The day you hire your first employee is a monumental one for any small business owner. It signifies growth, ambition, and a new level of responsibility. But with that excitement comes a significant shift in your operational landscape. After all, you’re no longer just managing your own income, you’re now responsible for someone else’s livelihood.
Paying employees for the first time can seem like a daunting labyrinth of legalities, taxes, and administrative tasks. Fear not! This comprehensive checklist will guide you through the essential steps, ensuring a smooth and compliant transition from solo entrepreneur to employer.
Understand Your Legal Obligations
Before you even think about payslips, you need a solid understanding of your fundamental legal duties as an employer. This isn’t optional, it’s the bedrock of a successful and compliant payroll system.
Employer Identification Number (EIN): In the UK, this is your PAYE (Pay As You Earn) reference. You’ll need to register with HMRC (HM Revenue & Customs) as an employer. This allows you to deduct income tax and National Insurance contributions from your employees’ wages and pay them to HMRC. You can do this online, and it’s a relatively straightforward process.
Employment Contracts: Every employee needs a written statement of employment particulars (a contract) from day one. This legally binding document outlines key terms such as job title, duties, working hours, salary, holiday entitlement, notice periods, and disciplinary procedures. Don’t skimp on this; a well-drafted contract protects both you and your employee.
National Minimum Wage (NMW) and National Living Wage (NLW): You must pay your employees at least the current NMW or NLW, depending on their age. These rates are updated annually, so stay informed.
Right to Work Checks: Before hiring, you are legally obliged to check an individual’s right to work in the UK. This involves checking their original documents (e.g., passport, visa). Failing to do so can result in significant penalties.
Health and Safety: You have a legal duty to protect the health, safety, and welfare of your employees and others who might be affected by your business. This includes conducting risk assessments and providing a safe working environment.
Discrimination Laws: Familiarise yourself with the Equality Act 2010. This act prohibits discrimination on the grounds of protected characteristics such as age, disability, gender reassignment, marriage and civil partnership, pregnancy and maternity, race, religion or belief, sex, and sexual orientation.
How do I run my own payroll?
First and foremost, choose a Payroll Method:
Manual Payroll: While possible for one or two employees, this quickly becomes complex and prone to errors. You’d be responsible for calculating tax, National Insurance, and other deductions, then reporting them to HMRC. This is generally not recommended for new employers.
Payroll Software: This is by far the most popular and recommended option. Software like QuickBooks Payroll, Xero Payroll, Sage Payroll, or dedicated payroll providers automates calculations, generates payslips, and handles HMRC submissions (RTI – Real Time Information). This saves time, reduces errors, and ensures compliance.
Outsource to an Accountant or Payroll Bureau: If you prefer to completely offload the administrative burden, an accountant or specialist payroll bureau can manage everything for you, from payslip generation to HMRC submissions.
Gather Employee Information: For each employee, you’ll need:
- Full Name and Address
- National Insurance Number
- Bank Account Details for direct deposit
- Date of Birth
- Start Date
- Tax Code (often automatically provided by HMRC via a P45 from their previous employer, or you can use the starter checklist if they don’t have one).
Determine Pay Frequency: Will you pay weekly, bi-weekly, or monthly? Monthly is often preferred by businesses for its administrative simplicity.
Decide on Payment Method: Bank transfer (BACS) is the most common and secure method for paying employees.
How do I pay my employees?
Once you have got all of the above, you can now run your first payroll and your employees should receive their first payslips. Whether you choose to print them or sent them via email, it’s important that you keep these on file so that you can refer back to them if needed.
Direct payments methods are also the preferred way of paying staff, with very few businesses now using cash or cheque. This is because direct payments are far quicker and more efficient, and can also be paid directly from your Payroll software.
Paying HMRC for the first time
All of your employees must be registered with HMRC and this is none negotiable. You can do this including their details on a Full Payment Submission (FPS) the first time you pay them and you must also pay HMRC the tax and National Insurance.
Choose Easypaye
Here at Easypaye, our team of skilled and experienced Payroll and HR experts are ready and waiting to answer any of your questions about all of your accountancy needs. To find out more, or to discuss our services, please get in touch.
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across Belfast, Birmingham, Bradford, Bristol, Cardiff, Coventry, Edinburgh, Glasgow, Leeds, Leicester, Liverpool, London, Manchester, Nottingham and Sheffield.
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