Taking on a new employee

Setting up an employee record

Employers typically keep a number of different employee records in a personnel file. This might be either a physical or an electronic file. Such a file may contain documents that fall into one of the following categories:

• Hiring documents
• Job performance and development
• Payroll
• Termination and post-employment information

We look at the type of documents that you may want to keep in your personnel file (and associated data protection considerations) in more detail in our record keeping section. In that section we also look at the information about your employee that you must keep by law for a certain amount of time – for example specific payroll records for HMRC.

First things first though. When your employee starts, you will need to gather some basic information from them which will include their:

• forename(s) and surname
• date of birth
• address
• gender
• National Insurance number (NINO)
• tax code

We look at what to do if your employee hasn’t got a NINO on our dedicated page.

Where do I get the information about my employee?

A lot of basic information that you need will be on the P45 that your employee should bring with them from their previous job. This is a form that is given to an employee when they leave a job.

If they do not have it, for example they have lost it, were not employed immediately before starting with you, or are still to receive it from their previous employer, then you will have to collect the details separately (usually by asking them to fill in a Starter Checklist) and ask them about their employment situation before they joined you – this may be their first job since leaving school or they may have another job which they plan on keeping at the same time as working for you.

We explain more about this on our dedicated page looking at the starter procedure.

What is a payroll number or identifier?

If you have more than one employee, it may be useful for your records to use some kind of numbering system – your first employee could be “1” and a second one “2” and so on. This may help to assist with identifying your employee.

Often there will be a field for a ‘Payroll ID’ in your payroll software (form RT2, if you are a paper filer, also contains a field for such information).

Where used, your employee's payroll ID should appear on any ‘HMRC output’, that is tax coding notices, SL1s and SL2s (student loan start and stop notices) etc. While it is not essential that you assign a payroll ID for your employee and/or complete such a field, where you do, the ID must be unique. So always use a different payroll ID each time you employ someone, otherwise you could create a duplicate record within HMRC’s systems. Even if you take on someone who has previously worked for you, you should give them a new payroll ID.

How often should I pay my new employee?

There are no hard and fast rules on choosing a pay period. Employers can essentially choose which pay period is most suitable for them.

Here are the two main options and associated considerations:

• Monthly. If you are an online filer, a monthly pay period means that you only have to run payroll and submit information to HMRC once per month. It is a simple system which helps everybody involved avoid problems with things like ‘week 53’ payments – see below. However, it can put a financial strain on employees, as they only get paid once per month (and this will often be on the last working day of the month) and they can find it difficult to manage their income and expenses over the longer period. Some employers allow employees to take an advance on their wages to help with short term cash flow problems.

• Weekly. Many employees prefer getting paid weekly because it is the best alignment of work and earnings and can best match an employee’s cash flow needs. It is quite usual to find hourly workers paid weekly – usually on a Friday. On the other hand, as you will probably have to submit information to HMRC every time you pay your employee if you are an online filer, it could mean you spend a lot of time on payroll administration (and there are potentially more chances that an error might be made as you will need to make 52 regular submissions which is significantly more than 12!).

Sometimes weekly paid staff are asked to work a ‘week in hand’ – this isn’t about being paid cash in hand but instead means a worker receives their week’s wage the week after it was earned – for example, if a worker begins a week’s work on 11 April (working days Monday to Friday) and is paid weekly, they would get paid for that work on Friday 22 April not Friday 15 April. This system helps give employers some security (for example, it makes it less likely that an employee won’t just leave the job without giving notice etc.) but it can be confusing and may create financial pressure for employees, particularly when they first start the employment and have no pay at the end of the first week. Some employers allow employees to take an advance on their wages to help with short term cash flow problems. If you decide to use this system then when your PA leaves, you must remember to give them the week in hand in their final pay.

Week 53 payments

If you pay your employees weekly (or every 4 weeks), the way dates fall mean that sometimes you will end up making one more payment than usual to your employees towards the end of the tax year.

If you pay your employees weekly this would be a 53rd weekly payment – they are known as ‘week 53 payments’.

If you use payroll software, such as HMRC’s Basic PAYE Tools, week 53 payments are handled automatically. Otherwise, guidance is available in the CWG2 Employer Further Guide to PAYE and NICs, under ‘Week 53 payments’ (Ctrl F will open up a search box to help you find this section).

On these ‘week 53’ type occasions HMRC allow employers to give the employee an extra proportion of personal allowance (the amount a person can earn before they start to pay tax) so that the employees take home pay is not adversely affected. But this means that over the tax year, the employee receives more tax free pay than the standard personal allowance for the year. Once the tax year ends, HMRC will take steps to recover the tax underpaid as a result of the extra personal allowance given to the employee and will send them a P800 calculation. The resulting underpayment of tax is then collected through an adjustment in the tax code allowing the underpayment to be paid in smaller, more manageable instalments across the tax year.

When this happens employees often complain to HMRC and the employer is accused of failing to operate PAYE correctly even though they have deducted tax in accordance with the PAYE regulations.

HMRC are aware of this long-standing problem. If you expect that you will be making an extra ‘week 53’ type payment in the tax year it may be helpful if you explain the situation to your employees.