Hiring your very first member of staff is both exciting and daunting. Many business owners don’t hire their first member of staff until later on in their company’s development – perhaps a few months or a couple of years after they’ve set up. Taking on a new person is a sign that your business is growing and, at the same time, it’s quite daunting to be responsible for someone else as well as their pay packet.
In this article, the Financial Management Centre’s team, who has had the privilege of helping hundreds of companies onboard their first ever employee, talk you through what you need to know.
If you believe that you’ve found the right person to work alongside you, you’ll need to make sure that they have the legal right to be employed in the UK. The Government have an online service allowing you to check if a document allows someone to work in the UK.
If you employ someone who doesn’t have the right to work in the UK, the fines are hefty so it’s absolutely always worth checking properly before you invite someone to become your newest member of staff. Check out a story of a restaurant owner who was fined £100,000 for employing five illegal immigrants here.
Depending on your line of business, you may also need to perform a criminal check, known as a DBS check. Again, you can use the Government’s website to check someone’s criminal record as an employer. There is also an online tool allowing you to find out which DBS check is right for your employee.
Your first member of staff as well as all others who follow are protected by legal rights. You can choose an employment contract for your staff which offers employees the minimum protection available or you can choose one which offers them enhanced rights. Any protection provided by law is “statutory” and any additional protection or rights given by you are “contractual”.
Your contract will need to reflect how much you pay your member of staff, what they do, where and when they work, what level of holidays they’re entitled to, and more. You will also need to make sure that any wage you pay to your member of staff is at least at the level of the National Minimum Wage or National Living Wage.
How to register as an employer with HMRC
Prior to starting their first day, you will need to contact HMRC to register as an employer. The process takes up to four weeks so you may want to register in advance of placing your job adverts for the role.
Once you’re an employer, you will need to deduct tax and National Insurance from your staff member’s wage. You will also need to pay National Insurance Employers’ Contributions (currently at the rate of 13.8%) on top of their wages. You must hold this money and then make payment in full to HMRC by the 22nd of the month following payday.
Legally, all employers must take out employers’ liability insurance. If a member of staff is injured at your workplace or at another location when carrying out their work, they may make a claim for compensation against you.
You must take out employers’ liability insurance which provides you with cover of at least £5m.
You may also want to consider taking out professional indemnity insurance which will cover you against claims made by clients on the quality of your staff member’s work. Even if a client signs a job off, they may still make a claim against your company up to six years after the work has been completed.
Running payroll for members of staff is complicated. Although there are still a very small number of businesses who do manual calculations for payroll, most either use specialist payroll service providers or they use payroll software built into their online bookkeeping platform.
In addition to advising you on the amount of money you need to pay HMRC, payroll software will also print off (on paper or to a PDF) payroll slips which you then give to your employee for their record keeping.
Depending on how much you pay your first member of staff, you may need to enrol with the Pensions Regulator to offer them a workplace pension.
Both you and your staff member must make a contribution to your staff member’s pensions. There are legal minimums as you can see in the table below:
Minimum employer’s contribution
Employee’s tax relief
Total Pension Contribution
October 2012 – March 2018
April 2018 – March 2019
April 2019 onwards
You and your employee are free to make higher levels of contributions if you make such an agreement between you. Your employee is also free to refuse the offer to open a workplace pension however you are legally obliged to offer them the opportunity to do so.
Keep your records
You must keep tax records available for HMRC to review for six years after you’ve paid your member of staff. Most records can be safely stored and made easily accessible within the accounting or bookkeeping software you use.
You’ll also need to keep records of any expenses or benefits you’ve provided to your member of staff during the course of a year using a form P11d. HMRC provides online guidance for employers on expenses and benefits here.
Onboarding new staff
Becoming an employer for the first time throws up many challenges. Most first-time employers are surprised with the amount of paperwork that’s required and even more surprised by the existence of National Insurance Employer’s Contributions – many think of it as a “tax on jobs”.
We’re always here to help here at the Financial Management Centre. Please call us today on 0800 470 4820 or email [email protected].