Although lockdown has restricted business for many, as a payroll provider to a large number of businesses I know that some businesses have been taking on new employees over this period.
There will also be individuals who have used this time to start their own business and will be planning for the costs involved in taking on their first employee as the business grows.
So if you are a potential new employer here are some points you need to think about along with the costs you need to plan for.
Register as an employer
You do not need to register as an employer with HMRC unless the following applies:
- You will be paying them less than £732 per month or £169 per week (from 1st April 2020 to 31st March 2021)
- The employee does not have another job
- The employee does not have a pension
- You are not providing them with taxable benefits
You can check whether any of this applies to your potential employee by asking them to complete a starter checklist which can be found at GOV.UK.
Once you have registered with HMRC as an employer every person you employ will have to go onto the payroll however little they earn. It makes sense, therefore, that if you take on a part-time person to start with that their earnings remain below the threshold of £732 per month. This gives you the opportunity to see how having an employee works out for you and your business before going to the expense of setting up and running a payroll.
You will of course still need to keep records of your employees and their earnings as evidence that you do not need to register as an employer.
You need to decide how much you can pay your new employee and there are probably two aspects to this. How much can the business afford to pay and how much do you need to pay to get the employee that can do the job you want them to do. It won't help your business if you offer a high salary and then find that cost is draining your business of cash without sufficient return or value being added.
When working out what an employee will actually cost you must total the gross salary (before deductions), the employers NI (currently 13.8% of any earnings above the threshold of £732 per month) and the employers pension contribution (currently 3% of earnings above £520 per month).
Employment allowance of £4,000 per year is available to cover the cost of employers NI until it is used which enables an employer to save on NI costs for some or all of the year..
If your employee will earn over £833 per month and is aged between 22 and state pension age you will need to set up and administer an auto enrolment pension scheme. There will be a cost to join some pension schemes but you can set up a scheme with NEST at no charge. However if your employee is outside of this earnings and age range they can still request to join a pension scheme so you may need to set one up anyway.
If your employee earns below £732 there will be no additional costs to consider.
Always recruit based on a gross (before deductions) amount whether annual salary or hourly rate and not on take home pay. Take home pay (net pay) is after deductions and can be extremely costly if your employee has a tax code which recovers a higher percentage of tax from their monthly pay as you will be funding this on their behalf.
Outsourcing your payroll
Payroll is calculation of the pay due to an employee after deductions for tax and NI and pension have been taken into account. These deductions vary according to earnings and the employee's tax code. The tax code can change during a year.
When your employee is earning at a level where you have to become an employer it makes sense to find someone who can process your payroll for you. Payroll is full of legislation and whilst it might seem simple to multiply the number of hours worked by the hourly pay rate or divide the annual salary by 12 and pay that monthly, there are many situations which need more understanding. The furlough scheme which we are currently experiencing is just one of those very complex situations which have to be processed correctly and in line with the constantly changing legislation. Other situations may occur such as an employee taking unpaid time off, statutory sick pay or even redundancy. There are a myriad of things to consider when processing payroll.
That is why employers come to us. We process payroll for a large number of businesses, some who only have one or two employees, others with 40+, so we experience all sorts of payroll scenarios on a regular basis. Small employers can have complex payroll situations to deal with just as larger employers do.
We use payroll software which provides employers with access to their payroll information in the cloud and employees with access to their payslips via a browser or an app on their phone. We can also email information if that suits you or your employees better. The one thing we don't do is pay your employees for you but we will process your payroll in advance of the payment date and let you know how much you have to pay them and how much PAYE (the tax and NI contributions) you have to pay to HMRC and when.
Support for you
Our experienced and friendly payroll administrators will guide you through the complexities of being an employer and help you to understand what you need to do. But not only that we will take responsibility for providing you with a payroll service which is efficient, timely and accurate.
So if you are expecting to be a new employer or are currently an employer looking for a better service give us a call and find out how we can help you.