How to hire an employee in the UK?

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To hire an employee in the UK, you will need to complete a number of administrative tasks with HMRC, pensions and legals. This short article provides an overview of the key steps you will need to complete before and after hiring an employee.

Registering with HMRC

To hire an employee in the UK, you will need to register with HMRC as en employer if the employee:

  • will earn more than £120 a week
  • will receive a pension or has another job while still working for you
  • will received expenses or benefits

You will then receive a PAYE reference number that you will need to run payroll and communicate with HMRC.

What is PAYE?

PAYE is HMRC's system for collecting Income Tax and National Insurance from employment. PAYE can be paid on a monthly or quarterly basis depending on your expected PAYE bill.

Do I need to register with PAYE if I'm a sole director?

You will need to register with PAYE if you intend to employ yourself, even if you are the sole director of the limited company.

Pensions

In the UK, employers have to set up a workplace pension and automatically enrol employees into the pension scheme and make contributions to their pension if all of the following apply:

  • the employee is classed as a worker
  • the employee is aged between 22 and the state pension age
  • the employee will  earn at least £10,000 per year
  • the employee usually works in the UK (read the detailed guidance if you’re not sure)

Who is classified as a worker?

Anyone who meets the following criteria is classified as a worker:

  • works under a contract of employment (an employee), or
  • has a contract to perform work or services personally and is not undertaking the work as part of their own business.

Are directors classified as workers?

According to these rules, a director of a limited company with no employees is not classified as a worker if they do not have an employment contract with the company. This also means that multiple directors with no employment contracts and no employees will not be classified as workers.

Are volunteers classified as workers?

A volunteer will not be classified as a worker unless they are paid or receive some form of a non-financial benefit.

How do you calculate the state pension age?

You can determine your state pension age using the government's online calculator. However, to qualify for a state pension, you'll usually need to have paid national insurance contributions for at least 10 years.

How do you set up a workplace pension?

To set up a workplace pension, you will need to choose a pension provider. You will usually need to pay a set up fee. Once you have established your workplace pension, you will need to contact the Pensions regulator to inform them about your workplace pension. You will also need to communicate information about the pension scheme to your employees and determine their respective contributions.

Employer's liability insurance

Since the Employers' Liability (Compulsory Insurance) Act 1969, employers must get Employers’ Liability insurance as soon as they become an employer and the policy must cover the employer for at least £5 million and come from an authorised insurer.

Finding candidates

Whilst there is a 7 step process for finding and hiring a team quickly, it is important to find candidates who are likely to fit in well with your organisation and existing team members. You can determine the fit of prospective hires through interviews with yourself and existing team members.

Employment contracts

Once you have satisfied your HMRC, pension and insurance duties, you will need an employment contract to formalise the terms of your employer-employee relationship. Whilst it might not seem necessary, employment contracts help protect your intellectual property and confidential information and prevent unwanted situations such as client solicitation immediately after employment termination. Before creating an employment contract you might want to first agree on the key terms such as the position and salary in a formal offer letter.

Do I need an employment contract for a part-time employee?

You should have an employment contract with all your employees, even if they are working part-time or for a fixed term.

How do I create an employment contract?

Employment contracts should not be downloaded and edited from the internet as this is error-prone and does not guarantee that the final contract will contain everything an employment contract needs to be robust yet fair. A smarter approach is to use an online-contract builder like Legislate which will create your custom employment contract by asking you simple questions. The following video explains how to create an employment contract with Legislate. You can start creating your employment contracts with Legislate by signing up today.

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