Are you looking to start employing people for the first time but are a little unsure about how to do it? This blog will explain how to employ full-time staff and outline the steps you will need to take in order to make your business employment-ready.
When I say ‘full-time staff’ I mean that they aren’t being hired on a self-employed basis (freelancer etc) and will be paid more than the equivalent of £116 per week, £503 a month or £6,032 a year. If this all applies to the type of employee you are looking to hire then here is everything you’ll need to do in order to start employing staff.
How to Employ Staff
There are 8 key steps required to start employing staff, first off let’s just list all of the steps so you can get an overview of the entire process:
- Register as an Employer with HMRC
- Buy Employers Liability Insurance (Legal Requirement)
- Check that what you are planning to pay staff is above the legal minimum wage
- Ensure the staff you are looking to employ have the legal right to work within the UK
- Check whether you need to apply for a DBS check (formerly known as CRB)
- Provide new employees with a Written Statement of Employment
- Select a Payroll Software and register each new employee on HMRC website for Payroll
- Pay employees and HMRC via PAYE
So as you can see there’s quite a lot of requirements when employing staff so let’s break down each of these steps and explain exactly what each one entails.
Register as an Employer
So firstly before anything else, please ensure you go here – https://www.gov.uk/register-employer – and register your company or business as an employer. There’s a slight difference between registering as a Limited Company or self-employed business but please don’t fall for the usual misconception that you need to be a limited company in order to employ staff – you don’t! Even if you are a sole-trader running a self-employed business, you are able to employ staff and you register as an employer in exactly the same way online.
Buy Employers Liability Insurance
Owning Employers Liability Insurance is now a legal requirement for all employers and can incur large fines (£2,500 per day!) if you are caught employing staff without it. Employers Liability Insurance simply covers you against any legal compensation costs arising from staff members becoming injured or falling ill as a result of working for your business – for example, an employee falling over at work due to a spill which wasn’t cleaned up or labelled properly (we’ve all seen the adverts!).
The minimum cover you are legally required to have is £5 million but you can of course up this if you wish, but the cover cannot legally be below that. As with most insurances you can do an online comparison to find the best deals and be sure to ring around and talk to other Insurance Companies who aren’t listed on these price comparison sites. However my largest piece of advice is this – be extremely careful to ensure your insurance covers the right amount of money AND the right amount of ‘options’!
When I say ‘options’ I mean be sure you are extremely specific in terms of listing exactly how many staff members you have and exactly what activities they’ll be doing for your business. The ‘activities’ is really the key aspect here, forgetting to mention something can result in your insurance not paying out for compensation, which in turn can cost your business everything. For example I know from experience that you can gain Employers Liability Insurance for employees who will be working on ladders, but the length of the ladder and the height that the employee will be working on the ladder is something which you have to be specific about! Most typical insurances only cover the employee injuring themselves on an average height ladder, but if your employees use extending ladders which go higher than the average and that employee falls off the ladder at that height then injures themselves, then your insurance simply won’t pay out for compensation, leaving you to pay every penny for that employee.
So please be sure you gain the right cover for your employees!
Check you are Paying Equal to or Higher than Minimum Wage
This is kind of a ‘no-brainer’ but you’d be surprised! Please ensure that what you’re looking to pay your employee(s) is higher than the legal minimum wage. To ensure I don’t provide out of date information here please always check this rate on HMRCs website here – https://www.gov.uk/national-minimum-wage-rates – as long as you are planning to pay them equal to or higher than this then you’re fine. Any lower than this and you’ll be breaking the law and incur serious fines and possibly a prison sentence.
It’s also worth noting at this point that there are some additional fees you’ll need to factor into your employee costs, it’s not simply a case of saying “I’ll put them on £21,000 per year salary” and that’s it. You’ll also need to pay Employers National Insurance on top of their salary and contribute to a pension. So be sure to work out the exact amount each employee will cost your business and there’s no nasty surprises when their first pay comes out of your business.
Ensure Staff Have the Legal Right to Work in UK
Again, another no-brainer really but worth noting. Always ensure each employee you are looking to hire has the legal right to work in the UK, if you are employing via a recruitment agency then they’ll 99% of the time take care of these checks on your behalf when recruiting, however if you are recruiting/employing staff in-house then you need to perform your own checks and can find out all the information here – https://www.gov.uk/check-job-applicant-right-to-work
See Whether you Need a DBS Check
The Disclosure and Barring Service (DBS) check is a legal requirement for any staff members who will be working with ‘vulnerable groups’ such as disabled people, elderly or children – and also applies if you have staff working in security. It simply runs a criminal check of the employee to ensure they are ok to work with vulnerable groups.
If you think your new employee will require a DBS check or you’re unsure then all the information is here for you to take a look – https://www.gov.uk/dbs-check-applicant-criminal-record
Provide Employee(s) with a Written Statement of Employment
Jumping ahead slightly now, once you’ve done all the recruitment process and hired the new employee you will immediately need to provide them with a Written Statement of Employment (their ‘Contract’ basically!). This must clearly outline all information required by both you (the employer) and them (the employee) including salary, working hours, holiday, bonuses, expectations etc etc. Be sure to cover every aspect here and leave no stone unturned. This is where you need to cover yourself and ensure that everything is listed so that you and the employee know where you stand.
Also you can add specific terms within the contract such as ‘any uniform provided must be returned upon leaving’ so be sure to include any relevant information at this point – anything you don’t mention here means you can’t legally enforce it at a later date. So as long as it’s not anything illegal (for example, not allowing staff to talk about their pay) you can add it within their contract and be safe in the knowledge you and the employee are aware.
Register New Employees on HMRC Website
Once the employee has signed their contract to work for you, you’ll need to immediately register them with HMRC. In order to do this you’ll first need to choose which payroll software you are going to use. There are quite literally hundreds of choices here so be sure to check all your options before deciding since this will be a big part of your business now!
Once you have decided which software you are going to use, you’ll then need to ensure you gain all of their employee information to work out their tax code. This is usually done with use of their most recent P45, however if the new employee doesn’t have one then you can use HMRC’s online resource here to work out their tax code – https://www.gov.uk/new-employee-tax-code. At this stage it’s also worth noting you’ll need to find out if they need to repay any student loans.
Once this information has all been gathered you will need to use your payroll software in order to complete and submit a ‘Full Payment Submission (FPS)’ to HMRC. This will include information for all of your employees’ and needs to be submitted before their payday.
Pay Employees and HMRC via PAYE
This final step nicely links into the previous stage in regards to using your payroll software to submit your FPS every month to HMRC but also has the additional step of needing to actually pay your staff! Most payroll software providers will have a PAYE feature which will automatically work out the amount each employee needs to be paid as well as any deductions. Whichever time-period you have decided to pay staff (usually monthly) the system will automatically make payments to employees and send them a payslip with all the relevant information (payslips are now usually digital).
Not only will you need to pay your employees but you’ll also need to pay HMRC via PAYE as well which can be paid via your online account. This will include payments such as:
- Employee Income Tax deductions
- Class 1 and 1B National Insurance
- Student Loan repayments
- Construction Industry Scheme (CIS) deductions
- Apprenticeship Levy payments
Those are the 8 key steps involved when employing and paying staff. As I stated at the beginning, there’s quite a lot to it, so be sure to know each of those steps inside-out to ensure you to incur any accidental fines from HMRC and have a smooth payroll system for all staff’s benefit.