A business will normally need to register as an employer with HMRC if it employs staff, even if it's just a single director. This can usually be done online, up to four weeks' in advance of the first pay day. If your business employs staff, it must fulfil a number of legal obligations. These include:
- Providing employees with an itemised pay statement that shows gross wages or salary before deductions, any fixed or variable deductions, and net pay after deductions
- Complying with national minimum wage law
- Making statutory payments, for example, relating to maternity and sick pay
- Only making lawful deductions from wages.
Most employees who are above compulsory school age must be paid at least the national minimum wage. Since October 2012, the minimum hourly wage for workers aged 21 or over is £6.19.
Employees are also entitled to paid holiday. This is 28 days (including public and bank holidays if they are full-time); paid holiday for part-time employees is calculated on a pro rata basis. Holidays are paid at the employee's usual rate.
Sometimes an employee will not attend work due to sickness. Provided they have informed you within the time period that you set out in their employment contract and they have been sick for more than four days in a row, you must pay them statutory sick pay.
You are not generally allowed to make deductions from an employee's pay other than income tax, National Insurance contributions, student loan repayments and specific deductions included in the employee's contract. But there are some exceptions to this: if the employee has been on strike, for example, or the Child Support Agency has asked you to make deductions for child maintenance purposes.
If an employee leaves, you must pay them any outstanding pay, including overtime, pay in lieu for untaken holiday, bonus payments (if earned), statutory sick pay (if entitled to it), pay instead of notice if they are not working their notice period, redundancy (if due).
Income tax and National Insurance contributions should be deducted from an employee's final pay, along with money provided for season ticket loans, any other outstanding loans or any amount owed under a car leasing agreement.
As an employer, you will have to operate a PAYE (Pay as You Earn) scheme for HMRC. This means deducting tax and National Insurance contributions from your employees' pay and paying Employer's Class 1 National Insurance contributions if they earn above a certain threshold.
You can calculate your employees' tax using an online calculator provided by HMRC. The rates and thresholds for employers to use when calculating National Insurance contributions are also available on its website.
You will pay PAYE deductions and National Insurance contributions to HMRC on a monthly or quarterly basis. Following the end of the tax year, you must file an employer annual return (forms P35 and P14) online with HMRC.