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When employing people, it is important to know the duties and rights of employers and employees in England.You need to comply with compulsory employer registration and liability insurance, Payslips, payroll, National Insurance and Private Pension Contribution.
Registering as an employer
When you take on a new employee, first you need register as an employer at the tax office – HMRC – HM Revenue and Customs within 4 weeks before the first payment to the employee occurs.
If you operate a one-person limited company (LTD) you must register yourself as an employer and an employee at the same time.
Create a user account on the Government Gateway website. Register as a employer here.
Subsequently, you will receive two letters by post. The first one will be the PAYE and Accounts Office reference expected to arrive within 5 days, the second one will be an activation code for the PAYE Online account within 10 days.
Construction companies are also required to register with the Construction Scheme. For more information, see our articles – Construction in the UK.
Start payroll for your employee
To add the new employee to PAYE – payroll account must be created at the first payment of wages. To manage your business payroll, you can hire an accountant, book-keeper or do it yourself.
Find official payroll programs to download on the Tax Office website.
If your business employs less than 10 people, free payroll software are available here Basic PAYE Tools.
For payroll programs managing over 10 employees, there is a yearly charge that starts from £70 for downloadable Payroll-software.
Adding your new employees to the payroll using the downloaded payroll software, will automatically notify the tax office via the Full Payment Submission (FPS) section. A unique number – Payroll ID is required to be created for each employee.
If an employee has a P45 (statements of earnings and taxes paid in a this tax year) from their previous job, you must include its details in their payroll.
If the employee does not have P45, you need to fill in a Starter Checklist form.
A payslip must be issued to the employee on every payday. It can be created in simple Word/PDF format. The following information must be included:
- Details of the employee
- Tax and NI code, NI number, Payroll ID
- Method of payment (cash, bank transfer, cheque)
- The period which payment is received for. It is usually marked by the numbering of weeks, starting from the 5th of April as week 1 (payroll programs also shows the number of the week)
- Gross wage, deductions of Tax and NI, net salary amount,
- Total annual gross earnings and deductions of Tax and NI up to the payment date.
If you employ someone for more than 1 month you are obliged to give a written version of their job description and terms. You can download a prepared form of Written Statement.
For more information see our article about Working Rights in Britain.
Insurance and contributions
Employer Liability Insurance is required with at least £5 million insurance cover once you hire an employee. You can buy it from any insurance company authorised by the Financial Conduct Authority. Compare Employer Liability insurances here Confused.com.
The Employer Liability Insurance Certificate must be displayed where it can be seen by the employees and inspectors. Penalty is £1000 if it is not correctly displayed and £2500 per day if you have no insurance.
The insurance is not mandatory if you employ direct family members, including husband, wife, mother, father, child, brother, grandchild or grandparent.
National Insurance employer contribution 13.8% is payable if your employee’s gross salary exceeds £169 a week or £732 per month.
Example: an employee’s weekly pay is £170, so £170- £169 = £1 therefore you need to pay 13.8% of £1. The contribution can not be deducted from the employee’s salary.
Workplace Pension Scheme
Employer’s workplace pension contribution of 3% is compulsory for each employee that joined the pension scheme and has a gross salary of over £120/week, £480 per 4 weeks, £520/month or £6240/year.
If the employee earnings are equal to or below these amounts, then the employer’s contribution is not mandatory. The employee can decide whether he or she want to pay any contribution.
The system consists of two parts.
One part is the employee’s own contribution, which is at least 5% of their gross salary. This will be deducted from their salary.
The second part is the employer’s contribution, which is at least 3% of the employee’s gross salary. This can not be deducted from their salary.
Automatic enrolment is required by you as an employer if your employee is between 22 and retirement age and their gross annual salary is at least £10,000.
An employee whose salary is below £10,000 a year can request to be added to a pension scheme and it can not be refused. An employee may also request to opt-out of the workplace pension scheme or may request an enrolment at any time.
Employee’s salary | Enrolment | Employee pay in| Employer pay in
| £10000 or more | Automatic | Minimum 5% | Minimum 3%
| £5876 – £9999 | Upon request | Minimum 5% |Minimum 3%
| £5875 or less | Upon request | Minimum 5% | Not required
All employees must be informed in writing of this pension scheme, including those who are not automatically required to be enrolled. You can find downloadable example letters here.
For registration and more info visit The Pensions Regulator website.
For further support contact the Tax Office (HMRC) for new employers Tel: 0300 200 3200 Address: National Insurance Contributions and Employers Office HM Revenue and Customs BX9 1BX United Kingdom