Employing People: 5 Considerations When Taking On Your First Employee

Employing people for the first time? Taking on your first employee may seem a little daunting – after all, you have grown your business by yourself (or with your business partner), and it may seem like you’ll never be able to “let go”.

Don’t let it be a scary time, check out our latest blog post which gives you 5 things to think about before you take on your first employee:

1. Registering as an Employer

You will need to register as an employer with HMRC when you start employing staff and should register well in advance of the first employee’s first payday as it can take time to receive the company payroll scheme details.

If the new employee is paid on a monthly basis, you will need to submit their pay details to HMRC on a monthly basis too, on or before the payment date, either through payroll software or using HMRC’s Basic PAYE Tools.

We can take care of the initial registration and monthly payroll preparation for you to ensure that everything is dealt with correctly from the start.

2. Pay Rates When Employing People

Paying your new staff member is likely to be one of the first things you need to think about – after all, you need to ensure you budget for the costs to ensure you can afford the additional costs your business will incur.

In the UK, as an employer, you must ensure you pay the correct hourly rate based on your employee’s age and position – this legislation is called the National Minimum Wage and National Living Wage.

In April, each year the hourly pay rates change and need to be adhered to for your employees, so make sure you assess your staff and pay the correct rate based on their age and their position.

You can find the National Minimum Wage and National Living Wage rates here.

**tip**

We recommend making a note of when your employees will hit their next birthday milestone, or move up to a new pay scale (based on their age and position) to ensure you are always paying the correct hourly rate – many payroll providers have warnings built into their systems to prompt you.

3. Pension Contributions When Employing People

Depending on the age, and earnings, of your new employee you may need to pay pension contributions into a workplace pension scheme (this is a way of saving for your employees’ retirement).

You’ll need to factor in the:

  1. cost of setting up a workplace pension scheme and
  2. the contributions you may need to pay (a cost in addition to your employees’ hourly wage/salary).

 ***tip***

A good accountant will explain, and quantify, the costs you need to consider when taking on a new employee. They will also assist with the administration responsibilities as part of their payroll fee (e.g., reporting the pension contributions to the workplace pension provider each pay period, regularly assessing your staff to see whether they need to be enrolled into the workplace pension scheme, communicating the assessment to your employees and submitting the necessary documents to The Pensions Regulator).

If your new employee is between 22 and the state pension age and earning more than £10,000 a year, you will need to enrol them into a company pension scheme, such as NEST.

As a guide, for an employee earning a gross salary of £25,000 a year, you will need to budget around an additional £565 in payments into their pension.

4. Employer’s National Insurance

In addition to the additional cost of providing a pension scheme, there is also employer’s national insurance to consider.

This is payable to HMRC if your employee earns over £8,844 per annum or £737 per month and employer’s national insurance is payable at 13.8% of any wages above this.

Consequently, for an employee earning a gross salary of £25,000, employer’s national insurance of around £2,230 will be payable to HMRC.

You may, however, be able to claim the employment allowance against the first £4,000 of employer’s national insurance costs, providing you have one other employee on your payroll earning over £737 a month (the company director for example).

5. Holidays and Sick Pay When Employing People

As an employer, you must provide employees who work a 5-day week at least 28 days paid annual leave per year. This is the equivalent of 5.6 weeks of holiday.

Part-time workers are entitled to 5.6 weeks holiday pay too, but this will be apportioned based on the number of days they work.

So, for example, if the new employee works for you for 4 days a week, they must get at least 22.4 days holiday per year.

HMRC’s calculator at this link can be used to work out a part time worker’s holiday entitlement.

If your employee is off work sick and meets the eligibility criteria here, the company must pay them sick pay of £96.35 a week for sick leave of up to 28 weeks, from the 4th day of leave.

The company is no longer able to claim amounts of sick pay paid to employees back from HMRC and this therefore will be an added cost to budget for.


Other Things to Note When Employing People

We hope you have found the above useful if you are considering taking on your first employee.

An important point to note is that you should have an employment contract in place as soon as the employee starts with the company.

This ensures that matters such as holiday entitlement, rates of pay, probation periods, and various other terms of employment are clarified as early as possible, protecting both parties should there be any difficulties or disagreements in the future.

If you are a member of The Federation of Small Businesses you may have access to an employment law advice service as part of your subscription.  ACAS also has a range of resources and templates and if you are unsure about anything it is always a good idea to speak to a qualified HR specialist.

Please contact us if we can be of any further assistance!