As an employer, there is a lot to think about when taking on a new employee. It is also important to consider the financial side of taking on a new employee to make sure you can commit to paying them every month.
We have put together a guide on how to get set up with payroll and PAYE, as well as some other things you should consider when hiring a new employee.
Payroll & PAYE
When you take on a new employee, you are committing to paying them a set minimum amount every month, regardless of whether you have any work for them to do. This means it is important to make sure you have sufficient reserved funds to keep both of you afloat if you do so happen to go through a dry patch.
When you take on a new employee, you need to take the following steps to get them set up on your books:
1. Register as an employer with HMRC and get a login for PAYE online – this is how you report the tax and NI that your employee suffers.
2. Decide how you will run your pay roll – you can use the basic PAYE tool HMRC offers but this does not provide you with payslips or deal with pensions. The alternative is a payroll software that you can use for low fees.
3. You need to submit the PAYE information to HMRC on or before every payment to your employee. If you pay them weekly, it is a weekly submission, or if you pay them monthly, it is a monthly submission. This is known as RTI (Real Time Information) submissions.
4. When you do your first submission, you will tell HMRC who your new employee is and when they started. After this, each submission will advise HMRC of how much you are paying the member of staff and how much tax and NI is being deducted.
5. HMRC needs to be paid the tax and NI on a monthly or quarterly basis, which is dependent on how big the deductions are – this is your P30. If the payment being made to HMRC is less than £1500 per month, you can pay quarterly, so most small businesses will fall under this.
Here are some things you should think about when taking on a new employee:
- Employment contracts – every employee needs one. These are there to protect you, the employer and the employee. Contracts include all terms including hours of work, sickness procedure, grievance procedures, confidentiality clauses and holiday. A HR professional can help you to produce a one off contract that fits your business needs.
- Holiday – decide when your holiday year will run (e.g. A calendar year, tax year, a year from when the employee starts). The statutory minimum is 20 days plus 8 bank holidays per year for a full time worker but this can be adjusted for mid-year starters and part time workers. Make sure you keep a track of exactly how many days/hours employees take because if they leave during a year, they may be entitled to be paid their unused holiday or you can reclaim their overpaid holiday.
- Tax codes – Always ask any new employees if they have a second job or pension as this can affect the tax code on their PAYE income. Although most people have a standard tax code, it is best to check with a P45 to prevent over or under payment of tax.
- Pensions – Auto enrolment is applicable for employees aged between 22 and state pension age, and you earn above the earnings threshold of £10,000 per year (£833 per month or £192 per week). To enrol an employee into a pension scheme, you will need to set up an Auto Enrolment compliant pension scheme.
- Insurance – Make sure you have the correct insurance for employees. Most public liability insurance policies also have an add on for employers liability.
We do hope this guide has been helpful when taking on a new employee. If you need any help or advice on anything relating to payroll, P30s or financial factors surrounding employing people, please get in touch with our team and we’ll be happy to guide you through the process.