10 new business obligations when hiring your first employee

Chris Andreou

January 31, 2020

hiring employee guide
PAYE, P60's and Paying Yourself Guide Guide

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Being a solo entrepreneur is an exhilarating experience, but eventually, a successful business will create enough work for more than two or three people to handle.

This leads naturally to the hiring of your very first employee, maybe even more than one. However, there is a big difference between being self-employed as a solo contractor and being an official employer.

You may be used to taking care of your own income, taxes, and workplace concerns but as an employer, you are suddenly responsible for the livelihood of one or more other people. People to whom you will be their boss with all the nitty-gritty details packaged with it.

Fortunately, you're an ambitious and successful entrepreneur ready to take on the challenges of graduating from a solo contractor to an excellent employer.

To help you, we have put together a comprehensive list of your new responsibilities that manifest the moment you choose to hire your first employee.

Accurate Employee Job Descriptions & responsibilities

1. Setting accurate job descriptions & responsibilities

You may or may not be a skilled writer, but a detailed job description is a must for responsibly hiring employees.

Professionals choose their jobs based on their understanding of the working environment and the tasks involved. If you misrepresent a job or just describe it poorly, you and your employee are likely to have a bad time.

Of course, job descriptions aren't just for hiring purposes.

Once you select a candidate, your employment contract (written statement of employment particulars) will need to clearly define the employee's:

  • Duties
  • Hours
  • Work Conditions
  • Job Expectations

Here's an example form that can be used as a template.

This write-up is to protect both employers and employees from bad-faith employment in either direction. Not to mention, it helps keep your new hire's duties and boundaries absolutely clear.

PAYE, P60's and Paying Yourself Guide

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PAYE, P60's and Paying Yourself Guide

HMRC Employee Registrations & Payment Requirements

2. Register as an Employer with HMRC

Anyone who pays someone else a wage for work must register with the HMRC (Her Majesty's Revenue and Customs).

In fact, if you formed a company to pay yourself a wage, you would have already been registered as an employer of one. However, most solo entrepreneurs don't log their existence with the HMRC until it's time to hire the first employee.

Registering with the HMRC will get you a PAYE reference number which is necessary for payroll tax and insurance purposes. You must have your PAYE reference number before the very first payday for your new employee.

When you send in your HMRC employer registration, it usually takes up to 5 business days to receive your reference number. You cannot register with HMRC more than two months before the first payday. So time your registration carefully to make sure you're in 'the zone' before giving out that first pay cheque.

Fortunately, you don't have to tackle your business registration alone. If you subscribe to the Forma virtual office package, our team can help you put together the paperwork correctly to ensure you are issued your PAYE reference number quickly and easily.

3. Pay Wages Accurately & On Time

When you take on an employee, suddenly you're responsible for more than just meeting your own deadlines and paying your own bills. You're responsible for someone else's livelihood as well.

Every employee has the right to be paid the correct and full amount for each pay period on time and that right is enforced by law.

It is important to remember how much your new employee might rely on the pay cheque you provide, no matter how big or small that pay cheque may be.

Considerations for wages Include:

  • Salary vs Hourly
  • Pay Schedule
  • Overtime
  • Holiday & Leave
  • Withholding for Taxes and Pension

Make sure you're ready to keep meticulous records and set up automatic bank deposits for your employees to ensure their wages arrive reliably. If you're not sure about how to set up payroll correctly, the Forma team can help!

4. Pay Taxes on Employee Wages

two-people-s-hands-working-on-small-business-taxes-at-desk-with-papers-glasses-and-calculator

Of course, as an official employer, paying your staff is now only the beginning.

You are also obligated to hold back a certain amount from each pay cheque on behalf of your employee to pay income tax and National Insurance contributions.

This one detail that has tripped up more than a few first-time employers.

Solo entrepreneurs often don't go through the official business channels for handling their own income. But an employee's income absolutely must be handled properly as wages rather than contract income.

Fortunately, the PAYE system is in place to help you determine the right amounts, fill out all the right paperwork, and keep your employee's tax duties in order for every pay cheque sent.

Taxes can be a tough nut to crack, especially if you've only ever worried about your own taxes in the past.

Our accountants at Forma can help you make sure that your taxes, and your employee's taxes, are all squared away. We'll help you ensure that there are no financial time-bombs caused by simple accidents.

5. Setup an Employee Pension Plan

Your next duty as an employer is to set up an automatically enrolled pension scheme. In the UK, the vast majority of workers are required to be automatically enrolled in a pension scheme.

The scheme must pay at least 3% of the employee's qualifying earnings, deducted from their pay automatically and put into the plan. Qualified earnings usually refer to an employee's total wages between £6,032 and £46,350 a year before taxes.

There are a few circumstances where your first employee may not need a pension plan, but the rules cover most UK workers.

To require a pension plan, workers must:

  • Aged between 22 and the state pension age
  • Earn at least £10,000 per year
  • Primarily work in the UK or claim the UK as their primary residence

If the circumstances change after a staff member ages or earns a raise to suddenly qualify, you have six weeks to enrol them in a company pension scheme.

Employee Holiday, Sick Days and Leave requirements

6. Provide Holidays, Sick Days and Leave

Most employees also must be provided with '5.6 weeks' of paid holiday time every year.

They give the number in this odd way so that the math works out for weekly calculations and full or part-time workers. 5.6 weeks is the equivalent of 28 days separated into 5-day work weeks.

If it's easier for you, you can just think of the necessary leave amount as 28 complete work days for each employee.

This is an important calculation because paid holiday is an investment you'll need to have the funds to support. Paid holidays mean that you cannot make financial calculations based only on the hours your employees work and are paid for.

You must also calculate for unpaid leave and Statutory Sick Pay (SSP). Statutory sick pay is £94.25 per week that an employee is so sick that they are unable to come into work.

SSP begins on the 4th day that an employee is too sick to work and continues for each week an employee cannot come in. Every employee may use up to 28 weeks of SSP each year, as needed.

Employee Work Environment Requirements

7. Provide a Healthy & Safe Working Environment

As an employer, you are responsible for the health and well-being of employees while they are in your service.

When employees come to your place of work (home or office), you will need to ensure that the place is safe and free of any environmental hazards. This is the time when many solo entrepreneurs realise they have been dwelling in a home strewn with extension cables across the floor and that it's time to clean up.

Remember, if an employee trips or otherwise gets hurt while performing work for your business, the business will likely be held liable. Be sure to review the health and safety regulations for your industry and business size.

PAYE, P60's and Paying Yourself Guide

What's Inside:

  • What is PAYE
  • PAYE when self employed
  • When to register for PAYE
  • Sole trader taxes
  • Sole trader income tax calculations
  • Limited company dividends & salary
  • Dividend tax rates
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
PAYE, P60's and Paying Yourself Guide

What's Inside:

  • What is PAYE
  • PAYE when self employed
  • When to register for PAYE
  • Sole trader taxes
  • Sole trader income tax calculations
  • Limited company dividends & salary
  • Dividend tax rates

Employee Insurance Requirements & Checks

8. Maintain Employer's Liability Insurance

Your responsibility for employee health and safety goes beyond providing a safe working environment. Each new employer must also register and maintain Employer's Liability insurance.

This insurance policy is meant to help pay for compensation in the unfortunate event that an employee is injured or becomes ill as a result of the work they do for you.

Do not skimp on Employer's Liability insurance. Not only is it legally required, but even the tamest job in the safest office can still result in liable injuries if, say, an employee is hurt slipping on ice on your front steps.

You must have a policy that covers you for at least £5 million and the policy must come from an authorised insurer. Failing to have Employer's Liability can result in hefty fines for every day there is an employee and you lack insurance.

Tip: Check out our article for further information on the different types of business insurance you need.

9. DBS Checks for Applicable Industries

If your business relates to at-risk populations or high-security tasks, then you may need to run DBS checks for each of your new employees.

At-risk populations include children, the mentally ill, the elderly, and medical patients. DBS stands for Disclosure and Barring Service and is an approved background check for employers.

You can request a basic, standard, enhanced and enhanced plus barred check on each employee.

  • Basic Check - Unspent convictions & conditional cautions
  • Standard Check - Spent and unspent convictions, cautions, reprimands & final warnings
  • Enhanced Check - Standard plus pertinent information from local police
  • Enhanced Plus Barred Lists - Enhanced plus any lists the applicant has been barred from and why

You can also use a DBS check to confirm if a new hire's certificates are legitimate and up-to-date.

Protecting Employee Personal Data

10. Protect Employee Personal Data

Finally, there's the GDPR to contend with.

Introduced in May 2018, the GDPR stands for General Data Protection Regulation. It is the EU's answer to hackers, identity theft, and the role businesses often play in the exposure of personal data. And not just for customers.

As an employer, you are responsible for all the procedural and sensitive information you gather on employees (ex: name, age, address, bank account). Remember that an employment file has everything a hacker needs to steal someone's identity and completely ruin their life legally, financially, and online.

You will need to keep employees apprised of their data and take charge in defending that data from the risk of a hacker intrusion.

Conclusion

Being a first-time employer is a big responsibility, but it's also one you can handle.

The entire system was designed to help small business owners like yourself get started and to ensure that large established businesses don't stray from the path. By getting all your ducks in a row and delegating to experts when necessary, you can start interviewing in no time flat.

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