There are a number of important steps you must take when employing new staff, to make sure they are working for you legally, and that you are paying the correct wages, tax and National Insurance contributions (NICs). If this is your first employee, you will also need to register as an employer with HM Revenue & Customs (HMRC).

What is an employee?

There are two types of employment status, employed and self employed. This will depend on the type of contract agreed, which can either be:

• a contract of service, which means employees are working for you either permanently or part time in a fully employed capacity, and you are responsible for their tax and NICS contributions.
• a contract for services, which means employees are providing you with specific services when you require them, but are paying their own tax and NICS contributions.

You can find out more about employment status by visiting www.hmrc.gov.uk and reading guide number ES/FS2.

Legal Workers

When you are taking on employees you must ensure they are can legally work in the UK . You can do this by checking that they have at least two of the required identity documents (such as a passport, drivers license, birth certificate etc). This is an important check, as employing illegal workers can result in a large civil fine of up to £10,000 per worker, and you can visit the UK Border Control website (www.ukba.homeoffice.gov.uk) for further information.

Paperwork

Your employee may have recently left a job, and so will be able to provide you with the necessary P45 tax form from their previous employer. However if they do not have this form then you will need to fill in a P46 for them. Always check P45’s carefully to ensure the details are correct, as this form helps you to calculate the correct tax for each of your employees. If you need help with this you can phone the HMRC New Employer Helpline on Tel 0845 60 70 143.

Register for PAYE (Pay as You Earn)

You can set up a payroll record even if you only have one employee, and this will help you to calculate and record all tax and NIC contributions, and any other deductions from your employee’s earnings correctly. You can get a helpful starter pack regarding PAYE issues from the HMRC by calling the New Employer Helpline number listed above, or by visiting the website www.hmrc.gov.uk.

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1. Beginners Guide Business Tax – England
2. Business guide to National Minimum Wage