There has been a surge in new company formations in the last few years, as entrepreneurs develop new and exciting business ideas and bring them to market.
On top of this, there are a growing number of workers with ‘side hustles’, who are quickly scaling up their operations to deal with demand from their customers and clients.
While many businesses may initially rely solely on the work of their founder, there comes a time when operations grow so much that they need to consider hiring their first employee.
Hiring your first employee will lighten the workload, but it also brings with it new tax and payroll requirements.
If you have previously been one of the 4.2 million businesses in the UK with no employees, other than yourself, and you are looking to bring in a new worker here are our top tips to get you started.
Inform HM Revenue & Customs
Before you can hire someone, you need to register as an employer with HMRC. Doing so will provide you with an employer PAYE reference number so you can manage your payroll.
This must be done within four weeks of your new employee’s first payday. The registration process is fairly quick, but receipt of your reference number can take up to five working days, so you must factor this in.
Set up effective payroll processes
You will need to manage your payroll online each month, report this information to HMRC and make the correct payments of tax and National Insurance, as well as paying into any benefit schemes or pensions offered to your employees.
As such you will need to implement processes and payroll software systems that allow you to do this.
You may already have existing systems in place that manage your personal payroll, but you should consider whether these are still sufficient when you hire your first employee.
Don’t forget, you may also need to deduct student loan repayments, pension contributions, Payroll Giving donations and child maintenance payments.
The weekly or monthly administration of your payroll can be time-consuming and is often complicated by regular changes to the rules surrounding pay, which is why many businesses choose to have their accountant manage it for them.
Create a basic workplace pension scheme
If any of the workers you hire are eligible for a workplace pension you will need to set up and manage a scheme for them.
You must automatically enrol your staff into a pension scheme and make contributions to their pensions if all of the following criteria apply:
- They are classed as a ‘worker’
- They are aged between 22 and the State Pension age
- They earn at least £10,000 per year
- They usually (‘ordinarily’) work in the UK.
You will also need to calculate and make an employer’s contribution of at least three per cent each month to the scheme and ensure that an overall minimum contribution of eight per cent is made.
The additional five per cent is usually made up of an employee contribution, but both you and an employee can offer to contribute more should you wish to.
Your employees can choose to opt out and leave the scheme, but you will still need to re-enrol them every three years.
Paying the National Minimum Wage
You are legally required to pay your employees at least the correct National Minimum Wage (NMW) or National Living Wage (NLW) for those aged 23 and above. Failing to do so could result in you being fined and publicly named and shamed.
The current NMW rates, as of April 2022, are as follows:
|23 and over||21 to 22||18 to 20||Under 18||Apprentice|
Be careful if you make deductions from pay, other than for tax, National Insurance or a small number of other exceptions, as these cannot normally reduce a worker’s pay below the National Minimum Wage – even if they agree to it.
Many employers have previously been caught out by this, as well as other important changes, such as a person’s birthday where it carries them into the next NMW band.
Protect your business
Although not directly related to tax or pay, businesses should take steps to protect their interests. This includes ensuring the new staff member has the correct legal status to work in the UK, producing clear, written employment contracts and policies, and taking out employer’s liability insurance in case of accident or injury at work.
Failing to take these steps could leave your business exposed to costly risks, including fines and potential compensation payments.
These are only a few of the steps that you as a prospective or new employer may need to take and it is well worth seeking payroll and HR advice before hiring your first employee, both to protect yourself and to take away the administrative burden.