So, you’re employing staff for the first time? Well done! It shows you’ve tapped into a demand in the market and that your customers want more of your product or service.
Hiring your first employee is an exciting time in any business. But, it also puts a lot of responsibility on your shoulders. It’s your problem to make sure that person gets paid at the end of the month, has the equipment they need and has the training they require.
When employing staff for the first time, you’ll have a number of legal obligations set by the government. These include making sure the person has the right to work in the UK or, in certain roles, carrying out a criminal records check.
You’re also going to have certain financial obligations to consider too. Let’s look at the five most important financial factors you need to think about when employing staff for the first time.
1. Salary
“You mean I have to pay them?!” Afraid so. At a minimum, you must pay employees the national minimum wage (see here for rates as of April 2017) and agree how often you’ll pay them – typically monthly.
You should put together an employment contract that includes their salary and details on when it will be paid. It will also be essential to include their holiday entitlement in the contract, plus details of any benefits.
2. Pay as You Earn (PAYE)
HMRC require limited companies to pay their employees using PAYE. PAYE is not for the faint of heart. Each month you will have to calculate income tax for your employee, and this includes any bonuses, tips or overtime they’ve put in. And you’ll also need to record any sick pay, employee benefits and maternity or paternity leave.
You will also need to calculate separate National Insurance Contributions (NICs). You’ll likely be dealing with Class 1 contributions as you start out – 12% on earnings between £155 and £827 per week. Most of this is paid by the employee and comes out of their payslip, yet some will be paid by you. There are a number of other Classes of NICs which might apply to you in certain circumstances.
Most businesses file online on HMRC’s website, where you can work out exactly what your employees will need to pay, and when you have to pay their tax to the taxman.
3. Employer’s Liability Insurance
Employer’s Liability Insurance (or EL) protects you in case your new employee is injured or gets ill through the job and claims compensation. In the vast majority of cases, you will have to pay EL – and the fines for failing to do so can be very steep indeed.
As a rule of thumb, you should pay EL if you take NICs and income tax from the person’s wages and supply the equipment they need for the job. So, even if your first employee is technically a temp or casual worker, you will almost certainly need to be covered by EL.
There are some cases where you might not need to, however, including if you hire contractors, you only employ close family members or your ‘employee’ lives abroad. Get professional advice before deciding it’s not needed though.
4. Tell HMRC you’re hiring
When employing staff for the first time, you need to tell HMRC. First off, you must register as an employer. This can all be done online at HMRC’s portal.
Once you’ve signed up, you need to register the new employee by completing a Full Payment Submission. This is basically a registration process where you provide certain details about the employee to the tax man including their tax code (ask the employee for a P45 from their last job and information about any student loans that might need to repay out of their salary).
It’s good to get this done ASAP – you’ll typically have 30 days to register after the first time you pay them – or you’ll be fined.
5. Automatic pension enrolment
A final essential obligation when employing staff for the first time is automatic pension enrolment. This only came into effect in 2017 but if you’re hiring for the first time, you will have to enrol your employee on a pension scheme where you pay (at a minimum) 1% towards the pension and the employee pays 0.8% out of their salary.
There are some exemptions: if your employee is under 22 or over the State Pension Age, of if they’re earning less than £10,000 per year, you won’t be obliged to do this.
You should do your research about your pension scheme provider. Some firms are better set up for small employers, others have expensive fees. So, shop around and get the right deal for your business.
Helping you with employing staff for the first time without the pain
Hiring your first employee should be an exciting time, where your business takes its first big step. However, if you spend half your time figuring out how the PAYE system works, it can distract you from the business of training the new hire up and giving them their first responsibilities.
At DSL, we help businesses like yours focus on growing, while giving you the peace of mind that your financial affairs are in order. Contact us today for advice on the accounts implications of hiring your first employee.