If your business becomes successful enough, or you need a little help getting started, you will need to think about employing staff to help out, but how do you pay them, what responsibilities do you have, and how much does it cost to employ someone? We explain all.
Whether you’re baking cakes, copywriting, designing websites, or mowing lawns, there comes a time when your business grows too big to manage it all by yourself anymore.
It’s your dream and the baby you’ve nurtured and now it’s become so big you need to think about employing someone else to help it grow further.
Employing someone means you can manage your time better, and expand your business further with their help, but there are also legal and financial hoops to jump through, so you do it correctly.
Here we look at the ins and outs of employing staff, so you’re fully prepared to start building your business empire, one hire at a time.
Whatever line of work you’re in, if your business has grown you might not be able to continue doing everything by yourself. Hiring a member of staff, or even a team of workers, can help you to continue to grow the business.
However, timing is everything. If you make the move too soon, you could end up seeing your profits fall as the cost of your new employee eats into anything you’re making.
But if you wait too long, you may reach the point when you’re missing deadlines or unable to fulfil orders because you’re too stretched.
The best measure of deciding when to start hiring is to do it when you have enough money to cover the costs of an employee - both their salary and hidden costs including insurance, benefits, and training - and you have enough work for them to cover.
Also remember that it can take a while to find the right person, so factor the hunt for finding an employee into your plans.
You’ve decided you want to employ someone but will they be full time or part time, is it a contract role for a certain period or will it be more of an ad hoc basis.
The type of contract you decide to set up will be dependent on the nature of the job, how many hours are required, and for how long you’ll need someone for. The main types of employment are: worker, employee, self-employed and contractor, director, and office holder and you can find full details of each at GOV.uk.
You will also need to decide how to hire them, through a recruitment agency for example, or on your own and how they will be paid.
You will need to decide how to pay employees. Whether you will do this via PAYE, an umbrella company, or if you’ll pay them directly through a bank transfer.
However you employ someone, you need to register with HMRC as an employer - even if that’s registering to pay yourself.
If you’re paying someone through PAYE this is also how you can pay tax and national insurance for your employees. You can find more details on how to register at GOV.uk.
There are many hats an employer must wear, not just someone who hands out money when a job is done.
Legally you need to make sure you know all of the responsibilities you should carry out, and how to do this correctly.
The jobs you must carry out will depend on how you are employing someone. For example, if it’s a full or part-time member of staff all the following points will need to be considered.
If you’re hiring a contractor or working with an agency or umbrella company, you may not need to fulfil all of these, but you’ll need to be aware of which you do.
The National Minimum Wage is the minimum amount a worker is entitled to, and the amount paid depends on the age of the employee.
The National Living Wage, which is currently £9.50 an hour, applies to those aged over 23. All employers need to pay at least this amount when hiring staff.
You can see the full list of minimum wage rates here.
If you need to pay National Insurance for your employee, this will count towards their Class 1 contributions, of which they also pay a proportion.
The amount you pay depends on their salary and which category of NI they pay. For example, for an employee in category A earning over £967 a week, or £4,189 a month, you’ll pay 15.05% towards their NI. You can find a full breakdown at GOV.uk.
Full or part-time employees are eligible for Statutory Sick Pay (SSP) of £99.35 a week for up to 28 weeks.
It is paid after the fourth day an employee is too ill to work, including non-working days, and they will need to show you a doctor’s note if it’s more than seven days.
It’s up to you whether you pay more than this but this is the legal requirement you will need to pay.
All employers must set up a pension scheme for eligible employees that they contribute at least 3% of their ‘qualifying earnings’ into.
Qualifying earnings usually mean anything someone earns between £6,240 and £50,270 a year before tax.
You can find full details of setting up a pension scheme at the Pensions Regulator website.
Statutory Maternity Pay (SMP) is the basic legal amount most employers must pay to eligible employees.
It is paid at 90% of their average weekly earnings before tax for six weeks, then at either this amount or £156.66 for 33 weeks, depending on which is lower.
The same amount is paid for statutory Paternity Pay (SPP) and parents must be allowed time off for antenatal appointments.
Most workers, including agency workers, those with irregular hours, or on zero-hours contracts, are entitled to paid annual leave of up to 5.6 weeks per year.
It’s up to an employer to include bank holidays within this allowance, although most do not.
We've got a full guide to holiday rights here.
It’s a legal requirement to buy Employers’ Liability (EL) insurance as soon as you become an employer, if you don’t you could be fined £2,500 for every day you’re not insured.
The policy needs to cover you for at least £5 million and come from an authorised insurer.
Employing someone for the first time is a big step but if you have the funds to do so, and it’s going to make running your business easier and more profitable in the long run, it’s the right decision to make.
It’s important to carefully think through the process so you do it correctly and avoid any costly mistakes along the way.
You may find hiring someone through a third-party is the best decision for you or if you think you can handle it on your own you can hire them directly and save yourself the fee.
Whatever decision you make, always remember that the reason you’re taking on a staff member is because of the success of your business.
You wouldn't be doing it unless your business was doing well and needed an extra pair of hands to help it to the next level.