A step-by-step guide to setting up a new employee
A practical guide on the legal responsibilities of a small business owner taking on their first new member of staff
A massive step in your entrepreneurial journey, taking on your first member of staff can be an exciting yet challenging time. While you’re no doubt very eager to hit to the ground running with your new recruit, you’ll need to take a step back and make sure you’re fulfilling your legal obligation as an employer – or risk facing severe penalties.
So, what are the steps you need to take when setting up a new employee? Read on below to find out…
Register as an employer
Like many start-ups, the likelihood is that you’ve started your business as a sole trader and have waited until you’ve achieved a certain level of growth before taking on your first employee.
Once you decide to take this step and become an employer, your legal rights and responsibilities change.
You’ll first need to register with HM Revenue and Customs (HMRC) up to four weeks before you pay your new staff member. This process can take up to two weeks and you can’t register more than two months before you start paying your new staff.
It’s important to note that you should register yourself as an employer if you’re ‘employing yourself’ e.g. as the sole director of your business.
Only if you’re employing workers who earn £112 a week (or less than £486 a month or £5,824 a year) are you exempt from registering with HMRC.
However, if these workers receive a pay rise, have an existing pension, are employed elsewhere, or start to receive expenses then you’ll need to register as an employer.
Read more: how to run an employee induction
Take out employers' liability insurance
You will be legally required to get employers liability (EL) insurance as soon as you become an employer. EL will protect your business from having to pay compensation to an employee who is injured or has died while ‘on the job’.
You will need to take out EL with a registered insurance provider and it must cover you for at least £5m. All employees must be covered under EL with the possible exception of close family members or if you employ someone who lives/works outside of the UK.
The cost of such insurance will depend on what type of business you run. For example, a construction company would expect to pay more than a marketing agency.
To reduce annual premiums, prepare a detailed risk assessment of your business. This will include conducting a safety and risk audit, demonstrating a clear health and safety policy, and regularly servicing equipment.
The penalties for not paying EL are quite severe, and businesses found guilty of such negligence could potentially be fined £2,500 for every day they’re not insured.
Check if your candidate has the legal right to work in the UK
When offering someone a job in your business, it’s imperative that you can prove that they have the legal right to work and live in the UK.
During the recruitment process, it would make sense to ask candidates to provide their passport or other supporting documents so you have a good early indicator of their status.
In order for a person to be legally entitled to work in the UK, they must have one of the following:
- British passport
- British citizenship
- European Economic Area (EEA) citizenship
- Swiss citizenship
- A relevant work Visa
- A relevant work permit
Businesses who employ an illegal worker can receive a civil fine of up to £20,000 per employee – and this includes workers who have forged their own documents, whose visa has expired or doesn’t cover the sector you operate in, so be vigilant. If found guilty of employing illegal immigrants, your business’s name could also be published by Immigration Enforcement– a PR nightmare for sure.
To assess your candidate’s legal credentials, use the official government web tool here.
An important note: There is currently no change in the rights and status of EU nationals in the UK following the 2016 EU referendum or the triggering of Article 50 on March 29 2017.
Check and keep a record of your candidate’s documents
When setting up your new employee, make sure to check and hold a copy of their ‘right to work’ documents.
These ‘right to work’ documents could include:
- Their passport
- Their national identity card
- A registration certificate or document certifying permanent residence
- A full birth or adoption certificate issued in the UK, Channel Islands, the Isle of Man or Republic of Ireland
- Proof of their National Insurance Number
- A certificate of registration or naturalization as a British citizen
- A Biometric Immigration Document (for employees who wish to stay longer than six months)
- An Immigration Status Document
- Their Work Visa including Tier 2 (General Visa)
For a full guide on what documents you’ll need to verify, click here.
Checking their documents
Once you’ve received the ‘right to work’ documents off your potential employee, it will be your responsibility to ensure they are genuine and do belong to the person who attended the interview.
Simple checks such as the fact the candidate’s name, date of birth and that the type of work they’re allowed to be offered, are all consistent with their application form will go a long way to ensuring you’re operating within the law.
If you find any inconsistencies, ask the candidate to reasonably account for such irregularities. For example, does their passport contain their maiden name, not their married one?
Keeping a copy
You’re legally required to keep a record of all documents necessary to prove that your new worker has a legal right to work in the UK. Photocopy all important documents ensuring that all details are clearly distinguishable, such as the expiry date on their Visa or photograph on their passport. For biometric residence permits, you’ll need to copy both sides.
Once the employee has eventually left your company, whether they were a part-time or even a full-time UK residence, you’ll need to keep these records for two years after their last working day.
Check their criminal history if necessary
If you’re a business that works in healthcare or with children, you can request a background check on your candidate to ensure they don’t have any previous criminal convictions.
Disclosure and Barring Service (DBS) checks allows you to request an application form that you give to your candidate which they fill out and return with supporting documents.
You then send the completed application form to DBS, where they will send a certificate to the applicant. You then ask the applicant to present the certificate.
Set them up on your payroll system and operate PAYE
As a new employer, it will be your responsibility to pay your staff member as well as make necessary deductions from their salary for PAYE.
Once you’ve informed the HMRC that you’ve taken on new employee, you’ll need to obtain pieces of information to get them on your payroll. Most of this information will come from their P45. This will include:
- Date of birth
- Start date
- Leaving date from their last job
- Total pay and tax paid to date for the current tax year
- Student loan deduction status
- National Insurance number
- Existing tax code
You can either do this yourself or pay for payroll software to make the calculations for you. You can find out more about the potential prices on our payroll costs page.
If you do it yourself, you’ll need to factor any added payments your worker may be entitled to, such as commission, tips or statutory sick pay. Deductions you’ll need to consider will include income tax (PAYE), National Insurance, pensions (auto-enrolment) and child maintenance. You’ll need to report all employee salaries plus deductions to HMRC before or on pay day.
Under auto-enrolment you’ll be required to automatically add your employee into a workplace pension scheme, provided that the worker earns more than £10,000 a year and is over the age of 22.
If your business is not currently signed up to a pensions scheme, you’ll need to do so, and many software providers now include auto-enrolment in their packages.
For more information on auto-enrolment visit our Pensions Zone. We've also got a guide on the schemes offered by some of the most popular workplace pension providers for you to compare them.
National Minimum Wage and National Living Wage
As of April 1 2019, you are legally obliged to pay all adult workers aged 25 and over at least £8.21 an hour, which is now referred to as the National Living Wage.
Equally, there are a number of rates that apply to workers aged 24 or under, which is referred to as the National Minimum Wage. You can read more about the current rates in our guide to National Minimum Wage.
Send them details of their new role
Once you’ve offered your desired candidate a role at your business, you’ll be legally required to send details about the role (statement of employment), as well as a contract of employment.
Contract of employment: The contract of employment should be issued once your candidate has accepted the role and will outline their employment rights, responsibilities and duties. The legal sections of the contract as known as ‘terms’ – and you’ll need to make the employee aware of which parts these are. These ‘terms’ might be:
- In a written contract
- Agreed verbally
- In an employee handbook or letter
- Required by law (for Minimum Wage purposes)
- Collective agreements
- Implied terms
Statement of employment: Different to a contract of employment, a statement of employment sets out the main roles and responsibilities your employee will be expected to complete, as well as specific details about your business.
You’re required to provide your employee with a statement of employment no more than two months after their first working day. It must include:
- Your business’s name
- The employee’s name, job title and start date
- Their salary and their pay-date
- The hours and days they will/may be required to work
- Holiday entitlements
- If the employee has a right to relocate
- If your business has different locations, where these are and if the employee will need to work there
- End date (if a fixed-term contract)
- Notice periods
- Collective agreements
- Details about a pension
- Collective agreements
- Who to contact if they have a grievance
- How the employee can complain if they are dismissed.
Finally, make them feel welcome…
Though not legally binding, it will be to the benefit of your new starter, and business as a whole, to ensure they have a pleasant settling in experience.
If you’re operating in a shared working space, introduce your new starter to the other companies you interact with. You could post about their arrival on social media welcoming them to the team, and take them out for lunch or even an after-work drink on their first day, so they feel immediately valued.
Ready to get started? Find your ideal Auto-Enrolment solution here and get it right every time: http://www.sage.co.uk/lp/payroll