According to Small Business, we have seen a surge in new company formations over recent years as entrepreneurs develop innovative business ideas and bring them to market.  On top of this, many workers are scaling up their “side hustles” operations to deal with customer and client demand. Many businesses initially rely solely on the founder. However, there comes a time when operations must grow, and it is time to consider hiring their first employee. 

Hiring your first employee will lighten the workload, expand your business activity and bring new tax and payroll requirements. 

Here are some tips for bringing on your first employee:

Inform HM Revenue & Customs (HMRC)

Within four weeks of your new employee’s first payday, you must register as an employer with HMRC and gain an employer PAYE reference number for managing payroll. 

Although a quick registration process, it takes five working days to get the receipt of your reference number. 

Utilise effective payroll processes 

You must manage payroll each month, report this information to HMRC, make accurate tax and National Insurance payments, and pay into any benefits or pension schemes. 

You will need to implement processes and payroll software systems that allow you to do this efficiently. Your existing system for managing your payroll might not be sufficient when hiring employees, so speak to your accountant or contact our Accounting Support team for guidance. 

Do not forget that you may need to deduct student loan repayments, pension contributions, Payroll Giving donations and child maintenance payments. 

Payroll administration can be time-consuming and often complex, with the regular rule change to legislation. Many growing organisations look to outsourcing payroll requirements to focus their energy on business growth. 

Set up a workplace pension scheme

If your workers are eligible for a workplace pension, you will need to set up and manage a scheme for them.

You must automatically enrol your staff into a pension scheme and make contributions to their pensions if all of the following criteria apply:

• They are classed as a ‘worker’
• They are between 22 years old and the State Pension age
• They earn at least £10,000 per year
• They usually (‘ordinarily’) work in the UK

Your employees can opt out and leave the scheme, but you will still need to re-enrol them every three years.

If you need advice on auto-enrolment and workplace pension schemes, please speak to Kasia Field. 

Paying the National Minimum Wage

You are legally required to pay your employees at least the correct National Minimum Wage (NMW) or National Living Wage (NLW) for those aged 23 and above. Failing to do so could result in you being fined and publicly named and shamed.

The current NMW rates, as of April 2022, are as follows:

If you are making deductions other than for income tax, NICs or these exceptions, be careful and do not reduce a worker’s pay below the National Minimum Wage. 

Protect your business

Although not directly tax or payroll related, businesses should take steps to protect their interests, including:

• ensuring new staff members have the correct legal status to work in the UK
• producing clear, written employment contracts and policies 
• taking out employer’s liability insurance in case of accident or injury at work.

Failing to take these steps could leave your business exposed to costly risks, including fines and potential compensation payments.

Seek help

As a prospective or new employer, these are only a few considerations for growing your business venture. We advise you seek payroll, HR and tax advice before hiring your first employee; to protect yourself and remove any administrative burden. 

At Wilder Coe, our business advisors assist clients of all shapes and sizes to grow their organisations. Contact us here for a free consultation so we can understand your individual needs and deliver bespoke advice.

Link: Becoming an employer for the first time? What you need to know

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