others will tolerate low pay for interesting work in a friendly environment.

The process itself typically falls into three stages:

•   Defining the requirements – the job description, person specification, and the terms and conditions of employment.

•   Attracting candidates – considering the use of internal promotion, training and development of existing staff, or advertising for external candidates and then choosing and implementing the most suitable means of finding candidates.

•   The selection process – sifting the applications, short-listing, carrying out interviews, choosing the candidates, checking references, and making an offer of appointment.

In the case of new small businesses, this process tends to be somewhat simplified, first because there are rarely any internal candidates to consider for training or promotion and, second, because new owner-managers seldom have the suitable skills or time to spare for a full-blown recruitment and selection process. Unfortunately this can often result in the selection of candidates who may be less than ideal, especially if the job description or person specifications have not been produced carefully.

The job description

Once the decision has been made to employ a new member of staff, the first step must be to prepare a job description for the vacant position, which involves defining the scope, role and responsibilities of the job. The precise content of the job description will vary according to the complexity of the job and the levels of responsibility involved, but it might typically include:

•   Job title and location.

•   Grade or salary range.

•   Position in the organization structure, and to whom the person is responsible.

•   Main duties, i.e. the primary tasks, key activities, and the purpose of the job or the objectives the post-holder is expected to achieve.

•   Main responsibilities, e.g. staff supervision, budget-holding, functional areas or processes.

•   Supplementary duties, such as attending sales exhibitions, dealing with customer queries, health and safety, first aid (or in a very small firm, making the tea or even taking a turn at cleaning the toilets).

•   Special job features, e.g. the need for regular foreign travel or to deal with foreign customers, anti-social hours or shift-work.

The person specification

Whereas the job description is about the job itself, the person specification is about defining the characteristics, skills, qualifications, etc. of the type of person who would be ideally suited to fill the job. Bearing in mind the person specification would have to be non-discriminatory and compliant with equal opportunities regulations, this might include:

•   Age range, gender or marital status (if relevant or appropriate, but beware of anti-discrimination laws).

•   Essential qualifications and experience.

•   Essential skills, e.g. experience of managing staff or budgets, or specific technical knowledge or expertise.

•   Desirable skills, e.g. the use of specific computer applications, possession of further qualifications, fluency in foreign languages.

•   Physical health if, for example, the work involves heavy lifting or manual work.

•   Essential behavioural competencies, such as the ability to work closely with a team of other people or to negotiate with customers.

•   Desirable behavioural competencies such as a friendly disposition, sense of humour (especially if the pay is low!) or willingness to travel abroad at short notice, if needed.

Terms and conditions of employment

These must comply with legislation relating to contracts of employment, and would normally include:

•   Job title.

•   Duties, main and secondary, locations of work, flexibility and requirements to travel.

•   Commencement date of continuous employment –important for the calculation of annual leave, statutory sick pay, maternity pay, and statutory redundancy pay entitlements, and to the dates after which the laws relating to unfair dismissal apply.

•   Rates of pay (hourly, weekly, monthly, annual salary, etc.) and method of payment, e.g. cash paid weekly on each Friday, of by monthly bank transfer on twenty-eighth of month.

•   Holiday or leave entitlements.

•   Sickness arrangements, e.g. where the employer offers sick pay above and beyond the statutory requirements.

•   Period of notice to terminate employment by either party, and the variations on this, e.g. suspension or summary dismissal for theft, violence or gross negligence.

•   Arrangements for termination of employment, such as the return of vehicles or equipment, confidential information, or special arrangements such as ‘garden leave’ for sales staff moving to competitor organizations to avoid possible poaching of customers or theft of customer information during period of notice.

•   Health and safety/discipline and grievance procedures –usually reference is made to standard organizational procedures, copies of which are supplied to the new employee on starting. In the case of new small firms, with less than five staff, these may not yet have been prepared.

•   Workplace rules – these are not so much statutory regulations, as standards and procedures which are used within the workplace, e.g. standards of hygiene, no smoking rules, flexitime operation, logging of telephone messages and incoming mail, standards of dress when interfacing with the public etc.

•   Trade union status or recognition – whether or not the organization recognizes a trade union or has negotiating arrangements with them.

•   Special terms relating to inventions, patents, copyrights etc. for products or materials developed in the firm's time. These will normally belong to the employer firm and not the employee, unless special arrangements to the contrary have been made.

•   Variations to contract – at the end of just about everyone's contract or employment there is a section which prescribes for variations to be made to the contract of employment, subject to a reasonable period of notice to the employee, etc.

Advertising the position

Internal promotion is always an option worth considering, and not just from the viewpoint of ‘better the devil you know’. Existing staff are more familiar with the firm and its products and customers, internal recruitment is good for staff motivation (apart, perhaps, from the ones who did not get the job!) and the process is cheaper and less time-consuming. However, as mentioned above, in most new small businesses there will simply be no existing internal candidates to be considered for promotion or for training and development, so looking elsewhere is the only available option.

How do we go about finding suitable applicants? The first choice to be made is whether to pay someone else to do it or to do it ourselves. Advertising agencies have great expertise in designing and preparing advertisements and selecting the right places to advertise, but they also tend to have high fees and the potential success is still largely dependent on the detail and quality of the requirements specified by the client. Similarly, recruitment agencies have a great deal of expertise in finding and sifting potential applicants for short-listing, but they tend to charge between 20 per cent and 25 per cent of the first year's salary as their fee, which is not so good if the new recruit leaves within that year. Once again the usefulness of their results is also largely dependent on the depth and quality of the briefing by their client. In short, if you give them a poor job description and person specification, you cannot blame them if they do not come up with the right candidates for the job.

The other alternative is to do the advertising ourselves. For the newcomer to this type of advertising, unless he or she has skills in desktop publishing or computer graphics, it may pay to get some assistance. Some basic knowledge of designing advertisements, the use of logos, bold wording, margins and white space etc., can make a big difference to the impact of the advertisement on the readers. A recruitment advertisement should be treated the same as an advertisement for the firm's products or services, because it needs to catch the reader's attention and to prompt a response or action. Very often, the advertising staff at local newspapers can provide this advice as a service to clients. If given the basic job information along with a company logo and details etc., they will design the advertisement for an additional fee. Subsequent advertisements then becomes less costly as the basic artwork is already available. Assuming, then, that we have some basic idea of what we want to include in the advertisement, where should we place it, or where else can we find our suitable candidates?

For a fairly straightforward vacancy involving no specialist skills or expertise, a vacancy notice outside the firm's premises, a card in the local newsagent's window or at the local job centre all offer very low-cost options for finding staff at fairly short notice. As the level of necessary skills increases, then so does the importance of finding the right place to advertise. Local newspapers, particularly if they are part of a regional group, can reach a large readership in a concise geographical area, at a reasonable cost. Just how wide you advertise will depend on how far you think your staff will realistically be prepared to travel. For staff with high levels of skills or specialized qualifications and experience, it may well be necessary to consider advertising on a national basis, or in specialist trade magazines or journals, e.g. the Times Educational Supplement, the Engineer, the Architects Journal or the Caterer magazine. Of course, advertising on a national basis has implications for the cost of interviews, the possible need for new staff to relocate and the timescale in which the vacancy can be filled. Specialist staff are also likely to cost more and to attract special remuneration packages to retain them, which takes us back to the earlier option of whether or not it is worth promoting or training internal staff, and recruiting local replacements to fill their vacant posts.

In summary then:

•   The method of advertising will be determined largely by the nature of the vacancy, and the local availability of likely candidates.

•   The advertisement must be designed to attract attention, create interest and stimulate action and response from potential candidates. Applicants expect to be supplied with basic information about the job, the salary, the location and the employer organization. If the information is insufficient, then you may lose some good potential applicants. If you are unsure of how to design the advertisement, then it is worth getting experienced help or advice, even if you have to pay for it.

•   The advertisement should tell the potential candidates precisely what action is needed and by when. For example, you should state clearly whether application forms will be provided for completion and return, or if applicants should send a curriculum vitae (CV) and letter of application. You should also state the closing date for applications and, if you do not intend to write to all applicants after that date, you should state in the advertisement the date by which applications will have been unsuccessful unless otherwise notified. This is both fair to the applicants and sensible from your perspective, otherwise, not only will your credibility as a potential employer fall in the eyes of some applicants, but there will be a proportion who will keep ringing up to find out about the progress of their applications.

•   Once the advertisement is written, check for compliance with anti-discrimination legislation etc. and, again, if in doubt, seek advice.

•   When the advertisement has been printed, measure the responses in terms of numbers of enquiries and applications, and the resulting cost per enquiry and per application. This will give you a yardstick against which you can measure the efficacy of future advertising, particularly if you have advertised in more than one publication.

Sifting and selecting the applicants

It is not uncommon these days to receive several hundred applications for one job, particularly if there is an attractive salary, and it is when we start to sift through all the applications that the usefulness of the job description and person specification really comes through. The process of sifting is quite straightforward, although it can be time-consuming if there are many applications to read and process:

•   If there are a lot of applications, list them on a control sheet or database using a basic name and reference number, with space for a grading and comments.

•   Discard immediate non-starters, e.g. those who have ignored basic instructions by sending a CV in place of your application form, or without the required covering letter, or with beer stains all over the application (yes, it does happen).

•   Provisionally grade the applicants by one or two key criteria defined in the job description/person specification, e.g. essential qualifications and experience. Sort them into possibles, the long-list of marginals, the reserve list, and unsuitables which are rejected.

•   Compare the possibles with further selection criteria to produce a short-list of likely candidates. If the list is sufficient then reject the reserves and if it is insufficient then re-examine the reserves. If the reserves are still inadequate then either something has gone wrong with the advertising process (the advertisement itself, or where it was placed) or you are simply not offering the right package to attract the calibre of applicants you require, or even both of these.

•   Start the interview process using the short-list, which will hopefully produce a suitable applicant. If not, go back over your long list of marginals. If this is also inadequate, you have made a mess of it all, and its back to square one. So, where did you go wrong? Try to identify any mistakes that have been made, and review the alternatives.

Methods of selection

There are a host of various methods employed by larger organizations to select staff, including psychometric testing, personality questionnaires, three-day assessment centres, interview panels, aptitude or intelligence tests, handwriting analysis, ‘informal’ buffet lunches, selection boards, bio-data questionnaires, team skills activities etc. All these may be great fun to design or organize, but for the owner-manager every one of them is either time-consuming, or costly if carried out by someone else, and therefore detracts from the owner-manager's primary objective of keeping the business profitable to ensure survival and growth. So, for the majority of small firms, the obvious answer is to use the more conventional tried and tested options of one-to-one interviews supported by references. Even when very specific technical skills are involved, with a little preliminary guidance and advice, the owner-manager can normally find out ways of checking if the candidates have the necessary skills during the interview process. But one of the biggest advantages of face-to-face interviews is that they give both parties the opportunity to ask themselves the question ‘Can I really work with this person?’ and for the owner-manager, who is now in the role of the customer or buyer, to ask ‘Will this person fit in with my business, and will they create the right image with my customers?’

However, although interviews are probably the most practical form of selection for a small business, for an owner-manager who has never carried out an interview before, the process can be as harrowing as for the person being interviewed. How, then, can we make the process easy to manage and less frightening?

Interviewing staff

The whole process of interviewing becomes less fraught if it is well planned and organized, and if we follow some simple basic guidelines. For example, before the interviews take place, the interviewer should:

•   Give the candidates adequate notice of the time and date, with clear directions of where to go and details of overnight accommodation if needed.

•   Tell candidates where to park and, if possible, make sure that there is space for them. On arrival, ensure that someone greets them, tells them where to wait and where to find the toilets. Ideally, offer them a cup of tea or coffee, and sit them somewhere in private where they will not be subject to the scrutiny of any other staff.

•   Look at the room layout, avoid barriers between you and the candidates, and try to create an informal and relaxed layout. If you put the candidates at ease, they are more likely to open up in discussion.

During the interview process:

•   Ensure that there are no interruptions from telephone calls or visitors. If necessary put the telephone on answer service and leave a ‘Do not disturb’ notice on the door.

•   Allow adequate time for each interview, and space between them to stretch your legs or to deal with any urgent calls. If you are using any tests or questionnaires, allow time for these to be completed, and time for them to be assessed before the candidates are interviewed.

•   Plan the interview schedule to allow time for those travelling longer distances.

•   Allow sufficient time for yourself, or any other interviewers, to read through the applications between each interview to remind you about each candidate and to highlight any specific questions you may wish to ask.

•   When the candidate enters the room, introduce yourself and tell them briefly about your business and about the job. Keep it fairly short, then ask any standard questions you may have prepared and any specific questions relating to them individually.

•   Invite the candidates to ask questions, encourage them to do the talking and listen to their answers. Use open or probing questions to encourage them to express ideas and opinions. If you are unsure of the answer, revisit it later in another way. Use hypothetical questions to assess the candidate's responses to possible problems, and closed questions to clarify a point or fact. Above all, do not talk too much.

•   Make notes of candidates’ answers and responses for later review.

•   Finally, at the end of the interview, check that they are still interested in the job. Thank them for their time, and tell them when you will be making a decision and when you will notify them of the result.

After the interview:

•   Review your notes, and consider some basic questions about the candidates. Think about the impression they have created on you, and whether or not you would want the same impression created on your customers. Will they fit in with you, other staff and the way your business operates? Can they do the job you want them to do?

•   Compare the candidates against the job description and person specification. Which applicant met the requirements more closely? Would they fit in with your business? Do they still want the job?

•   Check on references, make your decision, notify the successful candidate and make them an offer. If he or she accepts the offer, then notify the unsuccessful candidates. Always keep your notes of the interviews for several weeks, in case any of the applicants want feedback on why they were unsuccessful. If your chosen applicant falls through, you may even wish to go back to them.

Discipline and grievance procedures

Whereas most medium-sized and large organizations that can afford to employ specialist personnel staff, have written procedures for discipline and grievance, it is quite rare to find them in small firms, even though the risks and legal implications in terms of industrial tribunals and appeals are the same. In fact the financial implications of a lost industrial tribunal, whilst they are an expensive nuisance to a big company, can be totally devastating to a small firm. Even winning a tribunal can still leave a business with hefty legal bills. It pays, therefore, to think about having some simple form of discipline and grievance procedures if you are thinking of employing even just a few staff.

The Code of Disciplinary Practice and Procedures in Employment describes the three basic principles of natural justice on which the disciplinary process is based:

1  Individuals should know the standards of performance that they are expected to achieve, and the rules to which they must conform.

2  They should be told promptly and clearly of how and why they are breaking any rules, or failing to achieve the required standards.

3  They should be given adequate opportunity to improve before disciplinary action is taken, or dismissal is implemented.

When disciplinary action is taken, if the offence is serious, e.g. it relates to theft, violence or dangerous behaviour that constitutes a major risk to health or safety, then an employee can be suspended and sent home immediately pending dismissal. Otherwise it is normal to take a three-stage approach involving an initial verbal warning (although with details recorded on file) after which, if there is no improvement, a formal verbal warning is given, usually with a letter which confirms the nature of the verbal warning. Finally, if the problem still persists, a formal written warning is given, with notification that further recurrence within a specified period of time will result in dismissal. The second and third stages are also recorded on file.

Grievance procedures tend to follow a similar pattern, depending on the size of the organization. In the case of a complaint, every employee is entitled to a fair hearing within a reasonable period of time. In a very small firm this may just involve a straightforward discussion with the boss to resolve the problem but, in larger firms, it may involve successive appeals to higher levels of management through a standard procedure, e.g. supervisor, line manager, senior manager or director. It may also involve colleagues, personnel staff or trade union stewards over a period of several days. In either case there has to be a cut-off point at which the process stops. It is always worth keeping on file a record of the process at each stage, for later reference.

A large proportion of tribunals is based on dismissal or, more to the point, unfair dismissal. Dismissal by means of the formal period of notice or upon expiry of contract is quite fair but if, for example, the employee is refused work after pregnancy or is unjustifiably demoted, this may constitute constructive dismissal, which is illegal. Two key questions are asked by tribunals in these circumstances:

1  Was there sufficient reason for dismissal, i.e. was it fair or unfair?

2  Did the employer act reasonably or unreasonably in the circumstances?

Staff appraisal

There are still some managers who regard it as regrettable that the P45 has been superseded as the primary form of staff appraisal, and there are still some staff around for whom it remains the most appropriate method. In the past two decades, staff appraisal systems have become almost universal within large and medium-sized organizations. Formal systems are still relatively rare in very small businesses, apart from those which have implemented more formal quality systems such as IIP or ISO 9000, or where the owner-managers have come from larger businesses where appraisal was an accepted part of the organizational culture.

Appraisal is essentially a process of performance management. The basic principle is that every member of staff has a private and uninterrupted interview with their immediate superior or manager on a regular basis, e.g. annually or half-yearly. Prior to the interview, both parties will typically complete a form in which the manager reviews the performance of the staff member over the preceding period, and the staff member reviews their own performance over that same period. The two assessments are then compared and discussed. The appraisal process is meant to provide a constructive analysis of performance, which can be used to set targets or objectives for the forthcoming period, and which are agreed by both parties. It is also used to identify any areas for staff development or training, either to redress weaknesses or to prepare the person for a future extension of their job role. It is an opportunity for praise as much as for criticism, and should certainly not be regarded as a mechanism for punishing staff. In many organizations, it is also used to form the basis for pay reviews or promotion.

In order for it to work properly the appraisers are normally provided with training in listening skills, and how to handle the interviews in an objective and non-threatening manner to put the appraisee at ease and facilitate a useful and productive dialogue. An autocratic style of management is not exactly conducive to achieving quality discussion in appraisals, where open and honest discussion is essential. A good appraisal system will encourage feedback from both parties on the relationship and interactions between each other. It should also be welcomed by employees, not feared or dreaded.

Further reading

Armstrong, M. (1995). A Handbook of Personnel Management Practice. Kogan Page.

Clayton, P. (1998). Law for the Small Business. Kogan Page.

Palmer, S. (1998). People and Self Management. Butterworth-Heinemann.

Stokes, D. (1998). Small Business Management: A Case Study Approach. Letts.

Thompson, R. and Mabey, C. (1994). Developing Human Resources. Butterworth-Heinemann.

Warwick, J. and Francis, C. (1999). You and Your Business Series: People. SFEDI.