If you’re getting ready to take on an employee for the first time, there’s a lot more to it than ‘just’ paying their salary every month, but it’s an important part of the process. They’ll certainly think so.
We thought we’d dive in and take a look at what you need to do in order to pay your new member of staff, as well as what you need to consider before making that all-important hire.
Check that you can afford to employ someone
The cost of hiring someone is about more than their wages. As an employer you’ll normally also need to make National Insurance and pension contributions on top of the salary you pay to your new employee, so there’s a fair bit to think about.
As with any business decision, checking your financial reports tends to be a good place to start. Using this data will help you work out if your business can afford to employ someone, whether the cost will be worth it for the benefits you hope they’ll bring, and to make sure your cash flow can deal with the commitment!
Do I need to check an employee’s right to work?
Making sure that your staff have permission to work in the UK is a legal requirement. It’s your responsibility to verify that your employee(s) aren’t working in the UK illegally before they begin employment with you.
If you don’t carry out the checks properly, your business could be fined up to £20,000 for each illegal worker, so it’s not to be taken lightly! You could also find yourself with a prison sentence of up to five years if you knowingly employ someone who isn’t eligible to work in the UK. As you can see, it’s really important to get right.
Checking a candidate’s right work in the UK means:
- Asking to see their original immigration or identity documents
- Recording the date on which you made the check
- Checking their documents are valid
- Making and retaining copies of their documents (don’t forget to follow data protection rules with this too)
- Checking the authenticity of any photos
See the Right to Work Checklist on the Gov.uk website for more information.
Should I have employer’s liability insurance?
Most UK businesses are legally required to insure against liability for injury or sickness caused to employees in the workplace. Known as Employers’ Liability Insurance, it means that if an employee ever sues the business, your insurance should cover it.
If your business is an industry that’s known for being higher risk, for example construction, it’s well worth considering a much higher level of cover. Most UK insurers will provide affordable coverage of £10 million or more if needed. If your business does something really dramatic like dragon-herding, then you’re probably going to struggle.
Whilst we’re on the subject of insurance though, never be tempted to cut corners! It could leave you seriously out of pocket if the worst should happen. Check your business has strong measures in place to protect against fraud too.
How do I start paying an employee?
All employers are responsible for paying their staff the right amount each payday, and for taking tax and other deductions from their salary. Your first step is to register as an employer with HMRC.
Tell HMRC you’re an employer by registering for PAYE
You’ll need to sign up for PAYE as an employer even if the only person you employ is yourself, because you’re taking a director’s salary from your own limited company.
The timing for this is important because:
- You can’t register more than 2 months before you start paying someone
- It can take up to 5 working days to receive your PAYE reference number
Decide how you want to run payroll
It’s up to you whether you operate payroll yourself using special software, or have a payroll provider do it for you. If you have an accountant already or you plan to get one, they might also offer a payroll service that you can use.
Add your employees to payroll
You’ll need some information from your new employee so you can add them to your payroll. Most of this will be available on their P45 if they have one, but don’t panic if they don’t!
Not every new starter will have a P45. A P45 is issued by an employer at the end of someone’s employment, so if this is your new person’s first role, or they’re starting a second job whilst continuing to work for another employer, they won’t have a P45. You can still employ someone without a P45, just ask them to complete a starter checklist instead.
This step is important so that deductions, such as Student Loan repayments and tax, are taken from employees’ wages correctly.
Pension auto-enrolment and staff benefits
Employers are expected to set up a workplace pension scheme, and auto-enrol employees any eligible employees. If you have an accountant then they’ll often sort all of the setting up and doing sums for you (for a fee) as part of their payroll service.
If you’re planning to offer staff perks, such as private healthcare or gym memberships, you’ll also need to report these to HMRC as taxable benefits (and record them in your accounts properly!).
Can I claim wages as an expense?
No-one wants to pay more tax than they have to. Luckily being an employer means you can claim some of these costs back as a business expense.
Don’t forget you’ll need to show wages in your accounts so that you can claim everything correctly, and review how much your spending and on what. We know bookkeeping software is horribly dull but at least if you use it you’ll have more time for things which are interesting. Pandle has a feature for entering wage journals to make it easier.
There are several types of relief available to employers, including:
- The Employment Allowance for employer’s NI contributions, as well as other types of employer NIC relief depending on who you employ
- Salaries are an allowable expense, helping to reduce your tax bill
So keep good records!
Learn more about using Pandle to make business accounting easier. Create a free account or use Pandle Pro for £6 a month.
