Although lockdown has restricted business for many, some businesses have been taking on new employees during this period. Likewise, 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.
If you are a potential new employer here are some key points you need to think about and the costs you need to plan for.
Firstly, Register as an employer
You do not need to register as an employer with HMRC if 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
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.
What are the costs?
You need to decide how much you can pay your new employee, wjich is driven by two key considerations: 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?
When working out what an employee will actually cost you must total the gross salary (before deductions), the employer’s NI (currently 13.8% of any earnings above the threshold of £732 per month) and the employer’s pension contribution (currently 3% of earnings above £520 per month).
Employment allowance of £4,000 per year is available to cover the cost of employer’s 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.
Consider outsourcing your payroll
When your employee is earning at a level where you have to become an employer it makes sense to find an external who can process your payroll for you. This will take the time and effort away from your desk, meaning you can get on with running your company.
There are constant changes of legislation with payroll, as well as unforeseen complexities. The furlough scheme is one of these. Even though it is new and, perhaps not fully understood by all, it still needs to be processed correctly and on time.
We use sophisticated payroll software which provides employers with access to their payroll information securely in the cloud, whilst employees have access to their payslips on line. We can also email information if that suits you or your employees better.
Talk to us about outsourcing your payroll
Our experienced payroll professionals you with an efficient, fast and accurate payroll service whether you are a new or long-standing employer. Contact us to find out more.