Splitting profits by percentage with employee

[xuanchen]

Hi,

I am involved in running a small reseller startup and profits are hard to project. As my partner is 'hosting' his shop on my company we agreed to split the profits by percentage and to not decide on wages as such.

I would like to employ him as something like 'Reseller Store Executive' or similar. The difficulties arise when drawing up legal documents of employment - I wouldn't like any disagreement to arise in the future. Could you give advice on how these legal documents would be written? (Lawyers are expensive)

Thanks

 

[Newchodge]

If you are employing him as anything you will have to pay him at least minimum wage and will have potential employer NI contributions to make.

Can you not form a partnership separately from your company?

 

[xuanchen]

Do the number of hours per week have to be specified in the employment contract? If not, there may be a workaround.

The issue is that the company already has exposure and setting up shop under its name would benefit both parties. A partnership would mean that expansion will be difficult in the future.

 

[Newchodge]

Yes the number of hours have to be specified. If the contract says zero hours, they still have to be paid minimum wage for the hours actually worked.

 

[xuanchen]

How are the 'hours worked' logged? Is this by the employer or employee?

I was thinking one hour a week at minimum wage with set monthly bonuses of (percentage of profits - minimum wages paid). Is that satisfactory as far as legal terms go?

Is there anything else required (legally) to do with hiring an employee? Paperwork-wise.

 

[Newchodge]

How are the 'hours worked' logged? Is this by the employer or employee?

I was thinking one hour a week at minimum wage with set monthly bonuses of (percentage of profits - minimum wages paid). Is that satisfactory as far as legal terms go?

Is there anything else required (legally) to do with hiring an employee? Paperwork-wise.

If they work more than one hour per week, and you fall out, you could face a legal claim.

You need employer liability insurance.

You need, as a minimum a written statement of main terms and conditions of service, although a written contract is preferable.

You need a written disciplinary and grievance procedure.

You need to provide itemised payslips and you may need to run a payroll and file a report with HMRC every time you pay salary.

I can offer all of these services, except the insurance, if you would like to PM me.

 

[Walkol]

I was thinking one hour a week at minimum wage with set monthly bonuses of (percentage of profits - minimum wages paid). Is that satisfactory as far as legal terms go?

Not if they actually work more than that one hour per week.

 

[Steve Sellers]

You need a written disciplinary and grievance procedure.

Incorrect. The only thing he "needs" to do is provide a proper redress for grievances. That may take the form of a written grievance procedure (eg as in the ACAS Code of Practice).

Coincidentally people national minimum wage doesn't apply to employees who are also an integral part of the management and ownership of the business. Making this chap a genuine partner would be a surefire way to avoid NMW provisions.

 

[xuanchen]

It looks like a partnership would be the best option in the short-term after all. How permanent is it and what are the consequences of dissolving? I guess everything should be clearly stated in the contract?

On legal terms, is a contract all that is required?

 

[xuanchen]

Furthermore, what would be the next step going from a limited company to a partnership?

 

[Newchodge]

Can I suggest that you start a new thread in the Legal forum, asking about a proper structure for doing this.

I believe that you can set up a share structure in your limited company that will allow what you want to do, with your colleague as a director, but I am not sure of the best way to do it.