New help for those hiring an employee

This new guidance is intended to help those hiring an employee, who do not have an accountant or payroll professional assisting them, understand and manage their employer responsibilities, particularly from a tax perspective.

It has been developed in response to our concerns that some people who hire an employee are not always correctly meeting their legal obligations, as evidenced from the number of queries we receive from workers who appear to be in ‘false self-employment’ or where their employer seems to be doing something wrong.

The responsibilities of being an employer may present difficulties for some people, due to the lack of information available. This is particularly the case with regards to the tax implications of being a small employer. For example, there is lots of information on GOV.UK about running a payroll and paying an employee if you are a large business, but it’s quite difficult to pick out the bits that are most relevant to those who may only have one or two employees.

The rest of this page briefly explains some of the main considerations when hiring an employee and highlights the new guidance available in those areas.

Tax employment status – e.g., is your worker employed or self-employed? The most important point to understand is that a hirer cannot just ‘decide’ that their worker is self-employed. Doing this can be attractive because it removes many responsibilities from them and can save them some money, however it can result in the worker being ‘falsely self-employed’. It is the responsibility of the hirer to check the worker’s status carefully by considering all the facts. There is detailed guidance on the general rules surrounding employment status from a hirer’s perspective in our new section.

Setting up as an employer – if the person you are hiring is an ‘employee’, the next step is probably to register as an employer with HMRC so that a Pay As You Earn scheme (PAYE) can be set up. The PAYE regime requires tax and National Insurance contributions (NIC) to be deducted from most payments made by employers to employees.

As we set out (with examples), an employer must register with HMRC (and thus operate a PAYE scheme) if any of the following are true:

• They are paying the employee at or above the NIC Lower Earnings Limit (£120 per week in 2020/21).
• The employee already has another job.
• The employee is receiving a state, company, or occupational pension.
• The employee is receiving benefits in kind.

Running payroll – our new website guidance also looks at what running a payroll involves – basically it is the process by which the employee’s wages are paid and the appropriate deductions (like PAYE tax and NIC) are made. This sounds complex but payroll software (see below) means that the required calculations can usually be done at the touch of a button. In recognition that not all employers will want to run their own payroll, there is also guidance on finding a payroll provider to help with payroll tasks.

Reporting information to HMRC – ‘Real time information’ (RTI) is the system used for sending payroll information to HMRC – usually every payday. There are two ways the information can be sent - online, or, if certain requirements are met, by paper. More detail on when paper filing can be used is available our website. Broadly, it is available for those who, for whatever reason, may be unable to use a computer or have no internet capability.

For online filing, payroll information is submitted digitally to HMRC via your payroll software. There are several options on the market including some free ones like HMRC’s free Basic PAYE Tools (BPT) payroll program, which is simple, secure, and reliable. We explain all the options in our new section.

Employers must also complete certain forms after the end of the tax year for example, P60s or P11Ds (the benefits and expenses form) – more information is available in the dedicated ‘End of Year process’ section of the site.

Paying HMRC – every month or quarter (usually quarter for small employers), you must pay HMRC the amounts of tax and NIC you have deducted from your employee. The good news is that because of something called the Employment Allowance, many small employers do not need to pay HMRC any employer’s National Insurance on top of the amounts deducted from employees.

Pensions auto enrolment (workplace pensions) – Every employer with at least one worker has a responsibility of putting those who meet certain criteria into a workplace pension scheme and contributing towards it.

The process is called automatic enrolment. This is because it is automatic for workers – they don't have to do anything to be enrolled into the pension scheme. But it is not automatic for an employer and there are several things that the employer must do.

We summarise the main aspects of auto enrolment in our new section (including how the auto enrolment rules apply to those with part-time or casual employees) and link to more detailed guidance on The Pensions Regulator website, which includes their planning tool to help employers work out what to do and when.

National Minimum Wage/National Living Wage – Employers must pay workers the correct minimum wage for their hours worked. You may also have to make payments to your worker if they are sick or about to become a parent, which also count as ‘pay’ for tax and NIC. Our new guidance gives an overview of the main rules - and then looks more closely at aspects that we know might trip new employers up, for example the minimum wage rules around travel time and deductions.

Other – other useful resources include payroll checklists, a payroll calendar, and a payroll data card. We give you links to other information in areas outside of tax (for example employment law) and to more detailed, technical guidance on GOV.UK (which can sometimes be hard to find!) throughout the new section.

Becoming an employer is a big responsibility and may seem like a daunting prospect, but all our new material, when taken together, will hopefully provide you with sufficient background knowledge to help you feel confident in what you need to do and understand where to get further support if you need it.