You've read through endless CVs, held interview after interview and heard at least ten different answers to the same questions. After much thought and deliberation, you've finally settled on your perfect new hire.Great news, right? But before your new employee can roll up their sleeves and crack on, there's some stuff you have to do. You need to tell HMRC about them, fill in the right tax forms and get them legally squared away.Here's how to go about this.
An employee is a person who works for you under an employment contract. HMRC considers your staff to be employees if most of the following statements about them are true:
Before we dive into the fun tax stuff, there are two things you need to get out of the way.Firstly, you have to check your new employee's immigration status. And, secondly, you have to find out if they need a DBS (Disclosure and Barring Service) check.
You can take on an employee only if they have a legal right to live and work in the UK. In other words, your new employee must be one of the following:
It's your duty as an employer to check every new employee's immigration status before you take them on board. Seeing as you could be fined up to £20,000 for hiring an illegal worker, you definitely shouldn't skip this step.To check your new hire's immigration status:
A DBS check is a criminal record check. You have to run a DBS check if you're hiring someone to work in:
A prospective employee can request an investigation if you ask them to do a DBS check, but they think they don't need one. So, while it might seem like a good idea to carry one out to be safe, it's best to do it only if it's a legal requirement. HMRC has detailed guidance on when you should run DBS checks.
As a rule, you have to pay new starters through HMRC's PAYE (Pay As You Earn) system if they earn £116 or more a week (this is equal to £503 a month, or £6,032 a year).The PAYE system calculates how much tax and National Insurance each employee owes HMRC so that you can deduct it. You also have to pay employer's National Insurance, which is called Class 1 National Insurance.Here's how to get your new employee set up for PAYE:
When you register, HMRC will send you a unique PAYE reference number, which you'll need to set up payroll. You must register as an employer before your employee's first payday. So, seeing as it can take up to five days to get your PAYE reference number in the post, it's a good idea to register as soon as possible. You can register up to two months before your new employee's first payday.
You can either hire an accountant to do this for you or do it yourself. If you choose to do it yourself, you'll need to download special software: either HMRC's Basic PAYE Tools or another HMRC-approved option.
You'll need to collect some information from your new employee to work out their tax code and register them for PAYE (we'll tackle this in more detail below). You'll also need to find out if they're repaying a student loan.
Use the information in step 3 to set up your new employee in your HMRC-approved payroll software. Once you've filled in all the details, the software will allow you to send a Full Payment Submission (FPS) to HMRC.
To register an employee for PAYE, you'll need their personal details — name, address, date of birth and gender — and their employment start date.You'll also need the following information, which you can get from their latest P45 form. Your new employee should get this form from their last employer:
If your new hire doesn't have a P45 form, for example, because they're new to the UK or haven't worked for a while, you'll need to ask them to fill in HMRC's new starter checklist. They can fill this in online and print it or download it and fill it in manually.Once your new employee completes the HMRC starter checklist, you can use the information to get them set up for PAYE. You'll also need to work out their tax code, which you can do using HMRC's online tool.
You should always use the latest P45 form. If there's more than one P45 form with the same leaving date, for example, because your employee had multiple jobs they left to come work for you, then you should pick the one with the highest tax-free allowance.
As an employer, you have to enrol your employees in a workplace pension scheme if:
Like tax and National Insurance, you have to deduct pension contributions automatically from your employee's salary and pay them into your pension scheme. You also have to contribute to each employee's pension out of your own pocket.
You've got your new employee legally squared away. Great.But, as important as the formalities are, it's also worth going the extra mile to make them feel welcome. Your welcoming action sets the stage for what will hopefully be a long and fruitful relationship.Here are a few tips: