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 still an important part of the process.
We thought we’d dive in and take a look at everything you need to get started paying 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. Employers usually also need to make contributions to National Insurance and pensions for their staff, too.
Check your financial reports to make sure that your business can afford an employee, and that 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.
Since 1st October 2022, the government has recommended that employers validate an applicant’s proof of right to work by using a Digital Identity Service Provider (IDSP) that uses Identity Document Validation Technology (IDVT).
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.
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. Employers will need to use the Pay As You Earn (PAYE) service to report these deductions and pay them on to HMRC for their employees.
Decide how you want to run payroll
It’s up to you whether you operate payroll yourself using software, or have a payroll provider do it for you. If you have an accountant, they might also offer a payroll service that you can use.
Don’t forget you’ll need to show wages in your bookkeeping (Pandle has a feature for entering wage journals to make it easier!)
Registering for PAYE
Registering for PAYE is a legal requirement for most employers unless your staff are earning less than £112 a week. If you give your staff a pay rise, or they’re employed somewhere else, have a pension, or claim expenses, you then must register as an employer.
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
See the PAYE and payroll for employers page on Gov.uk for more information and help with getting started.
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, for instance if this is their first role, or they’re starting a second job whilst continuing to work for another employer. 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 aged 22 or older, and earning at least £10,000 a year.
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 bookkeeping!).
Claiming tax relief
No-one wants to pay more tax than they have to. Luckily there are several types of relief available to employers, including:
- The Employment Allowance for employer’s NI contributions
- Other types of employer NIC relief, such as if you employ under 21s or veterans for example
- Salaries are an allowable expense, helping to reduce your tax bill
So keep good records!
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