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Enterprise Plus Report On The Legal Implications Of Young People

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  • 1. ENTERPRISE PLUS REPORT ON THE LEGAL IMPLICATIONS OF YOUNG PEOPLE IN BUSINESS
  • 2. CONTENTS Section 1 - Legal Implications Of Young People Setting Up In Business ........................................... 1 1. Minors In Business...................................................................................................................... 1 2. Setting Up A Private Company ................................................................................................... 1 3. Other Business Structures .......................................................................................................... 1 Section 2 - Statutory Protection For Young People In The Workplace ............................................... 2 1. Working Hours, Rest From Work And Paid Annual Holidays...................................................... 2 2. National Minimum Wage ............................................................................................................. 2 3. Right To Time Off........................................................................................................................ 2 Section 3 - Tax And Benefits For Young People ................................................................................ 4 1. Income Tax ................................................................................................................................. 4 2. Tax Credits.................................................................................................................................. 4 3. Education Maintenance Allowance ............................................................................................. 4 Section 4 - Health And Safety For Young People In The Workplace.................................................. 6 1. Definitions ................................................................................................................................... 6 2. Legislation................................................................................................................................... 6 3. General Duties Of Employers ..................................................................................................... 6 4. Age-Specific Duties Of Employers .............................................................................................. 6 5. Safety Representatives............................................................................................................... 7 6. Employers’ Liability Insurance .................................................................................................... 7 7. Industry-Specific Limitations ....................................................................................................... 7 Section 5 - Possible Restrictions On Payments To Young People In Business ................................. 8 1. State Aid Rules ........................................................................................................................... 8 2. Application To Enterprise Plus .................................................................................................... 8 Section 6 - Support Available For Young People Starting A Business ............................................... 9 1. Big Boost..................................................................................................................................... 9 2. National Federation Of Enterprise Agencies............................................................................... 9 3. New Deal For Young People .................................................................................................... 10 C:runzoneDUCH-2151_slot-01_webui_webui_2420WS2aii - Dickinson Dees.DOC
  • 3. 4. UNLTD ...................................................................................................................................... 10 5. The Scarman Trust ................................................................................................................... 10 6. The Prince's Trust ..................................................................................................................... 10 7. Business Link............................................................................................................................ 11 Section 7 - Business And Schools .................................................................................................... 12 1. Your Query................................................................................................................................ 12 2. Answer ...................................................................................................................................... 12 Appendix - Sections 11 and 12 of the Education Act 2002……………………………………………...13 C:runzoneDUCH-2151_slot-01_webui_webui_2420WS2aii - Dickinson Dees.DOC
  • 4. SECTION 1 - LEGAL IMPLICATIONS OF YOUNG PEOPLE SETTING UP IN BUSINESS 1. MINORS IN BUSINESS 1.1 The age of majority is 18 years; people below that age are minors according to section 1 of the Family Law Reform Act 1969. 1.2 There are many potential obstacles to minors setting up in business. The main problem is that there are restrictions on the ability of a minor to enter into a valid, legally binding contract. 1.3 Contracts with minors are generally voidable at the instance of the minor, although it is binding upon the other party. There are some exceptions to this rule, such as contracts of service and apprenticeship. Contracts will only be binding on a minor if they are clearly for the minor's benefit. Contracts which are obviously not for the benefit of a minor are void. Therefore a minor cannot make a contract for a loan for example. 1.4 Obviously it is essential that a business can enter into valid contracts, for example to purchase materials, hire employees, rent premises, sell products and arrange credit facilities. Other parties will be very reluctant to enter into contracts that are not legally enforceable. 2. SETTING UP A PRIVATE COMPANY 2.1 All these problems can be overcome if the minor incorporates a private company. The company will then be the contracting party, with the minor acting as a director. 2.2 There is currently no minimum age prescribed by the Companies Act 1985 to be a director of a company. However Companies House will actively discourage the appointment of anyone under the age of 16 from taking up a company directorship. Therefore effectively the minimum age for a company director at present is 16 years old, and this will be made law by the Companies Act 2006 when it is implemented. This provision of the Act will come into force at some point in the next 2 years, however the exact date is not yet confirmed. 2.3 Private companies must currently have either two directors, or a director and a company secretary. This position will change on implementation of the Companies Act 2006, meaning that only one director will be required, and no company secretary. Again, this provision will come into force at some point in the next 2 years, but the exact date is not yet confirmed. 3. OTHER BUSINESS STRUCTURES Creating a partnership or operating as a sole trader are the other options open to a young person wishing to start a business. Neither of these structures will be appropriate for a minor because they do not have full capacity to contract, meaning they could not function as a business, for the reasons given above. 1 C:runzoneDUCH-2151_slot-01_webui_webui_2420WS2aii - Dickinson Dees.DOC
  • 5. SECTION 2 - STATUTORY PROTECTION FOR YOUNG PEOPLE IN THE WORKPLACE 1. WORKING HOURS, REST FROM WORK AND PAID ANNUAL HOLIDAYS 1.1 The Working Time Regulations 1999 contain some provisions for young workers (below 18 years but above the minimum school leaving age): 1.1.1 a limit of eight hours working time a day and 40 hours a week (unless there are special circumstances); 1.1.2 not to work either between 10pm and 6am or between 11pm and 7am (except in certain circumstances); 1.1.3 12 hours' rest between each working day; and 1.1.4 two days' weekly rest and a 30-minute in-work rest break when working longer than four and a half hours. 2. NATIONAL MINIMUM WAGE 2.1 16 - 17 year olds (who are above the minimum school leaving age) are entitled to a minimum wage of £3.30 per hour. 2.2 18 – 21 year olds (inclusive) are entitled to a minimum wage of £4.45 per hour. 2.3 22 year olds and over are entitled to a minimum wage of £5.35 per hour. 3. RIGHT TO TIME OFF 3.1 Part III of the Teaching and Higher Education Act 1998 contains a right to time off for study or training. 3.2 Employees aged 16 or 17, who are not in full-time secondary or further education and who have not achieved a certain standard in their education/training, will be entitled to reasonable paid time off during normal working hours to study or train for a qualification which will help them towards achieving that standard, and improve their future employment prospects. 3.3 The primary focus of the legislation is on 16 and 17 year olds. But an employee who is aged 18 and who is undertaking study or training leading to a relevant qualification, which he or she began before attaining that age, has the same right as a 16 or 17 year old to time off to study or train for a relevant qualification. The purpose of this is to enable the employee to complete the study or training already begun. 3.4 The 'standard of achievement', which determines both eligibility for the right and that which the young person should seek to attain, is set out in the Regulations. It is, in essence, quot;Level 2quot; (i.e. 5 GCSEs at grades A*-C, an NVQ level 2, an Intermediate GNVQ, or the specified equivalents). 3.5 quot;Time off for study or trainingquot; is a phrase which is necessary so that young employees can exercise their right. The way in which the learning takes place is not prescribed, and the quot;time offquot; is from normal fully productive work. The phrase does not necessarily mean time away from the workplace. 3.6 Study or training can be undertaken in the workplace, on the job or elsewhere on site; or it could take place in a college, with an approved training provider, or through open or 2 C:runzoneDUCH-2151_slot-01_webui_webui_2420WS2aii - Dickinson Dees.DOC
  • 6. distance learning, or elsewhere. And the time that a young person can have will be what is reasonable in all the circumstances, taking into account the requirements of the course or training as well as the circumstances of the employer's business, and the effect of the 'time off' on the running of that business. 3.7 Employees will be entitled to receive payment for their time off at the appropriate hourly rate. Where an employer unreasonably refuses to permit time off, or fails to pay the employee that to which they are entitled, an employee can present a complaint to an employment tribunal. 3.8 The amount of paid time off which an employee is to be permitted to take is that which is reasonable in all the circumstances, having regard to the requirements of the study or training; the circumstances of the business of the employer; and the effect of the employee's time off on the running of the business. 3.9 This right does not extend to taking A Levels. The focus of this legislation is on those young employees who left school with few if any qualifications. If a young person has already achieved a pass at GCE A*, A or AS level they are deemed to have already met the standard of achievement. 3 C:runzoneDUCH-2151_slot-01_webui_webui_2420WS2aii - Dickinson Dees.DOC
  • 7. SECTION 3 - TAX AND BENEFITS FOR YOUNG PEOPLE 1. INCOME TAX 1.1 Income tax is payable at standard rates from age 16. 1.2 Income tax rates for 2006-2007 are: Amount above the personal Income tax on earnings and Income tax on savings allowance benefits interest £1 to £2,150 10% 10% £2,151 to £33,300 22% 20% £33,301 or more 40% 40% 1.3 The personal allowance is £5,035. 2. TAX CREDITS 2.1 Young people aged 16 or more can claim tax credits. Tax credits are means-tested and depend on income. 2.2 Working Tax Credit is available for people who work 16 hours or more a week, are on a low income and either have a disability which puts them at a disadvantage in getting a job or are responsible for a child. 2.3 Child Tax Credit is available for people who are responsible for a child under the age of 16. 3. EDUCATION MAINTENANCE ALLOWANCE 3.1 If any of the young people in the scheme would be continuing in education at the same time as participating in Enterprise Plus, then they may be able to claim the Education Maintenance Allowance. 3.2 This is a weekly payment of £10, £20 or £30, depending on household income, to help with day-to-day costs. The money is paid directly into the recipients’s bank account, and there are no requirements about what it must be spent on. As well as the weekly payments, there are a series of £100 bonuses if the recipient adheres to their learning programme and makes good progress. 3.3 To qualify the learning programme must involve at least 12 hours of guided learning a week (such as lectures or supervised learning). The learning programme can be at a school sixth form, sixth-form college, further education college or at a training provider. 4 C:runzoneDUCH-2151_slot-01_webui_webui_2420WS2aii - Dickinson Dees.DOC
  • 8. 3.4 The rates for 2006-2007 are: Yearly Household Income Weekly Allowance Up to £20,817 £30 £20,818 - £25,521 £20 £25,522 - £30,810 £10 5 C:runzoneDUCH-2151_slot-01_webui_webui_2420WS2aii - Dickinson Dees.DOC
  • 9. SECTION 4 - HEALTH AND SAFETY FOR YOUNG PEOPLE IN THE WORKPLACE 1. DEFINITIONS 1.1 Health and safety law defines people by age: “Child” Anyone who is not over compulsory school age. He or she has not yet reached the official age at which they may leave school, also referred to as MSLA. “MSLA” The minimum school leaving age. The oldest pupils of compulsory school age, those born in September for example, may be as old as 16 years and 10 months in year 11 before they leave school on the last Friday in June. “Young person” Anyone under eighteen years of age. 2. LEGISLATION The relevant legislation in this area is the Health and Safety at Work Act 1974 and the Management of Health and Safety at Work Regulations 1999. 3. GENERAL DUTIES OF EMPLOYERS 3.1 Every employer shall ensure, so far as is reasonably practicable, the health, safety and welfare at work of their employees. The duty extends to the provision of plant and systems of work that are, so far as is reasonably practicable, safe and without risks to health, and the provision of such information, instruction, training and supervision as is necessary to ensure, so far as is reasonably practicable, the health and safety at work of employees. 3.2 Every employer shall conduct their undertaking in such a way as to ensure, so far as is reasonably practicable, that persons not in their employment who may be affected thereby are not exposed to risks to their health or safety. 3.3 “So far as is reasonably practicable” means that a balance needs to be achieved between the degree of risk in a particular job or workplace against the time, cost and physical difficulty of taking measures to avoid or reduce the risk. However, except where these factors are out of proportion compared to the degree of risk, the measures should always be taken. 4. AGE-SPECIFIC DUTIES OF EMPLOYERS 4.1 Employers have particular responsibilities towards young people: 4.1.1 to assess risks to all young people under 18 years of age, before they start work; 4.1.2 to ensure the risk assessment takes into account their psychological or physical immaturity, inexperience, and lack of awareness of existing or potential risks; and 6 C:runzoneDUCH-2151_slot-01_webui_webui_2420WS2aii - Dickinson Dees.DOC
  • 10. 4.1.3 to introduce control measures to eliminate or minimise the risks, so far as is reasonably practicable. 5. SAFETY REPRESENTATIVES Employees or their safety representatives must be consulted on matters relating to their health and safety. Some young people may lack confidence to voice their own concerns and so safety representatives may provide feedback on their behalf. 6. EMPLOYERS’ LIABILITY INSURANCE All employers must have insurance covering their liability for injury or disease suffered by employees, including young people, during the course of their employment. 7. INDUSTRY-SPECIFIC LIMITATIONS Children below the MSLA must not be employed in industrial undertakings such as factories or construction sites, and following industries have further restrictions for young people: 7.1 agriculture; 7.2 carriage of dangerous explosives and goods; 7.3 shipbuilding and repairing; 7.4 provision and use of work equipment; 7.5 power presses; 7.6 woodworking machines; and 7.7 mechanical lifting operations (including lift trucks). 7 C:runzoneDUCH-2151_slot-01_webui_webui_2420WS2aii - Dickinson Dees.DOC
  • 11. SECTION 5 - POSSIBLE RESTRICTIONS ON PAYMENTS TO YOUNG PEOPLE IN BUSINESS 1. STATE AID RULES 1.1 Rules on State aid must be considered if allowances are to be paid to participants of Enterprise Plus. 1.2 State aid is financial support given to undertakings by an eminate of the State in a business context. EU law states that any such assistance which distorts or threatens to distort competition by favouring certain businesses is incompatible with the single market, and will be illegal. 1.3 The most straightforward way to ensure that assistance is not in breach of the rules is to demonstrate that the measure in question is not State aid at all. If it is not certain that a measure does not involve State aid, it will be necessary to use an applicable exemption from the State aid rules. The exemption from State aid which is most suited to the Enterprise Plus scheme is the De Minimis exception. 2. APPLICATION TO ENTERPRISE PLUS 2.1 Any allowances paid to participants of the Enterprise Plus scheme are unlikely to result in State aid problems for the following reasons: 2.1.1 If an allowance is paid to an individual in advance of this individual setting up in business, it is unlikely to be State aid since the individual is not an “undertaking” within the meaning of the State aid rules, since they are not engaged in an economic activity. 2.1.2 If the payments continued once the individual had commenced trading, this would potentially constitute State aid, but the levels of aid given would be small enough to fall within the De Minimis exemption. 2.1.3 There are procedural requirements which must be satisfied to qualify for the De Minimis exemption. It is unlikely that the participants of Enterprise Plus would comply with these, however any allowances paid would be so small that they would not affect trade between Member States in the European Union. 8 C:runzoneDUCH-2151_slot-01_webui_webui_2420WS2aii - Dickinson Dees.DOC
  • 12. SECTION 6 - SUPPORT AVAILABLE FOR YOUNG PEOPLE STARTING A BUSINESS 1. BIG BOOST www.thebigboost.org.uk The Big Boost gives awards to young people who have ideas that will benefit their community to help them get their ideas off the ground. It gives awards of between £500 to £5000 to 16 – 25 year olds, with an average award of £2,500. The awards are given to individuals or small groups (with a maximum group size of 4). Around 2,400 awards to 16-25 year olds will be given out over the two years that the Big Boost programme will run for. 2. NATIONAL FEDERATION OF ENTERPRISE AGENCIES www.nfea.com/index 2.1 NES Programme The NFEA run the New Entrepreneur Scholarships (NES) programme which aims to encourage enterprise and remove the barriers to starting up in business in the most disadvantaged areas of England. The NES programme aims to encourage enterprise in disadvantaged areas by providing a flexible and comprehensive programme of business support and training as well as start-up funding. 2.1.1 Initial support 2.1.2 Following scholars being accepted on the programme they each undergo a skills need assessment and personal development plan process, to ascertain the individual scholar education and training needs. Each scholar will then undertake a part time customised business support programme providing around 90 hours of support. The business support element of the programme usually concludes with scholars creating a business plan for their proposed business. In addition a small expenses budget and the use of a loan computer may be available for scholars who would have difficulty attending the programme otherwise. 2.1.3 Ongoing Support Following the end of the business support, scholars will be able to access ongoing support, to help them continue their learning as their business starts and grows. 2.1.4 Start-Up Support When the scholar and their mentor decide that the time is right to set up in business, the scholar will be able to access up to £1,500 of start-up support. This support can be used to purchase items that will be needed to start up the business and may include things such as machinery, IT equipment, rent, stationery and office supplies. Details about the regional programme for the North East can be obtained by contacting Wendy Bray at Tyne & Wear Enterprise Trust on 0191 244 4000 or w.bray@entrust.co.uk. 9 C:runzoneDUCH-2151_slot-01_webui_webui_2420WS2aii - Dickinson Dees.DOC
  • 13. 2.2 Small Business Advice The Small Business Advice (SBA) Service is also run by the NFEA. It provides a unique, internet based business advice service, linking visitors to professional Business Advisers. It helps entrepreneurs, owner managers and the self-employed obtain confidential advice and guidance on business issues. The service is provided free of charge, 24 hours a day, seven days a week. 3. NEW DEAL FOR YOUNG PEOPLE www.jobcentreplus.gov.uk 3.1 This programme is a mandatory programme of help for individuals aged 18–24 who are unemployed and eligible for New Deal for Young People, providing them with the opportunity to trade as self-employed for up to 26 weeks without losing their current state benefits. 3.2 Whilst on the programme, participants will receive the continued help and support from a New Deal Personal Adviser whose main aim is to meet their needs of finding and keeping a job, or becoming self-employed. 4. UNLTD www.unltd.org.uk UnLtd is a charity which supports social entrepreneurs by providing a complete package of funding and support. This includes awards, advice and events. 5. THE SCARMAN TRUST www.thescarmantrust.org 5.1 The Scarman Trust is a national charity committed to helping citizens bring about change in their community, funding and giving practical assistance to hundreds of people. 5.2 The Trust invests small amounts of high risk money (“awards”), typically of around £2,000. Alongside the cash awards it provides a range of practical, personal and comprehensive support to award winners through a combination of assistance from experienced local teams and by plugging individuals into appropriate networks. 5.3 Awards winners will also have access to a national information service a range of community development tools, networking events, web site, phone conferences, and both face-to-face and distance learning to help to achieve their goals. 6. THE PRINCE'S TRUST www.princes-trust.org.uk 6.1 The Trust run a business start-up support programme for people aged 18-30, who are unemployed or work less than 16 hours per week. The support package includes: 6.1.1 a grant of up to £1,500 in special circumstances (subject to local availability); 6.1.2 a test marketing grant of up to £250; 6.1.3 ongoing advice from a volunteer business mentor; and 10 C:runzoneDUCH-2151_slot-01_webui_webui_2420WS2aii - Dickinson Dees.DOC
  • 14. 6.1.4 a low interest loan of up to £4,000 for a sole trader, or up to £5,000 for a partnership (the average loan is between £2,000 and £3,000 but varies regionally). 7. BUSINESS LINK www.businesslink.gov.uk Business Link offers a guide called ‘Starting a business when you are young’ on its website, which gives advice on business structures, planning, mentors, finance, helpline numbers and related websites. 11 C:runzoneDUCH-2151_slot-01_webui_webui_2420WS2aii - Dickinson Dees.DOC
  • 15. SECTION 7 - BUSINESS AND SCHOOLS 1. YOUR QUERY Are primary schools included in the Education Act 2002 (“the Act”), which extended the right to register schools as businesses? 2. ANSWER 2.1 The Education Act 2002 does not contain any right to register schools as businesses or companies. 2.2 Section 11 of the Act does create the right for the governing bodies of maintained schools to set up companies to provide services or facilities for any schools. More details of this power are contained in sections 11 and 12 of the Act which are contained in the Appendix. 2.3 The power relates to “maintained schools” which are defined in section 11(9) as meaning a community, foundation or voluntary school, a community or foundation special school or a maintained nursery school. 2.4 This definition covers primary schools, therefore primary schools may set up companies in accordance with section 11 of the Act. 12 C:runzoneDUCH-2151_slot-01_webui_webui_2420WS2aii - Dickinson Dees.DOC
  • 16. APPENDIX 13 C:runzoneDUCH-2151_slot-01_webui_webui_2420WS2aii - Dickinson Dees.DOC
  • 17. APPENDIX 14 C:runzoneDUCH-2151_slot-01_webui_webui_2420WS2aii - Dickinson Dees.DOC