Ready to take that exciting step and become an employer? Whether you’re taking on staff or becoming an employee of your own limited company, here are a few key things that you need to do:
Register with HMRC
If you pay any of your employees the National Insurance Lower Earnings Limit (LEL) or more, you’ll need to register with HMRC as an employer. The Lower Earnings Limit is currently £112 per week / £5,824 per year and will increase to £113 a week from 6th April 2017. In most cases you can register online, but certain types of employer, e.g. insurance companies, need to do this by phone or post. You may be exempt if you pay all of your employees below the Lower Earnings Limit, but you should confirm this with HMRC. However, even if you are exempt, you’ll still need to maintain payroll records.
You can confirm if you need to register and find out how to do this at https://www.gov.uk/register-employer. The process can take a few weeks and must be complete by your first payday, so allow plenty of time.
Set Up and Run Your Payroll
Every time you pay someone, you’ll need to make a real-time information (RTI) submission to HMRC using payroll software. A free PAYE tool is available at https://www.gov.uk/basic-paye-tools if you have no more than 10 employees. This tool works very well, calculating the tax and National Insurance due for each employee and making the required RTI submission. However, it doesn’t generate payslips, so you’d need to do this manually, e.g. using a spreadsheet.
There’s a wide range of commercial payroll software available, including a number of internet-based packages. Some people prefer desktop software, but internet-based software has the advantage of automatic remote back up. Some internet packages can also work out more cheaply by operating on a per employee cost. It’s always worth considering using the same supplier for both your accounts and payroll software as many integrate with each other. As an example, Quickbooks Online has a payroll app which automatically updates your accounts as well as doing all of the usual tasks!
HMRC provide a useful checklist that you can give new employees to collect the payroll data you’ll need – this is available at https://www.gov.uk/government/publications/paye-starter-checklist.
As a registered employer, you’ll need to comply with auto-enrolment requirements. This basically involves assessing your staff as at your Staging Date and then each time you pay them to work out whether you have to include them in your pension scheme. There can be large penalties for not complying so it’s important that you fully understand what you need to do.
The first step is to check your Staging Date via the Pensions Regulator website at http://www.thepensionsregulator.gov.uk/employers/staging-date.aspx. Auto Enrolment is a complex area, but the Pensions Regulator website has lots of useful help and guidance: we’re planning to dedicate a future blog to this subject!
Paying the Correct Rate
As a responsible employer, you’ll need to pay your employees at least the legal minimum wage. The current rates and those that will apply from April 2017 are:
|Year||25 and over (the Living Wage)||21 - 24||18-20||Under 18||Apprentice *|
|October 2016 (current rate)||£7.20||£6.95||£5.55||£4.00||£3.40|
|From April 2017||£7.50||£7.05||£5.60||£4.05||£3.50|
*The apprentice rate applies only to apprentices aged 18 and under or those aged 19 or more who are in the first year of their apprenticeship.
You can find out more about the National Minimum Wage and the National Living Wage at https://www.gov.uk/national-minimum-wage-rates.
Confirm the Employee’s Right to Work in the UK
Before employing someone, you must confirm their right to work in the UK. You must ensure that you:
- see the original documents,
- check that the documents are valid whilst you are with the person,
- make and keep copies of the documents together with a record of the date you made the check.
Guidance on what documents are acceptable and details of the checks that you need to make are provided at https://www.gov.uk/check-job-applicant-right-to-work.
Contract of Employment
Every employee has a contract with their employer – the contract is effectively formed by the employee accepting the job offer. Employment contracts don’t have to be in writing, but this is always good practice to protect both you and your employee.
If your employee’s contract is expected to last a month or longer, then you must give them a “written statement of employment particulars”. This isn’t a contract but sets out the main terms of their employment. They must receive it within two months of starting with you.
Excellent guidance, including what must be included in the “written statement of employment particulars”, is provided at https://www.gov.uk/employment-contracts-and-conditions/overview. However, we would always strongly recommend that you consult an HR professional: we’d be happy to put you in touch with someone appropriate.
Employee Leave and Time Off
Employees are entitled to a minimum of 5.6 weeks paid leave a year, including bank holidays. For part-time employees, entitlement is calculated on a prorata basis. Detailed guidance and a free calculator to work out each employee’s entitlement is available on the HMRC website at https://www.gov.uk/holiday-entitlement-rights/entitlement.
Employees are also entitled to paid time off for certain other reasons such as when they’re ill, if they’re pregnant or if their partner has a baby. Again the rules can be complex, but we’d be happy to talk through your specific situation with you.
Employer’s Liability Insurance
As soon as you become an employer, you must have employer’s liability insurance of at least £5 million issued by an authorised insurer: the potential fine is £2,500 for every day that you’re not insured! There are certain limited circumstances around employing family members and staff based abroad that may mean you don’t need employer’s liability insurance. However, we would always suggest seeking professional advice. There are a wide range of different insurers and policy options available: we can recommend a broker on request.
Health and Safety
Your legal duties relating to Health and Safety will depend on the type of work that your employee will be doing and the number of staff you employ. We would strongly recommend that you look at the HSE website http://www.hse.gov.uk/ and consult a Health and Safety professional or your local council for further advice.
Becoming an employer can be thrilling and rewarding, but it’s also a potential minefield – we’d love to hear from you with your experiences and questions!