⚠️ Our Disability Tax Guide guidance has moved to the LITRG website. If you have a query about any of the issues we cover in this section, please let us know by filling in the Contact Us form.
Setting things up
Taking on an employee
In this section we look at some general considerations around setting yourself up as an employer
This includes providing more detail about two key aspects – registering as an employer and your payroll filing options.
You should also start planning for automatic enrolment, because as soon as you take on an employee, your workplace pension duties begin. You can find out more on our auto-enrolment page.
What does it mean to be an employer?
Becoming an employer means that you have various responsibilities. This is the case whether you employ someone on a full-time, part-time or casual basis.
First things first though: it is important to be sure that the person you are taking on is definitely your employee, rather than self-employed. See our tax status section for help on how to decide whether your worker is employed or self-employed.
As an employer, one of the main things you may need to do is register with HMRC so that a PAYE system can be set up. The main purpose of the PAYE system is for employers to collect tax and National Insurance (NIC) from their employees’ wages on behalf of HMRC and this is done as part of running a 'payroll'.
You can find more information about registering with HMRC on our dedicated page on registering as an employer.
GOV.UK has a useful guide to PAYE and payroll. We also look in more detail at what is involved in running a payroll below.
For information on the areas of employment law you will need to think about if you are an employer, see our employment law section.
What is a payroll?
‘Payroll’ refers to everything to do with the payment of employees. This includes calculating wages but also paying any tax and NIC due on those wages to HMRC.
The following are some of the main payroll tasks that you may need to carry out. You can click on the links to find out more.
- Collect information about your new employee, e.g. National Insurance number, tax code.
- Make sure you correctly calculate their pay
- Pay statutory payments where they apply (such as Statutory Sick Pay, Statutory Maternity Pay and Statutory Paternity Pay)
- Collect student loan repayments and/or other types of deductions from pay, for example those ordered by a court
- Operate PAYE to collect income tax and NIC on your employee’s pay
- Send details of the payments made to your employee to HMRC at regular intervals.
- Give your employee a payslip with each payment
- Pay the tax and NIC to HMRC at the correct time
- Give your employee an annual statement on form P60 if they are employed by you at the end of the tax year
- Potentially deal with benefits and/or expenses and auto-enrolment.
- Take any action required when an employee leaves
- Keep good records of employees and the payments you make
The main way of operating your payroll is by using payroll software. HMRC strongly recommend you use software as it is quick and easy and you are much less likely to make mistakes. In fact, for most employers, it is obligatory to use an electronic software system and submit returns to HMRC online.
We explain the main processes in the Real Time Information (RTI) section and guide you to some free payroll software that is available, including HMRC’s own, Basic PAYE Tools.
There are certain groups however, such as care and support employers who may still use a manual paper system. We explain the difference between the two ways of doing payroll on our dedicated filing options page.
Please note that you can choose to use an accountant or payroll bureau to do the work for you, but you will have to pay for their services. You can find out more about using a payroll provider directly below.
Using a payroll provider
Payroll is an essential part of employing someone, so it is important that it is done right. If you are hesitant to take on the responsibility or paperwork that goes with operating a payroll, or are anxious about getting things wrong then that is totally understandable.
A starting point to finding a payroll provider would be to use the Association of Taxation Technician’s find a technician tool. Click the button ‘I am looking for tax advice’ and then select ‘Payroll’ as the specialism.
If you can afford to pay a payroll provider to help you run your payroll, then you may choose to do this because of the time you will save by reducing admin/paperwork. They can look after all or some of the necessary calculations, reporting and record keeping.
The exact payroll service you receive will depend on the provider that is chosen and the contract that is agreed with them.
When talking with an accountant, payroll bureau or other provider, you should be clear about what level of support you will need – for example, do you need them to provide payslips to employees, make payments to HMRC on your behalf or deal with payroll related queries from your employees?
There are payroll providers of all shapes and sizes and you should choose who you want to assist you carefully. When deciding between payroll providers, you should do your research and think about:
- Whether they provide a simple service or a more detailed/managed service
- Whether they are experienced with your type and size of employer
- Their costs: both ongoing costs and set up costs
- Whether they are a member of a professional institute
- If the payroll software they use is recognised by HMRC
- The terms of their contract: for example, will you be reimbursed if it is clear that they are at fault for failing to do something but you get charged a penalty by HMRC? Are you clear on what tasks you will do and they will do?
⚠️ It is important that you are aware that even if you use a payroll provider, you are ultimately still responsible for ensuring that your obligations are met, including checking and recording employee information, calculating and recording any additions, reporting your payroll information and making your payments to HMRC.
How can this section help me run my payroll myself?
You may want to try and run your payroll yourself to save money or because you fancy the challenge. If you have relatively simple payroll arrangements so that you have one type of pay period (for example, weekly or monthly) and your employee has straightforward pay arrangements (for example, hours worked or a fixed salary), then there is no reason why you shouldn’t!
Running a payroll yourself may seem like a daunting prospect, but throughout this section we explain in detail what you need to do to run your payroll, whether online or manually, highlight the key requirements to be aware of, and link to the relevant detailed information already available in places like GOV.UK (which can sometimes be hard to find).
You can also find some resources to help you run your payroll, such as checklists, a payroll calendar and a payroll data card in our resources section
The first step is to familiarise yourself with the basics of becoming an employer and running a payroll. HMRC have lots of general help for new employers, including webinars, e-learning, emails and videos on employing people – see GOV.UK for further details.