A guide on How to Become An Employer
The decision to start employing people is usually a major step for a business owner. Is there enough work to justify another person? Can I afford it? Will it be really complicated keeping on top of all the paperwork when I become an employer? This guide aims to cover the basics and what you need to know before taking on the responsibility. We’ll look at the process and key considerations so you can make an informed choice before you become an employer.
Employer responsibilities
An employer must ensure a safe work environment, manage payroll and handle employee relations. Effective management includes hiring the most suitable people, providing training and staying compliant with the latest employment laws.
Hiring staff
It isn’t all about experience. Choosing staff with the right skills who will fit with the company’s culture will reduce the likelihood of a high staff turnover and likely lead to a more cohesive team. Employers must ensure that any staff hired have the right to work in this country.
Wages and tax deductions
Employers are responsible for calculating and distributing wages, including making the necessary tax and NI deductions. There are significant changes to the National Minimum Wage (NMW) and National Living Wage (NLW) rates, effective April 2024. Ensuring compliance with new rates is crucial to avoid legal problems and financial penalties.
Employment laws
There are several employment law changes set to take effect in 2024. These include the Carer’s Leave Act 2023 and the Protection from Redundancy (Pregnancy and Family Leave) Act 2023. It is vital that employers are aware of these and meet their legal obligations.
Training and development
A recent survey on Linkedin stated that companies that provide extensive training opportunities see a 24% higher profit margin than those who spend less on developing employees.
For a very small business this might not be a priority, beyond basic onboarding of their business systems. As the business grows there may be more scope to create a structured training plan that includes keeping current with technology and industry trends. If employees feel that their employer is willing to invest in their training and development, it will likely boost productivity and loyalty, and improve the bottom line.
Employee wellbeing
Employee wellbeing has been revolutionised since changes to working practices following the pandemic. Recent legislative changes, such as the Employment Rights (Flexible Working) Act 2023, allow employees to request flexible working arrangements from day one. This flexibility can include part-time work, remote working, or compressed hours. Employers must respond to these requests within two months and provide valid reasons if they deny any request. Programmes focussing on employee well-being and maintaining a supportive work environment are now commonplace in many SMEs.
Steps to become an employer –
• Register as an employer with HMRC: Applicants receive an employer PAYE reference number and accounts office reference number, both of which are essential for managing payroll and reporting to HMRC.
• Set up payroll: A payroll system is crucial. This system calculates and distribute wages and ensure correct tax and NICs. HMRC offers a free payroll tool called ‘Basic PAYE Tools’, but there are many products available to suit all business types like Xero, QuickBooks and Sage.
• Check employment rights: Ensure you understand and comply with employment rights, including minimum wage, working hours, and workplace safety.
• Contract of Employment: Every employee should have a written contract outlining their job role, salary, working hours, and other terms of employment. This document is a legal requirement and sets clear expectations for both parties.
• Pension: Employers must provide a workplace pension scheme and automatically enrol eligible employees, although this can be deferred until the employee’s third month of employment. The employer must submit a ‘Declaration of Compliance’ to the Pensions Regulator.
• Maintain records: It is a legal requirement to keep accurate records of employee details, pay, and tax information.
Important Considerations
• Legal obligations: To avoid potential legal issues and financial penalties employers must understand, and comply with, employment laws. They must obtain Employers’ Liability (EL) insurance that is issued by an authorised insurer. Failure to obtain this can lead to significant fines of £2,500 for each day the employer is uninsured.
• Budgeting: An employer needs to budget for wages, NICs, pensions, recruitment and training.
• Management skills: Effective people management is essential. This includes hiring the right people, training, appraisals and conflict resolution. There is also a time commitment including payroll processing, keeping records, filing returns, workplace compliance, etc.
Help is at hand
Hiring staff means a business can take on more work, increase revenue and free up more time for the owner to work on other things like developing their longer-term strategy. Employees could bring new skills and ideas, allowing for new products or services to be offered.
However, staff incur additional cost for the business in terms of wages and training, along with an administrative and compliance burden. There is also the human aspect of managing other people to consider. Managing staff, ensuring compliance with ever-evolving employment laws, and handling payroll are key responsibilities. However, there are experts who can alleviate some of this burden.
Payroll professionals can set up and manage the payroll system, ensuring that wages, tax deductions, and NICs are accurately calculated and compliant with current laws. They can set up workplace pensions too. Look for an accountancy firm that is Chartered Institute of Payroll Professionals (CIPP) Payroll Assurance Scheme accredited.
Additionally, qualified accountants offer strategic financial planning, advising on budgeting for new expenses like wages, benefits and optimising tax efficiency. Their insights can help business owners make informed decisions that align with business growth objectives.
We appreciate the decision to become an employer is a big step. If you’re considering it then please feel free to get in touch. We can run you through the basics and recommend some solutions that could make the process less daunting. Contact us on info@thomsoncooper.com