So, you’ve finally decided to take the plunge and employ your first member of staff. Congratulations! It’s an exciting time, but it can also be a little daunting.
There are a lot of things to think about, from paperwork and registrations to employment law and making sure you don’t make any mistakes. In this article, we’ll walk you through everything you need to know in order to successfully employ someone in the UK. Let’s get started!
Step by step checklist for employing someone in the UK
There are a few key things you need to do before you can officially employ someone in the UK. Here’s a quick checklist of everything you’ll need to take care of:
- Register as an employer with HMRC. You’ll need to do this if you plan on paying your employee(s) through PAYE (Pay As You Earn).
- Get a PAYE reference number from HMRC.
- Set up a workplace pension scheme for your employee(s), if you’re eligible to do so. This is now mandatory for all employers in the UK.
If you’re not sure how to go about any of these things, don’t worry – we’ll go into more detail below.
Registering as an employer with HMRC
First, you’ll need to register as an employer with HMRC. To do this, you’ll need to fill out a form called the ‘PAYE registration form.’
You’ll need to provide them with some basic information about your business, such as your company name and address. Once you’re registered, you’ll be given a PAYE reference number.
Getting a PAYE reference number
Once you’re registered as an employer with HMRC, you’ll be given a PAYE reference number. This is a unique code that identifies your business to HMRC, and it’s something you’ll need in order to set up payroll for your employee(s).
To get your PAYE reference number, you’ll need to:
- Call HMRC on 0300 200 350 or
- Log in to your personal tax account and find it under ‘Your accounts’.
If you’re not sure where to find your PAYE reference number, HMRC has a helpful guide that can walk you through the process.
Setting up a workplace pension scheme
If you employ someone in the UK, you must set up a workplace pension scheme for them if you’re eligible to do so. This is now mandatory for all employers in the UK, regardless of how many employees you have.
There are a few different types of workplace pension schemes, but the most common is a ‘defined contribution’ scheme. With this type of scheme, both you and your employee(s) make regular contributions to a pension pot. The amount that you contribute will depend on how much your employees earn.
The other type of workplace pension scheme is a ‘defined benefit’ scheme. With this type of scheme, the amount you and your employees contribute is fixed, and the benefits that your employees receive in retirement are also fixed.
You can find out more about workplace pension schemes on the government’s website.
Setting up a payroll system
Next, you’ll need to set up a payroll system. This will involve setting up accounts with HMRC and your chosen payroll provider. You might opt to handle the payroll yourself using payroll software, or an outsourced payroll provider, or another type of payroll services company.
Once your payroll system is up and running, you’ll need to start deducting income tax and National Insurance from your employees’ salaries. You’ll also need to start paying employer’s National Insurance contributions.
Paying your employee(s) through PAYE
Once you’ve registered as an employer with HMRC and set up a workplace pension scheme (if you’re eligible to do so), you’ll need to start paying your employee(s) through PAYE. This is a system that allows you to deduct tax and National Insurance from your employees’ wages before they’re paid.
To do this, you’ll need to:
- Set up a payroll system
- Give HMRC some information about your employee(s), such as their National Insurance number and date of birth
- Deduct tax and National Insurance from your employees’ wages
- Pay HMRC the tax and National Insurance that you’ve deducted, along with any other employer contributions (such as for a workplace pension scheme)
- Give your employee(s) a payslip that shows how much they’ve been paid and how much tax and National Insurance has been deducted
If you’re not sure how to set up payroll or deduct tax and National Insurance from your employees’ wages, HMRC has a helpful guide that can walk you through the process.
Employment laws to be aware of
Now that you’re registered and set up, it’s time to start thinking about employment law. There are a few key things you need to be aware of, such as minimum wage rates, working hours, holiday entitlement, and sick pay entitlements. It’s also important to make sure you have the correct contracts and policies in place for your employees.
The minimum wage is the lowest amount that you’re legally allowed to pay your employees per hour. The current national minimum wage rates are:
- £4.30 for apprentices aged under 19 or in their first year of apprenticeship
- £4.81 for 16-17 year olds
- £6.83 for 18-20 year olds
- £9.18 for 21-22 year olds
- £9.50 for 23 and over
You can find out more about the minimum wage on the government’s website.
Working Time Regulations
In addition to the minimum wage, you also need to be aware of the Working Time Regulations. These regulations state that employees are entitled to:
- a maximum of 48 hours worked per week (averaged over 17 weeks)
- a minimum of 11 hours’ rest per day
- a 20-minute break if they work more than six hours per day
- one day off per week
- a maximum of eight hours’ work in any 24-hour period
- 24 hours’ notice of any changes to their working hours
You can find out more about the Working Time Regulations on the government’s website.
Another employment law that you need to be aware of is holiday entitlement. Employees in the UK are entitled to 28 days’ paid holiday per year (including bank holidays). This can be pro-rated for part-time employees.
You can find out more about holiday entitlement in our guide.
Common mistakes to avoid
When you’re hiring your first employee, it’s easy to make a few simple mistakes. Here are a few of the most common ones to avoid:
Not carrying out proper background checks
It’s important to carry out background checks on all of your employees, even if they’re just starting out in their careers. This will help you to avoid hiring someone who isn’t right for the job, or who might pose a risk to your business.
Not having the correct contracts and policies in place
Before your employees start work, you need to make sure you have the correct contracts and policies in place. This includes things like an employment contract, a health and safety policy, and a disciplinary policy.
Not registering as an employer with HMRC
If you don’t register as an employer, you won’t be able to deduct tax and National Insurance from your employees’ wages.
Not setting up a workplace pension scheme
(If you’re eligible to do so.) If you don’t set up a workplace pension scheme, you could be missing out on valuable tax relief, or even breaking the law.
Paying your employees ‘under the table’
This is illegal and can result in hefty fines. Make sure that you’re paying your employees through PAYE and deducting tax and National Insurance from their wages.
Not keeping accurate records
As an employer, you need to keep accurate payroll records of things like your employees’ hours worked, holiday entitlement, and payslips. This will help you to avoid any disputes down the line.
Not being aware of employment laws
As an employer, you need to be aware of things like the minimum wage, working hours, and holiday entitlement. Ignorance is no excuse, so make sure that you do your research before you start employing staff.
By following these simple tips, you can avoid making common mistakes when hiring your first employee.
For specific payroll advice, you should speak to an employment lawyer or accountant. They will be able to advise you on things like payroll and tax, as well as any other legal requirements that you need to be aware of.
So there you have it! Everything you need to know about how to employ someone in the UK. Just remember to stay on top of employment law changes, carry out proper background checks, and register for employee pension schemes, and you’ll be all set! Good luck!