Enterprise Plus Report On The Legal Implications Of Young People

ENTERPRISE PLUS

REPORT
ON THE
LEGAL IMPLICATIONS
OF
YOUNG PEOPLE
IN BUSINESS

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

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


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

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

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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

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

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

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

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

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

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

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

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

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

APPENDIX

13

APPENDIX

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