Employing staff for the first time is a huge responsibility and a big step for any business. Aside from the recruitment process, there are a number of steps you’ll have to take to ensure that your new limited company meets its legal obligations as an employer.
1. Register as an employer with HMRC
Most businesses have to register as employers when they take on staff or use subcontractors for construction work. If any of the following apply to your limited company, you must register as an employer with HMRC and set up PAYE Online:
- paying any employees (this includes company directors) at least £123 a week
- employing any person or director who has another job or is already in receipt of a pension
- providing expenses or benefits to employees or directors
- hiring subcontractors for work in the construction industry
You must complete this registration before paying anyone. It normally takes around 5 business days to get your employer’s PAYE reference number from HMRC, but you can register online up to two months in advance of the first payday.
2. Set up payroll
To operate HMRC’s Pay As You Earn (PAYE) system, which is used to collect Income Tax and National Insurance contributions (NIC) from employees’ wages, you will need to set up payroll. You can use payroll software and run payroll yourself, or you can outsource this to an accountant or a third-party payroll provider.
As an employer, you are responsible for collecting and keeping employee records, telling HMRC about new employees, paying employees and directors, and deducting any tax and National Insurance contributions from their wages.
You must also provide payslips to employees, send payroll reports, and pay tax and NIC deductions to HMRC, including any employers’ National Insurance that your company owes.
If you use a payroll provider, they can complete many of these tasks on your behalf, which will considerably minimise the time and effort you need to spend on payroll each month.
3. Get Employer’s Liability insurance
As per the Employers’ Liability (Compulsory Insurance) Act 1969, you are legally required to take out Employers’ Liability insurance as soon as you become an employer. However, this will not be required if you are the sole director, own at least 50% of the company’s shares, and don’t have any other employees.
The policy must come from an authorised insurer and provide your business with cover of at least £5 million. It will safeguard you and your company against legal expenses and compensation claims if any employees become ill or sustain an injury, whether in the workplace or as a result of work undertaken for the company.
Failure to properly insure your company could lead to fines of £2,500 for every day that you’re not insured. Furthermore, you could be fined £1,000 if you don’t display your Employers’ Liability certificate or show it to inspectors when asked.
4. Provide a contract and written statement of employment
When you find a suitable employee and they accept a job offer from your company, you must provide them with an employment contract (agreed verbally or in writing).
You also have to provide a written statement of employment particulars, which sets out the terms and conditions of employment and the employee’s rights, responsibilities, and duties. This includes their rate of pay, which must be at least the National Minimum Wage for their age.
The written statement consists of two parts – the main document (or ‘principal statement’) and a wider written statement. The principal statement must be provided to the employee on or before their first day of work, and the wider written statement must be provided within two months of their start date.
Most employers choose to include the written statement within their contracts of employment.
5. Set up a workplace pension
If you employ anyone other than yourself as a director, you will need to set up a workplace pension scheme and automatically enrol any employee who:
- is between 22 years old and the State Pension age
- earns at least £10,000/year
- normally works in the UK
As an employer, you are legally obligated to contribute at least 3% of an employee’s ‘qualifying earnings’ to their pension scheme, unless the employee opts out.
Additional statutory duties of employing staff
Your recruitment process must be fair. You cannot discriminate against anyone during recruitment or employment, and there are certain questions you cannot ask.
Before employing anyone, you must ensure that they have the right to work in the UK. Depending on the role, you may also have to check an employee’s criminal record by requesting a Disclosure and Barring Service (DBS) check.
You have to make reasonable adjustments for employees and workers with disabilities and health conditions.
Employees’ personal data must be kept safe, secure, and up to date. You will need permission from employees to hold certain types of ‘sensitive’ data relating to them.
It is your duty as an employer to ensure that your limited company complies with health and safety law. You must do whatever is reasonably practicable to protect the health, safety, and welfare of your employees and anyone else who might be affected by your business. This includes assessing risk in the workplace and providing relevant information to employees.
You should also familiarise yourself with other employment rights, such as holiday entitlement, sick pay, statutory maternity/paternity/adoption leave and pay, minimum length of rest breaks, working time regulations, the right to request flexible working, and dismissal and redundancy rights.