It’s a big step, taking on your first employee. If you’ve only ever worked for yourself in the past, or even been employed by other people, the rules and regulations surrounding PAYE, NIC and other important aspects of employment law may be new to you, so make sure that you know exactly what you need to do.
As an employer, you’ll be responsible for calculating and deducting PAYE and National Insurance contributions from your employees, and making sure it’s paid to HMRC on time. You’ll also have to pay any statutory payments like Statutory Sick Pay and Maternity Pay.
You need to ensure you keep accurate records of all payments you make. These can be requested at any time by HMRC for inspection.
Registering with HMRC
The first thing to do if you’re taking on staff is to register as an employer with HMRC. If you have already registered yourself and/or your business for self-assessment, PAYE, corporation tax or VAT you should already have a government gateway account, so registration should be fairly easy. The HMRC website has a Business Tax Dashboard which is handy for bringing together all the information from the services you use online, and you can nominate someone else to handle it for you if you prefer, whether it’s a business partner, accountant or financial adviser. All you need to do is inform HMRC of your chosen person.
You register with HMRC for PAYE up to four weeks before you have to pay your new staff members.
You do not need to register with HMRC if you pay your new staff member under £112 a week provided your new employee does not have a second job, receive any benefits or have a pension income. You still need to keep accurate payroll records and you will need to register with HMRC as soon as you pay your employee more than £112 a week even if it is a one off.
Setting up a payroll
It’s your responsibility as a new employer to set up a payroll. You’ll need software that is compatible with HMRC if you’re running the payroll for your company yourself, so that you can send the information across in real time, every time an employee is paid.
There is free payroll software available from HMRC for businesses employing fewer than nine people, or you can use commercial software. You might prefer to hand everything over to a specialist payroll bureau or an accountant if that’s easier. As long as someone is giving the correct information to HMRC, it’s fine, but as the employer, it’s legally your responsibility to make sure the information is sent, whichever method you choose.
You’ll also have to decide how much you intend to pay employees – and make sure it’s at least the current National Minimum Wage.
Employed or self-employed?
Before you take someone on, check whether the new employee will actually count as ‘employed.’ Some people, such as freelance contractors, are responsible for their own tax and National Insurance so you don’t need to include them in any PAYE calculations.
There’s a useful interactive employment status indicator on the HMRC website.
Checking up on your employees
It’s important to make sure that your intended employee(s) are legally entitled to work in the UK, and if the position they are applying for is one the requires a Disclosure Barring Service (DBS) Check, formerly known as a CRB check, make sure this is done before he or she is formally employed.
All employers need to have employers’ liability insurance before they can become an employer. If you already have professional indemnity or third party liability insurance check with your insurer to see if you are covered.
You are legally responsible for making all the correct deductions from your employees pay and paying them to HMRC on time. There are monthly deadlines for paying deductions, as well as Student Loan repayments or tax that has been deducted from payments you’ve made to subcontractors.
Need help with your payroll responsibilities?
Emma Stevens Accountancy offer a payroll service to customers. You can check our rates here.
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