When contractor work starts piling up, you may consider hiring someone to help you out. Hiring your first employee is an important and rewarding milestone as a director of a limited company, because it shows that your business is growing.
You will be handing over responsibility for part of your business to someone else, and you also need to know your duties and obligations. Taking on an employee is a big deal, but Gorilla Accounting are here to help. We have many years of experience as contractor accountants, so you can just relax and let us deal with the paperwork side of your business.
Do You Want to Do it Yourself?
This is one of the first things you need to consider. Advertising a position doesn’t have to be very expensive if you’re doing everything yourself but, if you choose to go through a recruitment agency, they may request up to 20% of your employees’ first-year salary to find the right candidate for the job. However, agencies exist for a reason, and you shouldn’t discard this idea at first glance; this is a good option if you’re very busy and don’t have time to research, advertise and interview applicants. They’ll do everything for you, without you having to stress about recruitment, which can take some time.
If you choose to do it all without the help of a recruitment agency, you can advertise the role on websites that are specific for that purpose or on social media, such as LinkedIn. This network can be extremely helpful when it comes to sorting out potential employees successfully; after all, with so many people showcasing their qualifications and skills, LinkedIn is a treasure trove of qualified staff you can choose from when you decide to go ahead and hire.
Have a Good Job Description
The job description is a key element of recruitment and can make or break your process. You need to be clear about the type of person you want to hire, the skills they should have and how much you can pay them.
When deciding how much you want to pay your new employee, keep in mind that you need to at least meet the national minimum wage requirements. In the current 2018-2019 period, the minimum hourly rate for employees who are over 25 years old is £7.83. Additionally, you’ll want to consider the local rate for staff with the same skills and amount of experience.
To have a comprehensive job description, add the job title, a summary of what the position is, key duties and responsibilities, salary, hours and location.
Set Up Interviews and Screen People
Recruiting your first employee can be a time-consuming and complex process, but it’s certainly a necessary one in order to know if you’re getting the right candidate. After advertising the job where your target audience is, which is usually only online now, it’s time to start comparing CVs and covering letters and calling in people for interviews. Make sure your questions are prepared in advance and be ready to answer any queries the candidates may have about your business or the position.
After you finish your wave of interviews, refer to your notes and make a fair judgement based on the candidate’s CV, skills and experience.
Perform Employment Checks
Once you’ve narrowed down your candidates and selected your applicant, it’s important to check whether he or she has the legal right to work in the UK. You may have to pay up to £20,000 per employee if they aren’t allowed to work in the country, so it’s crucial that you always verify this.
Most times, this is the only check you’ll have to do. However, if you work in a field which requires you to check a candidate’s criminal record (for example, working with vulnerable people or in the security sector), you may need to apply for a Disclosure and Barring Service (DBS) check. Certain roles, like childcare, may require more extensive checks.
By requesting a basic check, you will know if your applicant has unspent convictions or conditional cautions. A standard check adds reprimands and final warnings to the list. If you want an enhanced check, you’ll be able to see all of the above, plus any information held by local police that may be relevant to the position. You can also request an enhanced check with a barred list, which tells you if someone is on the list of people barred from the role.
Register as an Employer with HMRC
You have to register as an employer with HMRC up to four weeks before you start paying your new employee. It will be your responsibility to deduct income tax and National Insurance from your staff’s pay; each employee that you hire must have a National Insurance number and pay NI contributions to qualify for certain benefits, such as state pension.
Of course, even if you’re just paying yourself as director of your limited company, you still need to register with HMRC. Keep in mind that it typically takes up to five days to get your employer PAYE reference number and that you can’t register more than two months before you start paying employees.
Get Employment Insurance
You have to obtain employers’ liability insurance as soon as you become an employer; this is a law requirement and not optional, and you can be fined £2,500 every day you are not properly insured. This insurance will protect your business from claims made by your employee (or employees) who may have fallen sick or become injured at your workplace. Your policy must cover you for at least £5 million.
You may not have to get employers’ liability insurance if you only employ a family member or staff that is based abroad. If you don’t display your insurance certificate or refuse to make it available to inspectors, you could be fined £1,000.
Your Employee Must Have a Contract
Every member of your staff needs to be provided with an employment contract that outlines their rights, responsibilities and working conditions. While this doesn’t need to be a formal written document, it has to contain explicit and implicit terms of employment.
Before bringing in new staff, think about the type of contract you require – for instance, permanent or fixed-term? Which one will answer your needs the best? There are a few key elements that every contract should have, such as the job start date, the role, the workplace address, the hours they will have to work, their wages and when they get paid, holiday entitlement and probation periods. Make sure you’ve covered everything in your contract and issue it on time.
You must also send a written statement of employment to your employee if you’re employing staff for more than one month. This document will give the applicant the terms and conditions of employment and needs to be provided within two months of starting work.
Enrolling Staff in Workplace Pension
New legislation means that all employers have to enrol their employees into a workplace pension if they’re over 22 years old, earning more than £10,000 a year or regularly working in the UK. Therefore, it’s important that you check if you need to automatically enrol your staff into a scheme. When it comes to eligible staff, you need to provide it as soon as your first employee start working for you. This is known as your ‘duties start date’.
If your employee or employees become eligible because of a change in age or wage, then you need to enrol them into your pension scheme and write to them within 6 weeks of the day they meet the necessary requirements.
Keep Accurate Records
When you run a limited company, you are required by law to maintain accurate tax records for six years, so they need to be safe, secure and easy-to-access. Our accounting software, FreeAgent, will be able to do this for you, so you don’t need to worry about it. You can monitor the financial and tax status of your business in real time.
But tax records aren’t the only thing you need to maintain for this period of time. You also need to keep records of money received or spent, any debts, assets owned by the company, who you bought goods from and who you sold to, and so on. You are required to keep records about the company itself as well, which includes details of directions, shareholders, results of votes, promises to repay loans, mortgages and transactions.
If your records are lost, stolen or destroyed and you’re incapable of replacing them, then you must:
- Tell your Corporation Tax office immediately
- Include this information in your Company Tax Return
- Try to recreate them the best you can
Know Your Obligations
As an employer, you have certain tax and employment responsibilities for your employees, depending on the contract they have, as well as their employment status. The several types of employment agreements, from full-time to freelance and consultant, will determine these obligations. One thing to consider is legislation that ensures your employee gets time off, such as holidays. Talk to HMRC or make sure to get professional advice from a company specialising in contractor accountancy, so you are aware of all your responsibilities before you hire your first employee.
Know the Rights of Your Employees
It’s equally important to understand the right of your staff, who are legally protected under employment laws. If you don’t meet your employees’ rights, they are entitled to seek compensation, so you want to be well versed on the subject before taking on staff. There are two main types of employee rights: statutory and contractual. The first refers to the rights given to an employee by the law, while the second are the ones given by the employment contract.
These rights are vast and cover issues like wages, working hours, maternity and paternity leaves, flexible work and discrimination.
Will You Incur Extra Costs?
Another thing to consider, besides the normal costs associated with hiring an employee, is whether you will have to move to a new premise upon taking on staff. If you’re just starting out as the director of your own limited company, it’s likely that you’re operating from home; if this is the case, then you may want to move to a new location instead of offering a spare room in your home to your new employee. You may also find it difficult to get specific insurance coverage on a domestic property.
Renting office space somewhere will incur costs that you have to consider before making the move, such as rent and utility bills, so you’ll want to make sure that you’re ready to take this step.
What if Things Don’t Work Out?
In an ideal world, after undergoing the recruitment process, dealing with HRMC and making sure you have a good contract, your new hire would be the best decision you ever made; however, sometimes things just don’t work out. It’s natural to get disheartened or sad if your new employee has to be made redundant or fired, or if they quit.
Circumstances change, and you may find that you can’t actually afford or need your employees, or that they simply aren’t the best fit for the job. Dismissing an employee is perhaps the most challenging area of employment legislation – someone who is unhappy about the way they were let go may decide to make a complaint against you or take your company to a tribunal. Typical reasons for employment tribunals vary from disagreements over wages to discrimination.
These are just some of the most important things to consider before hiring your first employee. This is a big decision and all the pros and cons need to be addressed before you make a commitment. No matter where you are in your career, whether you’re just setting up a limited company or hiring your first employee, we’re always on hand to help you take care of your finances at Gorilla Accounting.
You can make use of our contractor tax calculator today to find out your take-home pay or get in touch with our friendly team, who will be more than happy to help you expand your business.
