Thinking of taking on your first employee? Congrats! In the milestones of owning your own business, this is a really big one! Getting some help with the day-to-day running can enable you to take on more work and allow you more time to push your business forwards.
Before you start drawing up that job description, it’s important to make sure that you’ve met all the legal requirements to be an employer first. These steps aren’t too onerous, but are vitally important, both in the eyes of HMRC and the law. We’ve assembled some keys tasks to check off your list, so make a start now, and you’ll be a fully fledged employer in no time.
1. Register as an employer
First things first - it’s time to make this official! Keep HMRC in the loop by registering yourself as an employer. This step is fairly painless, but massively important. Be aware that you can’t register more than two months before you start paying staff, but you must be registered before your employee’s first payday. It can take up to two weeks to be approved, so make sure that you set aside enough time.
2. Get Employer’s Liability Insurance
Employers’ Liability Insurance is a legal requirement as soon as you take on even one employee. This can provide protection if one of your employees is injured or taken ill because of something that happens at work. It can also protect you from any compensation claims arising from workplace accidents. You could be fined up to £2,500 a day for failing to get employer’s liability insurance, so make it a priority to invest in some.
3. Decide on a wage
There’s no point in taking on an employee if three months down the line you realise that you can’t afford to pay them and have to let them go. Crunch the numbers and figure out if taking on an employee is going to be feasible for your business. Once you’ve decided on a fair salary for the work you’re asking to be done, be sure to check that it complies with the latest National Minimum Wage, which has just risen as of April 6th 2017. While you’re at it, it’s worth investigating whether your new employee will be eligible for a workplace pension.
4. Set up a payroll system
Once you’ve settled on a wage, next stop payroll! Payroll can seem a little scary, but it’s there to make things easier for you. FreeAgent’s online accounting software offers RTI-recognised monthly payroll functionality, and is a great way of keeping track of who to pay what, and when. FreeAgent files RTI to HMRC automatically whenever you run payroll, meaning you’ll never need to worry about missing a deadline again. Using FreeAgent to manage payroll is also really handy for viewing your cashflow at a glance, as well as being a lifesaver when it comes to filing your personal annual tax return.
5. Create an employment statement and an employment contract
They might sound similar - but these documents are totally separate and really important. The statement of employment particulars must be produced within two months of the employee starting. It summarises the main conditions of employment. The actual employment contract is a more detailed document of the terms and expectations between the two parties. Get in touch with an employment lawyer to make sure your contract checks all the boxes if you’re in doubt.
6. Make sure you do any necessary employee background checks
Some industries, like healthcare and education for example, require their employees to undertake background checks. Any careers involving vulnerable people or security may also warrant a background check. No matter what the industry is, you should make sure that a potential employee has a legal right to work in the UK. HMRC has produced a handy tool to help simplify this process. Find out more about any other employee background checks you might be required to make on HMRC’s website.
7. Get to grips with Employer’s National Insurance
Although as an employee you may have been used to National Insurance being deducted from your payslips automatically, you are now the one responsible for arranging these deductions. Along with this, you will also have to make employer’s National Insurance contributions. As of April 6th 2017 these two rates have been aligned, making the National Insurance process a great deal easier for employers. The change will see both employees and employers now paying National Insurance on weekly earnings above £157. It’s also worth checking out if you qualify for the Employment Allowance, which could potentially see a big reduction to your National Insurance contributions.
8. Know your employment rights
Although you might be taking on an employee primarily to help you with your workload, it’s your responsibility to make sure your employee is happy and well looked after while they are at work. There’s a whole host of employment legislation out there; from holidays and sick pay, to health and safety. ACAS provide a range of guides to help employers stay compliant, as do HMRC. If you have any concerns, get in touch a lawyer that specialises in small businesses.
All of the above rules and legislation might seem a little overwhelming, but once you’ve put them in place, they’ll just become another part of your routine. Check out our comprehensive guide to ‘Becoming an employer: what you need to know’ for more details, as well as HMRC’s online guide to employment legislation. And last of all? Get ready to be a first class boss.
Disclaimer: The content included in this blog post is based on our understanding of tax law at the time of publication. It may be subject to change and may not be applicable to your circumstances, so should not be relied upon. You are responsible for complying with tax law and should seek independent advice if you require further information about the content included in this blog post. If you don't have an accountant, take a look at our directory to find a FreeAgent Practice Partner based in your local area.