Taking on employees can be an important milestone of your business development; every entrepreneur remembers their first member of staff. There are however many administrative considerations to make and this guide will help you with these.
After making the decision to take on your first member of staff, the initial step is to ensure your business is registered for PAYE with HM Revenue & Customs (HMRC).
Registration is straightforward and can be completed online on HMRC’s website. The registration process will normally take around 2 weeks and HMRC will assign you with a PAYE reference number which is required to start processing your payroll.
“The registration process will normally take around 2 weeks”
After you have received your PAYE registration details from HMRC, you now need to decide how you are going to operate your payroll to help you calculate what tax and National Insurance to deduct from your employee’s wage.
The options available to you are:
1. Download HMRC’s free Basic Tools online payroll software
2. Purchase an off the shelf payroll package, such as QuickBooks or Sage Payroll
3. Outsource this to an Accountant or Payroll provider
The first two options rely on you preparing your own payroll, which can be difficult if you have had no previous experience, where the third option passes this burden to an accountant who will have vast experience in processing payroll and have all the procedures in place to ensure the payroll is prepared accurately and more importantly on time.
Whichever option you choose, you will have a few extra administrative tasks to consider:
1. If your employee has come from another job, you will need to obtain their P45, otherwise you should
ask them to complete a new starter checklist. This will help assign a tax code to your employee.
2. You will need to agree a rate of pay and provide your employee with a contract of employment.
Consideration needs to be given to Minimum Wage rules and holiday entitlements.
3. You may need to obtain Employer Liability Insurance.
Businesses must now report their payroll details in “real time”, in essence this means that you must file payroll figures with HMRC on or before you make a payment to your employees. There are penalties for filing these late!
Pay As You Earn (PAYE)
Another important task is paying the tax and National Insurance that you have deducted from your employee’s wage over the HMRC.
PAYE is made up of income tax and employee’s National Insurance that will have been deducted from your employee’s wages and employer’s National Insurance. This is an additional cost to your business.
PAYE is due monthly should your liability exceed £1,500 per month, or quarterly if less. The exact due date is the 22nd of the following month if paying monthly, or after the quarter if you are a quarterly payer.
Details on how to pay your PAYE liability will be supplied by HMRC along with your PAYE registration pack.
Remember, as you would have reported your payroll in real time to HMRC they will have full visibility of your PAYE liability, so be sure to make an accurate payment on time.
From 6th April 2014, most businesses can claim the new employment allowance and potentially reduce their PAYE bill by £2,000 per annum.
The allowance can be claimed as part of the real time submission process and reduces the amount of your employer’s National Insurance by up to £2,000 per annum. If your employer’s National Insurance bill is £1,500 you will be able to reduce this to NIL, if it is £2,500 you can reduce this to £500.
Each employer has a date by which they must comply with the new rules which could be anytime up to 2018 depending on the size of your business.
Once you have reached your staging date you have a legal obligation to operate a workplace pension and enrol your staff into the scheme automatically. Furthermore, you will also need to contribute to your employee’s pension scheme. Full guidance can be found at The Pension Regulators website.
Should you have any further questions or require help setting up a scheme we suggest speaking to us.