Your business is growing, and you know you need some help. You’re pretty sure you can consistently afford to pay someone’s wage, and you’re ready to take the plunge… but HOW do you actually employ someone for the first time?!

What do you need to know about employing someone for the first time?

Firstly, you need to register as an employer with HMRC. It’s a simple process, and you can do it HERE using this direct link to the HMRC Employer Registration page, but you will need a Government Gateway Account.

You probably already have this, but if you don’t, it may take a couple of weeks to set up – so make sure you get this sorted before you need to run your first payroll.

So you’ve registered as an employer, you have your Government Gateway account – what next?

You will need to recruit for the role, (if you don’t already have the person you want to employ waiting in the wings), and then you’ll need to provide them with a contract of employment. We will talk you through these in this section.

Recruiting your first employee

You may wish to use a recruitment agency, but in reality, most micro businesses hiring their first employee simply do not have the budget to pay someone £500+ to do it for them. And ultimately, you probably feel as though you want to have control over that process yourself (it’s your first employee after all!)

Sites such as Indeed.com are cheap and effective for getting your position known to lots of people – for a few pounds per day, you can Sponsor your ad, and it isn’t unusual to receive 10-20 applications per day (although admittedly, they vary in quality and you will need to sift through them all, separating the wheat from the chafe)

Once you have a shortlist, you may want to arrange a short telephone interview to ‘pre-qualify’ them before wasting your time with a real in-person interview, as this 10 minute chat can often highlight deal-breaker issues that renders them unsuitable for the position. And then when you have 3-5 who seem like a good fit, you can take them forward for a full interview. You may wish to hold second interviews, ask them to give a presentation, or simply chat with them. That’s down to you and your style preference.

Legal requirements for employing people

  • You must pay the National Living Wage (you can find this HERE)
  • You must give a minimum of 20 days holiday plus bank holidays (a total of 28 days) for a full-time worker.
  • You must provide a workplace pension after 3 months, and you must make a minimum contribution of 3% of their earnings
  • You must provide Statutory Sick Pay and Statutory Maternity Pay, in accordance with the basic minimum set out in law, should your employee have a child or become ill. You will need to familiarise yourself with these laws, which are available on the Gov.uk website

Employers National Insurance

While employees have National Insurance taken out of their wage when they earn over a certain amount, the same is true for employers who are obliged to pay Employer National Insurance contributions for their employees when they earn over a certain amount.

HOWEVER, do not let this put you off employing someone – because the Government has a scheme called an ‘Employment Allowance’ whereby the first £5,000 of contributions are exempt. So if you only have one employee, it’s very unlikely you’ll pay anything at all.

How do I actually process their wages and produce a payslip?

You could have your accountant do this for you, however it’s a fairly simple process to do it yourself if you have an accounting software package such as Xero or Quickbooks (FYI the Quickbooks Advanced Payroll is a total nightmare, and I would advise switching to Standard Payroll is you use Quickbooks)

The software, which is relatively inexpensive and you should be using it anyway for your general book keeping – will calculate the employee and employee contributions, produce a payslip and communicate that information to HMRC using the MTD (Making Tax Digital) capabilities within the software.

You’ll need to set it up the first time, so that it syncs with your Government Gateway – but after that, it’ll submit the information when you click to submit it.

You must then pay those employee taxes to the designated HMRC bank account.

Is it easier to just use a self-employed person?

We get this question a LOT… you’ll find many “experts” in Facebook groups and such, telling you to “make them self employed so that you don’t have the headache of employing people” – and while that might be an easier route, it isn’t quite as plain sailing as they’d have you believe. This is why:

  1. A self-employed person will cost a LOT more per hour/day than an employee. For example, a virtual PA might cost you £30-45 per hour, while an experienced admin/PA person might cost you £12-15 per hour on payroll.
  2. If someone is self-employed then there are certain things they cannot do – they must provide their own insurance, own materials… you cannot dictate their working hours, when they can take holiday, and in some cases they can send someone else in their place. Because a self employed person is essentially running their own business, and you’re contracting the services of that business. You therefore have no control over them. Should you try to assert control over them, they would have a legitimate claim in court to say they were really an employee all along, and look to claim backdated holiday pay, sick pay, maternity pay and wages if their self-employed accounts equated to less than National Minimum Wage (some famous cases of this include Pimlico Plumbers, Uber and many hair salons where “employees” made substantial claims against their employer)

Want to know more about running a business? Why not check out this FREE course written by me “The 10 Challenges you’ll face as a business owner” – the course is around 1-1.5 hours long, and it’s completely free as it was paid for by the lovely folks over at Sync to help business owners.