Taking on an employee for the first time is an exciting prospect. Finding that you need an extra pair of hands is a good sign your business is growing and thriving!
It’s also a sign that you’re making smart business decisions. Delegating responsibility for the everyday tasks that don’t require your immediate attention leaves you more time to focus on your overall strategy – the ultimate goal of any successful business owner.
How your accountant can help with taking on employees
Alongside the HR considerations that come with taking on an employee, a degree of accountancy housekeeping must also be adhered to.
Understanding the financial implications and responsibilities of hiring an employee will ensure you’re both HMRC compliant and that your employee is paid on time. It will also help you balance your business’ outgoings and monitor the ROI of having a new staff member on the books.
At CTT Accountancy, we offer growing businesses advice and support in preparing to take on their first employees, including setting up payment systems and ensuring they’re HMRC compliant.
Here are some of the accounting considerations we can help you navigate as a new employer:
By law, you must be prepared to pay any employee at least the National Minimum Wage in accordance with their age if they are 16-22, or the National Living Wage if they are aged 23 or over and not in their first year as an apprentice.
The government sets these figures and outlines the minimum hourly rate a person must be paid for their time. The National Minimum Wage and National Living Wage are based on median hourly wage estimates put forward annually by the Low Pay Commission. These figures are reviewed and subject to change each April, so it’s important to know what the current rates of pay are and if they’re likely to increase any time soon.
Although we are unable to advise you on the amount to pay your employees, at CTT Accountancy, we offer insight into the costs associated with hiring staff and help forecast the financial viability of taking on one or more employees based on the salary you expect to pay them, and any other expenses incurred by their employment.
Managing employment costs
Taking on a new employee costs a business more than just an additional salary. The recruitment and training expenses associated with finding and hiring top talent are important financial considerations, too. It can cost up to 20-30% of an employee’s final salary if you hire through an agency and around £200-400 if you use a job site.
There’s also the impact on a business’ overall efficiency and productivity, along with onboarding and integrating new staff members, and the expense of purchasing any additional plant your new employee might need.
You may also want to consider setting aside additional funds for things like bonuses and employee benefits such as gym membership or staff discounts.
At CTT Accountancy, we can help you put together a comprehensive financial plan for taking on, training, and retaining your employees, giving you a clear breakdown of the costs and the projected ROI you should expect from investing in additional staff.
One cost associated with becoming an employer which you may not have considered is Employer’s Liability Insurance (ELI). You must take out ELI with an authorised insurer as soon as you become an employer and it must cover you for a minimum of £5m.
Failure to take out ELI can result in fines of up to £2,500 for every day you are inadequately insured. You can also be fined up to £1,000 if you do not display your EL certificate or do not produce it upon request during an inspection.
The cost of ELI will depend on the degree of personal risk associated with the employee’s role and can be anything from around £5-500 a month. At CTT Accountancy, we’ll put you in touch with our in-house team of professional financial advisers who will help find the right level of ELI for you and your business.
Registering as an employer with HMRC
In addition to securing ELI, you will also have to register as an employer with HMRC. You can do this up to 4 weeks before you start paying your new staff member. Bear in mind it can take up to 15 working days to receive your employer PAYE reference number.
At CTT Accountancy, we can register you as an employer when we set up your PAYE with HMRC. If you are the only director of a limited company and are claiming a salary from the business, you will already be registered with HMRC as an employer.
Setting up and managing PAYE
PAYE or ‘Pay As You Earn’ is HMRC’s means of collecting Income Tax and National Insurance (NI) from employees. Although it’s a compliant, organised way to pay your employees and ensure their taxes are up to date, it can also be complicated and time-consuming. Duties and responsibilities include:
- Calculating what each employee is owed in wages and issuing payment
- Managing and calculating any bonuses or benefits due
- Calculating pay in accordance with any time off, for example sickness and maternity leave
- Paying Income Tax and National Insurance
- Keeping thorough digital records of all the above
If you choose to do your own PAYE, you’ll need to invest in HMRC-approved software. At CTT Accountancy, we have partnerships with Xero, Sage, and QuickBooks and can pass on discounts to our clients to make accessing PAYE software more affordable.
The software will calculate the amount to be deducted from employees’ weekly or monthly wages for NI and Income Tax, based on their earnings, and the remaining net figure owed to the employee. It will also report this data to HMRC in real time. You are then responsible for submitting the correct payments to HMRC by the 22nd of the following month using your PAYE Accounts Reference number.
You will also have to account any expenses claimed by the employee, pension contributions, and any additional, pay-related benefits they might be claiming, for example, through salary sacrifice.
Accuracy and reliability are essential for managing employee payments and money owed to HMRC. You can also incur fines calculated as a percentage of the amount due for late payments; this figure increases over time. For this reason, many employers choose to outsource their payroll when taking on additional staff members.
At CTT Accountancy, we provide a full payroll service that guarantees your staff will be paid the correct amount owed to them on time, no matter what, and that your business and employees remain HMRC compliant. Choosing to outsource your payroll will also ensure your accounts are all in order when it comes to submitting your end-of-year figures to HMRC.
It’s now a legal requirement for employers to provide all eligible staff with a workplace pension scheme. All new employees should be automatically enrolled in the scheme you’re using unless they choose to opt-out.
At least 3% of your employee’s ‘qualifying earnings’ should be paid into their workplace pension by the 22nd of the next month. Each pension scheme will have its definition of qualifying earnings, so check this with your workplace pension provider.
You must pay contributions for each employee on time for every payroll and backdate any missed or late payments. You could incur fines for late or incorrect payments. At CTT Accountancy, we can take care of setting up and managing your employee pension scheme along with your PAYE, ensuring you never miss a payment, and all employee contributions are always accurate.
Expanding your business and preparing to take on employees is an excellent growth opportunity with the potential for significant ROI. But it’s also a financially risky time for a business with hidden costs, additional admin, and unexpected disruption that can negatively impact the running of the business and its profitability.
Enlisting the help of CTT Accountancy will ensure your staff onboarding processes and payment systems are well managed and your overall business accounts and projections are monitored. With our professional support, you can forget the hassle and focus on being a top employer, finding the right talent and providing the best training to take your business to the next level.