A Guide to Hiring Your First Employee

It is exciting when your small business grows and you decide to take on new staff, but this also means more jobs for you too, like completing payroll. Payroll sounds like it would be straightforward but there are many different elements to the process, including deductions and benefits as well as ensuring you have registered as an employer so that you may operate the Pay As You Earn (PAYE) system correctly for your new employee.

As a sole trader, you will have become used to doing everything on your own. Any frustrations with payments or administration might be annoying but they only affect you. Once you take on an employee then you are responsible for another person and, understandably, nothing upsets an employee as much as an incorrect payslip.

Here are three steps to make sure you get off to a flying start with your first employee:

  1. Insurance

As soon as you become an employer, you need employers’ liability insurance to pay you compensation if the employee falls ill or is injured because of the work they do for you. The insurance must cover you for at least £5 million. Without cover you could be liable for a fine of £2,500 per day while you’re not insured. We can recommend an insurance broker where relevant.

  1. Registration

You will need to register yourself as an employer with HMRC before your employee receives their first salary. This can be done online. Although you can’t register an employee more than two months’ before you start paying them, you should make sure you allow enough time to receive a PAYE reference from HMRC and this can take up to 15 working days. The PAYE reference will then be used to make submissions to HMRC about your employee’s wages and the income tax and national insurance contributions that you’ll deduct from their salary to pay HMRC on their behalf under the Real Time Information (RTI) system.

  1. Pension auto enrolment

As you are now an employer, you need to operate a workplace pension scheme and enrol your new member of staff if certain eligibility criteria are met. The employee will be eligible for a pension if they are:

  • Aged between 22 and the State Pension Age
  • Earning at least £10,000 per annum
  • Usually work in the UK

There are also requirements for you to check that your workplace is safe and accessible for staff, that your employees have the right to work in the UK, and that they’ve passed a DBS check if the role requires one. You must also send a written statement of employment to the employee and they must be paid at least the National Minimum Wage (or the National Living Wage if they’re over 23 years old).

These are all the steps to take before you make that first all-important payment to your new hire. You will then have to make sure that each payslip deducts the right amount of income tax and national insurance, that pension deductions are recorded, and that sick pay, holiday pay, maternity pay and parental leave pay are correctly calculated where relevant.

You can either run payroll yourself by using specialist software or pay a payroll provider to do it for you. If you choose the latter, you will still ultimately be responsible for collecting and keeping records of your employee’s details, but some payroll providers can do all of that for you if you prefer.

At Kench & Co we can assist you with all of these tasks. It really is a positive step when you take on your first employee so we want to make sure the administration doesn’t take the wind out of your sails! We have experience of running payroll for all kinds of businesses, big or small, and we have been doing it for over thirty years. Let us lighten the load and leave you and your new hire to get on with what you do best – making a success of your business.

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