If you’ve been running your business for some time now, but the time has come to consider employing staff, you’ve come to the right place.
Taking on staff for the first time is a big deal. Although employing new people can be a challenge, even for those with years of experience, when you get it right it can bring great rewards. If you haven’t employed staff before, you’re likely to have many questions, but the one at the top of the list will probably be – “how much will it cost my business?”. We’ll cover some other things to think about when it comes to employing staff.
PAYE is the system HMRC (HM Revenue & Customs – the UK tax authority) uses to collect Income Tax and National Insurance contributions (NICs) from employment. Most employers (or their service providers) use PAYE-compliant payroll software.
As well as deducting payable Income Tax and NICs from your employees’ pay, you must report – in real-time – details to HMRC and pay any tax and NI owed. You must also provide your employees with a pay slip, showing how much they’ve been paid, and what deductions have been taken from their pay.
There are different classes of National Insurance, and employment status and earnings determine the class that is paid and how much. If you’re a director and employee of a limited company, you probably already pay Class 1 NICs through your PAYE payroll.
What are UK payroll costs?
Alongside employee’s PAYE and National Insurance elements, you’ll also need to consider auto-enrolled pensions, income tax deductions, and any student loan deductions. Adding up all of the above will tell you how much your new employee will earn and what amounts you’ll need to deduct from their earnings.
PAYE software makes this task quick and easy, while it also enables you (or your service provider) to report PAYE information to HMRC in “real-time” when you pay staff, which is a requirement. If you get someone else to take care of your payroll, you’ll have to pay them a monthly fee, but it could save you a lot of time and effort.
What other costs are there to employing staff?
- Recruitment costs – these tasks include creating the job ad, advertising the role, interviewing the candidate and onboarding the new staff member. If you use a recruitment agency, they will also take a fee (usually between 15% and 20% of the annual salary).
- Employer’s liability insurance – it’s a legal requirement to have this type of insurance when you employ staff. How much your policy costs will depend on the number of employees and the nature of your business.
- Criminal record checks – some businesses may need to carry out a criminal record check on the employee. The cost of doing a basic check is currently £23 with a possible administration fee on top.
- Benefits – a lot of companies offer additional employee benefits to make the job role even more attractive during the recruitment process as well as keep their team motivated and happy. This can be anything, from a car for business use to a gym membership or free lunches. Keeping your employees satisfied with their jobs can really add to the costs, so don’t overlook them.
The biggest hidden cost in taking on an employee is how much of your time they will take up.
Apart from the initial training, paperwork and clarifying your business’s policies, they will need time each week keeping them on track and managing them effectively. It’s worth thinking this through when planning how much extra work your business will be able to take on with an employee. However, if you don’t hire any staff, you will never be able to grow your business!
Get in touch for employment law advice today.