Taking on your first employee is a big milestone. It usually means your business is growing and you need extra hands to keep things moving. While that’s exciting, it can also feel daunting. Tax, payroll, pensions and HMRC rules can sound overwhelming if you have never dealt with them before.
The good news is that with the right setup and support, hiring does not have to be stressful. At 360 Accountants, we help small businesses and sole traders take this step with confidence.
Before You Hire Your First Employee
Before your new employee starts, there are a few essentials to put in place. These ensure you stay compliant with the law and avoid nasty surprises later.
1. How Do I Register As An Employer?
You must register with HMRC as an employer before you pay anyone. This tells HMRC that you are going to run payroll and operate PAYE.
You can register online on the GOV.UK website. You will need details about your business, such as your business name, address and contact information. Once registered, HMRC will send you:
- An Employer PAYE Reference
- An Accounts Office Reference
You’ll use these every time you deal with HMRC about payroll.
We recommend registering at least two weeks before your first payday, as it can take time for HMRC to issue the details.
2. What is PAYE?
PAYE stands for Pay As You Earn. It’s the system HMRC uses to collect Income Tax and National Insurance from employees’ wages.
Instead of your employee paying tax directly, you deduct it from their pay each time you run payroll. You then send that money to HMRC on their behalf, along with any Employers’ National Insurance you may have to pay.
3. How Does PAYE Work?
Each time you pay your employee, you:
- Calculate their gross pay
- Deduct Income Tax and Employee’s National Insurance using their tax code
- Deduct any other items such as student loan repayments or pension contributions
- Pay the net amount to the employee
- Report the details to HMRC through payroll software
- Pay HMRC what you have deducted, usually monthly
This process has to be done accurately and on time. Late or incorrect submission can lead to penalties.
4. Set Up Payroll Software
You must use payroll software that is recognised by HMRC. This is how you calculate pay, deductions and submit information to HMRC in real time.
Many business owners start with basic software, but as things grow, it can become time consuming. This is where using an accountant to run payroll can save you time and reduce risk. Check out our payroll services.
5. Check Minimum Wage Rules
You must pay at least the National Minimum Wage or National Living Wage, depending on your employee’s age and status. Rates change regularly, so it is important to keep up to date.
Paying below the legal minimum wage can lead to fines and reputational damage. We always make sure our clients are paying the correct rates.
Ensure you take any unpaid overtime into account when checking your employee is being paid above the National Minimum Wage.
6. Prepare an Employment Contract
While this guide focuses on tax and payroll, you also need a written statement of employment particulars. This includes things like pay, hours, holiday and notice periods. This protects both you and your employee.
7. Other Responsibilities
You’ll need to have Employers’ Liability Insurance in place and comply with the various health and Safety in the Workplace regulations.
After You Hire Your First Employee
Once your employee is on board, your responsibilities do not stop. You’ll need to manage payroll properly each pay period and stay compliant with HMRC and pension rules.
1. Run Payroll Every Pay Period
Each time you pay your employee, you must:
- Calculate wages and deductions
- Submit a Full Payment Submission to HMRC on or before payday
- Keep accurate payroll records
This has to be done whether you pay weekly, fortnightly or monthly.
2. Pay HMRC
You will usually pay HMRC monthly for the tax and National Insurance you have deducted. The deadline is the 22nd of the following month if you pay electronically.
Missing deadlines can result in interest and penalties.
3. Provide Payslips
You must give your employee a payslip showing their gross pay, deductions and net pay. This can be digitally or on paper.
4. Keep Records
You need to keep payroll records for at least six years. This includes pay details, deductions and reports sent to HMRC.
Workplace Pensions
Do I Need a Workplace Pension?
In most cases, yes. If you employ staff in the UK, you must assess them for automatic enrolment into a workplace pension scheme.
If your employee:
- Is aged between 22 and State Pension age, or
- Earns above the earnings threshold
Then you must automatically enrol them into a pension scheme and make employer contributions. Even if they do not meet the criteria, you still have duties to provide information and offer a scheme in certain situations.
Pensions can be confusing, but you are not alone. At 360 Accountants, we help clients set up pension schemes and manage ongoing contributions as part of our payroll service.
Payroll
Are There Any Payroll Mistakes to Avoid?
Yes, and they are more common than you might think. Here are a few we see regularly:
- Registering late with HMRC and missing the first payroll submission
- Using the wrong tax code
- Paying staff without submitting reports to HMRC
- Missing pension duties
- Paying the wrong minimum wage
- Not keeping proper records
Each of these can lead to penalties, backdated payments or unhappy employees. Getting things right from day one saves time, money and stress later.
Can An Accountant Run Payroll For Me?
Absolutely! In fact, many small business owners choose to outsource payroll so they can focus on running and growing their business.
At 360 Accountants, we act as a payroll partner for our clients. That means:
- We set up your payroll correctly
- We calculate pay and deductions
- We submit reports to HMRC on your behalf
- We produce payslips for your employees
- We handle pension contributions
- We make sure everything is compliant
You still stay in control, but you don’t have to worry about the technical details or deadlines.
How 360 Accountants Can Help
We’re a Hull based firm supporting SMEs and sole traders across England and Wales with payroll, PAYE, pensions, bookkeeping and tax planning. When you hire your first employee, we guide you from HMRC registration right through to running payroll every pay period.
Our job is to make sure your systems work smoothly, your staff are paid properly, and your business stays compliant, so you can focus on growing with confidence. Get in touch with us today.
