When employing staff for the first time it is important that you follow government employment guidelines. Here, we look at some of the key issues you need to consider when employing staff for the first time.
Register your status as an employer
Don’t forget to tell HM Revenue and Customs (HMRC) that you have become an employer. This registration process can be done up to 4 weeks before the first payday. Most new employers can register online and it usually takes up to 5 days to get your employer PAYE reference number.
Payroll – PAYE
HMRC require limited companies to pay their employees using Pay As You Earn (PAYE). PAYE is HMRC’s system to collect income tax and national insurance from employment. To set up a PAYE scheme with HMRC it is necessary to register online via the government website: https://www.gov.uk/paye-online
Employing your spouse
From a financial point-of-view, there are certain tax benefits that you can achieve through employing a spouse in your business. It is possible to transfer income from you to your spouse, which is likely to show a tax saving if your spouse has unused personal allowances or pays tax at a lower rate than you do.
It is important that your spouse is treated like a ‘normal’ employee. They must actually be doing something for the business, and being paid according to their role and hours, the salary must be paid to them and National Minimum Wage/National Living Wage regulations are likely to apply.
Please contact us for further advice if you’re considering a ‘marital’ business as different rules apply.
The apprenticeship scheme
Apprentices are new or current employees aged over 16 that receive paid on-the-job training for between 1 and 5 years. You can get help from the government to pay for apprenticeship training.
Smaller businesses who are not required to pay the levy (the levy applies if you’re an employer with a pay bill over £3 million each year) pay 5% towards the cost of training and assessing their apprentice. The government will pay the rest (95%) up to the funding band maximum.
The government funding does not pay the salary of an apprentice.However, there is a 0% rate of NIC for employers of apprentices. This rate applies to the earnings of under 25 year-old apprentices up to £962 per week for the current tax year.*
Apprentices in England aged under 19, or aged 19 or over and in the first year of apprenticeship, are entitled to receive the apprentice rate of the National Minimum Wage, which is £3.90 an hour from April 2019.
For more information on hiring an apprentice, visit the government website: https://www.gov.uk/take-on-an-apprentice
When auto enrolment applies
If you are employing staff for the first time, your legal duties for automatic enrolment begin on the day your first member of staff starts work. This is known as your duties start date.
You must enrol and make an employer’s contribution for all staff who are aged between 22 and the State Pension age, earn at least £10,000 a year and normally work in the UK.
If staff become eligible because of a change in their age or earnings, you must put them into your pension scheme and write to them within 6 weeks of the day they meet the criteria.
You must set up a workplace pension scheme for eligible staff if you do not already offer one.
Use The Pensions Regulator’s tool for employers to find out what you need to do and when you need to do it: https://www.thepensionsregulator.gov.uk/en/employers
Agency Workers regulations
If you plan to employ agency workers, it is important to be aware of the Agency Workers Regulations which give temporary agency workers the right to receive pay and basic working conditions equivalent to any directly employed employees after a 12 week qualifying period. The government has produced guidance on the legislation for hirers of agency workers: https://www.gov.uk/government/publications/agency-workers-regulations-2010-guidance-for-recruiters
Paying the National Living Wage and National Minimum Wage
At a minimum, you must pay employees the national minimum wage which depends on someone’s age and if they are an apprentice. The National Minimum Wage is the minimum pay per hour almost all workers are entitled to. The National Living Wage is higher than the National Minimum Wage – workers get it if they’re over 25. The government website has a minimum wage calculator so you can check the correct minimum wage has been paid: https://www.gov.uk/am-i-getting-minimum-wage
Changes to payslips
Recent legal changes to how payslips are itemised mean that any employee paid on an hourly basis will be entitled to receive a payslip itemising the number of hours that have been worked. This allows the employee to establish that they have been paid the correct amount in return for the hours worked under the National Minimum Wage rules.
NICs and the Employment Allowance
The Employment Allowance reduces the amount of National Insurance contributions (NICs) employers have to pay by up to £3,000 per year.
It is available to businesses and charities (including Community Amateur Sports Clubs) that pay employer NICs on earnings of employees or directors.
For eligible businesses, the Employment Allowance will be automatically subtracted from employer NICs by their payroll software. For more details, visit the government website: https://www.gov.uk/claim-employment-allowance
As can be seen above, paying employees is among the most vital tasks any business must perform, and there’s a lot to consider. Tax, National Insurance contributions (NICs), pensions, maternity and paternity pay, student loans, real time information and autoenrolment are just some of the complex areas that mean payroll is a major distraction that employers could well do without. We provide an outsourced payroll service that manages the process for you and ensures HMRC always has the information it needs and your employees are paid correctly and on-time.
For more information on employing staff in your business please contact Ken Davies or Joanne Nieman in our payroll team.