Making the decision to hire your first employee can feel really daunting, but it marks a big and exciting step in your growing business. Before you make the jump into the world of an employer it is important to fully understand all the associated costs, it isn’t simply covering a person’s salary that you need to account for. There are National Insurance and Pension contributions to think about, as well as Employers Liability insurance, equipment costs, holiday pay, sick pay, maternity / paternity pay – the list may seem endless!
The National Minimum Wage (https://www.gov.uk/national-minimum-wage-rates) is the minimum amount per hour that almost all workers are entitled to. Employees will have to be over the school leaving age to be entitled to the National Minimum Wage.
The National Living Wage is applicable to employees over 25 years of age.
Apprentices are entitled to the apprentice rateif they are either:
- Under 19 years old
- 19 years old or over and in the first year of their apprenticeship
Apprentices are entitled to the minimum wagefor their age if they are both:
- Aged 19 or over
- Have completed their first year of their apprenticeship
The rates change every April, but they are currently (Feb 2019) as follows:
|Year||25 and over||21 to 24||18 to 20||Under 18||Apprentice|
|April 2018 (current rate)||£7.83||£7.38||£5.90||£4.20||£3.70|
National Insurance Contributions (https://www.gov.uk/national-insurance/how-much-you-pay).
National Insurance Contributions (NIC) are also due on top of their salary, depending on how much they earn. NIC is calculated as a percentage of salary when an employee earns over £162 a week.
The rate of the EmployersNational Insurance Contribution is currently 13.8%. The table below shows how much you deduct from an employee’s pay for the EmployeesNational Insurance Contribution.
|Employee Basic Pay||Class 1 National Insurance rate|
|£162 to £892 a week (£702 to £3,863 a month)||12%|
|Over £892 a week (£3,863 a month)||2%|
Since October 2017, any employer must enroll all eligible staff into a workplace pension as soon as they start working for them. You mustenroland make employer’s contributions for all staff who:
- Are aged between 22 and the State Pension Age
- Earn at least £10,000 a year (this equates to £833 per month / £192 per week)
Any employees that earn less than £5,876 can still choose to opt into a pension scheme but they are not entitled to contributions from their employer.
You must set up a Workplace Pension Scheme for eligible staff, if you don’t already have one. The Pensions Regulators website (www.thepensionsregulator.gov.uk) can help you to find out what you need to get started.
In terms of the financial costs, you must pay at least 2% of your employee’s qualifying earnings, this will rise to 3% in April 2019. In April 2018, this equates to a total pension of 5% for the employee (2.4% employee contribution, 0.6% government contribution and 2% employer contribution). In April 2019, this will rise to a total pension of 8% for the employees (4% employee contribution, 1% government contribution and 3% employer contribution).
It is important that you check the pension scheme that you are using to establish what counts as ‘qualifying earnings’; but under most schemes it is the employee’s total earnings between £5,876 and £45,000 a year beforetax. Total earnings include:
- Salary or wages
- Bonuses and commission
- Statutory Sick Pay (SSP)
- Statutory Maternity, Paternity or Adoption Pay
This is just a brief overview of the financial requirements of an employer, there are also a lot of hidden costs – more coffee may be required, toilet roll, phone and electricity bills will be higher and there may be extra costs like a Christmas gift or other employee incentives too! This may seem like a scary amount of responsibility, but if it is time to take on an extra pair of hands you shouldn’t let this stop you. It is a great way to bring extra skills into your business and free up some of your time to focus on the future. But, remember, if you have any questions or would prefer help with running your payroll each period, Smarties Bookkeeping are here to help!
For more information on operating PAYE and setting up payroll please check next month’s blog