10 new business obligations when hiring your first employee

Chris Andreou

April 21, 2021

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

Free Download: PAYE, P60's and Paying Yourself Guide

Download Now ↓
Business Resources

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

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
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.

Get Free Advice from an Accountant

Book a free 30 minute call with an accountant. We'll help walk through setting up your business, switching accountant or any of your tax queries. All our accounting packages come with a free 30 day trial.

Read More Guides below:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
reimbursing expenses guide
Featured Article

7 benefits of Business Bank Accounts over reimbursing employee expenses

A business bank account offers an easier, more streamlined way to get employees the funds they need for travel and other expenses

Read more
How do I plan cashflow? Guide

How do I plan cashflow?

Here are a few strategies to better cash flow management:

Be rigorous about updating your cash flow: It can be helpful to update your cash flow whenever there is new information-such as when you've made a payment, or when a client informs you that a payment is coming in late. You'll need to have a system for managing your cash flow, whether that's a spreadsheet or cash flow management tool.

Carry out an in-depth analysis on a regular basis: Carve out a block of time each quarter to carry out an in-depth review of your cash flow. You'll want to assess your overall financial position, and look ahead at your cash flow projection for the next quarter.

Implement milestone payments for extended projects: If you're working on an extended project, consider structuring your payments by milestones-rather than receiving a single payment at the end of the project.

Read Full GuideRead Full GuideCalculate Now

Download Now:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
Bookkeeping vs Accounting Differences Guide

Bookkeeping vs Accounting Differences

As a small business owner, having a good grasp of your business financials is key-even if you've hired an accountant.

While you can delegate your accounting tasks, understanding the basics will place you in a better position when it comes to discussing your business finances with your team members, financial professionals or potential investors.

-
Previously, we've explained about the top accounting terms and concepts you need to know. In today's post, we'll explain the differences between bookkeeping and accounting. While these two terms are often used interchangeably, they refer to two vastly distinct functions and roles.

Read Full GuideRead Full GuideCalculate Now

Download Now:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
What can accountants help contractors with? Guide

What can accountants help contractors with?

The goals for accountant's is to help businesses with tax and compliance duties whilst providing strategic advice to save money and time, allowing the business to focus on it's core activities.

Everyone knows that accountants will complete tax returns and accounts but the very best accountants will go one step further in ensuring the very best for the business.

Read Full GuideRead Full GuideCalculate Now

Download Now:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
How to make and send an invoice for your clients Guide

How to make and send an invoice for your clients

You've delivered your work, and it's time to receive your payment.

Before that, you'll need to make an invoice. It's an important document: not only does it help you obtain money you're owed, it also serves as evidence of a transaction in the event that you need to seek legal action to handle non-paying clients.

If this is new to you, you might be wondering: How do I create an invoice, and what must I include? Are there best practices or tips I need to know?

We'll answer all of these questions below:

Read Full GuideRead Full GuideCalculate Now

Download Now:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
Contractor Accounting Services Guide

Contractor Accounting Services

We pride ourselves on providing an unparalleled level of support that will make you feel valued, eliminate your admin and ensure you're being as tax efficient as possible.

VAT registration & filing

We'll registered your company for VAT, and ensure VAT is always filed well ahead of the deadline. We will ask you to confirm that you're happy for us to automatically file your VAT without having to approve it which will ensure that we can get this filed as soon as possible.

We'll also help you get setup with a Direct Debit for HMRC so that you can make your VATpayments automatically without having to manually do this every quarter. This saves you time and the stress of ensuring you've paid on time, and importantly will make sure you don't have to pay a penalty for a missed deadline.

Annual accounts

We aim to complete your annual accounts well ahead of schedule to ensure you have complete financial records.

Corporation tax

You should never have to guess how much corporation tax is due. We'll make sure you know how much is due and when it's due.

Confirmation statement

We'll make sure to keep your Companies House account up to date and ensure your confirmation statement is filed on time.

Self assessment

We include a Self Assessment with our operate and grow packages and this is also available as an additional £99+VAT one-off charge.

Tax efficiency

From your salary, dividends, pension, investments and company expenses, we'll help you optimise your tax.

Read Full GuideRead Full GuideCalculate Now

Download Now:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
How do I resell goods I have purchased? Guide

How do I resell goods I have purchased?

NA

Read Full GuideRead Full GuideCalculate Now

Download Now:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
How do I find an accountant? Guide

How do I find an accountant?

In today's times, you can find an accountant pretty much anywhere you go whether that's walking down the high street or browsing the internet. Take a look at our guide on choosing an accountant to get some tips on what to look out for when choosing an accountant.

Read Full GuideRead Full GuideCalculate Now

Download Now:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
How much should accounting cost? Guide

How much should accounting cost?

As a new business owner, you'll often find yourself juggling numerous roles and tasks-from growing your business, to managing your operations, financesand taxes.

In addition, you're now required to meet your legal obligations as a limited company director-such as filing the necessary paperwork and accounts on time-or you'll risk being penalised.

Staying on top of all of these tasks can feel overwhelming, and here's where a limited company accountant comes into the picture.

Below, we'll look into:

  • What you can expect to pay for limited accounting packages
  • Services that are included in the cost
  • FAQs relating to choosing a limited company accounting provider
Read Full GuideRead Full GuideCalculate Now

Download Now:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
Small Business Accounting Guide Guide

Small Business Accounting Guide

  • When and why you may want to register a Limited Company
  • Advantages and disadvantages of a Limited company
  • Limited company alternatives
  • When to register for VAT
  • Advantages and disadvantages of VAT
  • How to take money out of your company
  • Dividend tax rates
  • Limited company expenses & corporation tax
  • Annual accounts and deadlines
  • Confirmation statements and deadlines
  • Self Assessment tax returns
Read Full GuideRead Full GuideCalculate Now

Download Now:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
How to find an accountant Guide

How to find an accountant

If you have a company, or are starting one, then you will need an accountant.

Though you could do all your accounts yourself, in practice few business owners have the time.

An accountant also checks that you are doing everything correctly, and is a useful reference for both HMRC and financial institutions should you ever need to apply for a loan.

The trouble is that finding the accountant who is right for you is never easy.

You do not want to pay more than you have to, but are low-cost, self-service, internet-based accountancy packages really the best fit for your business needs?

In this article we shall break down that option and its alternatives for you, as we answer the key questions that are occupying your mind right now:

  • Do I need an accountant?
  • What should I look for in an accountant?
  • How do I find the best accountant for me?

The purpose of this article is to give you the context and background you need to ask the right questions-especially when you may not yet know what those questions are.

Read Full GuideRead Full GuideCalculate Now

Download Now:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
How do I transfer or change accountants? Guide

How do I transfer or change accountants?

Read Full GuideRead Full GuideCalculate Now

Download Now:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
When Should I Hire a Small Business Accountant? Guide

When Should I Hire a Small Business Accountant?

If you're a self-employed person or small business owner, you might have already asked yourself the question, "Do I really need an accountant?"

When people ask that, they usually mean, "Can I justify the cost of an accountant?"

It seems simple: Hiring an accountant might seem like something you could do without, and if you handle the accounting yourself, you save money.

But that isn't the best way to think about it. The reality is that there are hidden costs associated with DIY accounting, and you don't want to come up short. So instead, ask yourself, "Will hiring an accountant add value to my business?"

The answer is yes.

Below, we'll cover the key cases when you should hire an accountant:

Read Full GuideRead Full GuideCalculate Now

Download Now:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
Beginner's Guide to Bookkeeping for Small Business Guide

Beginner's Guide to Bookkeeping for Small Business

Starting a new business?

Bookkeeping requirements are unlikely to be at the forefront of your mind. At this stage there are more pressing things for you to think about.

However, once your business is taking shape, you will need to start thinking about keeping up-to-date and accurate accounting details of your income and expenses. But what kind of records do you need to keep?

More than just a legal requirement, basic bookkeeping is an essential part of your ability to manage your business effectively.

Every year, your business accounts will need to be completed. If your business is operating as a limited company, you will need to submit your company accounts to Companies House. If you are self-employed, your business accounts will be used to calculate your Self Assessment tax liability.

Your bookkeeping records will form the basis of these statutory financial statements. They should include information relating to your sales, your expenses, salaries of you and any employees, along with other bank transactions.

It might sound complicated, but take it one step at a time and it's actually quite manageable.

If you're really struggling to stay on top of it all, there are plenty of small business accountants and professional bookkeepers who will be happy to help. So, even if you're terrified of numbers, rest assured that there's a solution out there for you.

Read Full GuideRead Full GuideCalculate Now

Download Now:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
How do I depreciate an asset? Guide

How do I depreciate an asset?

Read Full GuideRead Full GuideCalculate Now

Download Now:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
Where can I find my Accounts Office Reference number? Guide

Where can I find my Accounts Office Reference number?

You can locate your Accounts Office Reference number (AORN) on the confirmation letter you receive from HMRC when you first register as an employer. The AORN contains 13 characters, and follows the format 123PA12345678.

Read Full GuideRead Full GuideCalculate Now

Download Now:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
What are National Insurance numbers? Guide

What are National Insurance numbers?

The National Insurance number is a number used in the administration of the National Insurance or social security system. It is unique to each individual, and helps ensure that the National Insurance contributions and tax you pay are properly recorded against your name.

Read Full GuideRead Full GuideCalculate Now

Download Now:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
Accountant Checklist Guide Guide

Accountant Checklist Guide

  • Why you may need an accountant
  • Key areas an accountant can help
  • Questions to ask an accountant
  • Accountant checklist
Read Full GuideRead Full GuideCalculate Now

Download Now:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
My tax code is incorrect ‚- how do I change it? Guide

My tax code is incorrect ‚- how do I change it?

If your tax code is incorrect, you can use HMRC's check your Income Tax service to notify them. If you're not able to use the online service, you may get in touch with HMRC through other contact methods.

Read Full GuideRead Full GuideCalculate Now

Download Now:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
5 invoice template tools to help you invoice when self employed Guide

5 invoice template tools to help you invoice when self employed

An invoicing problem is a good problem to have.

It means that you have too many clients or too much work to properly charge for it. The good news is that it's an easy problem to fix.

Invoicing is essential for any self-employed person individual. It's how you collect revenue, and, done correctly, it's also how you can avoid tax issues.

I know how important this is because I've been there as a small business owner - and I searched for a long time to solve this problem and make it painless.

Besides hiring a personal assistant or part-time accountant (which is impractical for most smaller-time, one-person-show contractors), there's the option of using invoicing software that makes the process easy.

Below, I break down the difference between five popular invoicing tools to help you get started on making a decision.

Your decision will ultimately depend on what your business really looks like.

These are some questions you can ask yourself:

  • Do you only have a handful of regular clients?
  • How do your clients prefer to pay you in a certain way?
  • Are late payments a recurring problem for you?
  • Do you send out invoices, or does somebody else?
  • Do you already have accounting software in place, or are subscribed to an accounting package that includes the use of an accounting software?
  • What other applications and tools do you use for your business?
zoho invoicing tool
Read Full GuideRead Full GuideCalculate Now

Download Now:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
Are there any penalties for delivering Company Accounts late? Guide

Are there any penalties for delivering Company Accounts late?

The following penalties for private limited companies will be imposed if you fail to file your accounts with Companies House on time:

  • Up to 1 month late: £150
  • 1 - 3 months late: £375
  • 3 - 6 months late: £750
  • More than 6 months late: £1,500
Read Full GuideRead Full GuideCalculate Now

Download Now:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
How do accountants charge contractors? Guide

How do accountants charge contractors?

Like with all service offerings, you can find contractor accountants at pretty much every price point. Some accountants will charge by the hour, some by piece of work or like ourselves, will offer a fixed monthly fee covering everything you will need in one clear package.

Read Full GuideRead Full GuideCalculate Now

Download Now:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
Creating your business budget Guide

Creating your business budget

Running a business involves catering for many aspects of the business that can bog you down.

You can even forget crucial roles, such as monitoring your small business finances. Although budgeting may not be the best and most exciting part of running an enterprise, it is fundamental for success.

When starting a new business, a budget is a vital part of your business plan. Once the business is open and operational, then budgeting becomes an essential exercise that takes place annually or quarterly.

A budget comprises of fixed and variable costs accompanied by the allocation of monies to reflect business objectives.

Read Full GuideRead Full GuideCalculate Now

Download Now:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
How do I dispose of an asset? Guide

How do I dispose of an asset?

Read Full GuideRead Full GuideCalculate Now

Download Now:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
5 Common Small Business Accounting Mistakes & How to Fix Them Guide

5 Common Small Business Accounting Mistakes & How to Fix Them

A broad swath of small business owners are tackling the myriad tasks required to pay bills, invoice customers, cut checks to employees and contend with past-due accounts, among other accounting tasks.

While that might work for very small businesses, it often opens the door for firms to make accounting mistakes that undermine their growth and siphon precious time and mental focus from other important areas of their business.

Here are five accounting mistakes that can derail growth for small businesses and how to avoid them.

Read Full GuideRead Full GuideCalculate Now

Download Now:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.

PAYE, P60's and Paying Yourself Guide