Hiring someone for the first time? Pat yourself on the back, this is a big step. To get the best out your team you’ll need to handle pay correctly. This means understanding payroll basics like PAYE and National Insurance. But don’t worry, we have you covered.
What should I do first?
So you’ve hired the perfect fit, great. Now for the the niggly bits. You need to register as an employer with HMRC and add your new employee’s P45 (from their previous employer) to your records. If you don’t have their P45, then fill out a P46 to get a tax code from HMRC.
What do I pay them?
Your new employee will receive salary or wages, which includes statutory sick or maternity pay, as well as potential tips and bonus.
Statutory sick pay
You’ll need to pay your employee £92.05 per week if they’re too ill to work. It must be paid by the employer for up to 28 weeks.
This is paid for up to 39 weeks. The employee will receive 90% of their average weekly earnings (before tax) for the first 6 weeks. For the 33 weeks after that, they’ll receive £145.18 or 90% of their average weekly earnings (whichever is lower).
What needs to be deducted from your employees’ salary?
You might wince here, but as an employer it’s yours responsibility to deduct the following from your employee’s pay:
- National Insurance Contributions
- Income Tax
- Student loan repayments
- Pension contributions
What’s included in payslips?
Everything above, so that’s payments as well as deductions. This is why it’s important to give your employee a payslip whenever they’re paid, in fact, you’re legally obliged to so.
What’s PAYE and why is it important?
Pay As You Earn (PAYE) is the system you’ll use to collect Income Tax and National Insurance Contributions. If your employees’ earns above a certain amount, you’ll need to pay Employer’s Class 1 NICs.
How much should I deduct for PAYE?
This depends on your employee’s earnings. Use your employee’s P45 or P46 to calculate how much Income Tax and National Insurance Contributions you need to collect. You can calculate this manually using information from HMRC or use electronic methods such as payroll software.
How can I manage payments?
It’s important to keep reports of all your payments and salary deductions. This might seem like a big task, but there are two options that make it simpler…
Organise your payroll using an accountant or bookkeeper. Good communication is key here: if you don’t tell your accountant that you’ve hired someone new, they may not get paid. If you prefer knowing your payroll is in the hands of a specialist, then this is the choice for you.
On the other hand, you may want to manage your payroll in-house. There’s plenty of free payroll software to choose from like BrightPay, EnrolPay and Kashflow to name a few. These packages can help you create accurate records by carrying out the following:
- Record employees’ details
- Work out pay and deductions
- Report payroll information to HMRC
- Work out how much to pay HMRC
How should I report and pay HMRC?
You payroll reports will tell you how much you owe. HMRC strongly recommend that a Full Payment Submission (FPS) is sent to them electronically via payroll software. An FPS is regarded as the quickest and simplest way to submit payroll information (like pay and salary deductions). Here’s more information you might include on an FPS:
- You have a new employee
- An employee leaves
- You start paying someone a workplace pension
- It’s the last report of tax year
When do you need to pay PAYE?
You’ll need to send the latest pay deductions to HMRC by the following:
- 19th of each month by post
- 22nd of each month electronically
It’s important to bear these dates in mind. HMRC charge late payment penalties if PAYE amounts aren’t paid in full and on time (again, software can take care of this for you).
What forms do I need for PAYE?
The below forms will tell you exactly what you need to do for PAYE as well as how to pay HMRC:
- Employee forms
- Start of the tax year forms
- Payroll administration forms
- Expenses and benefits forms
You can find out more about these forms here.
Let’s face it, some of us aren’t good with numbers…and that’s okay. That’s why experts and technology are on hand to take care of the hard sums.
The right payroll solution can help create and file most of the relevant forms and reports for you – so you won’t miss a payment or deadline. However, it’s still good practice to research and understand the payroll basics yourself.
Employees are one of the most important parts of your business. Read our guide on how to keep your employees happy and engaged as it is critical for improving your company culture and performance.