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Limited Company Checklist for Hiring Your First Employee

Hiring a staff member for the first time is an exciting chapter in company progress, but it comes with several responsibilities and requirements.

In this checklist, SAS Accounting runs through the steps one at a time, helping you ensure you are prepared for everything from running payroll to complying with employment laws.

1. Run Right to Work Checks

Step one is to ensure that any prospective employee is legally allowed to work in the UK. This responsibility falls on the employer, and you can use the government's Online Tool to verify ID documents and visa conditions.

If you hire somebody who isn't permitted to take up employment, you could face a penalty of £20,000, so it is important to tick this off before you move ahead with the appointment.

2. Confirm Whether the Applicant Has a Criminal Record

In some sectors and industries, you may not need to conduct any additional eligibility checks. However, many employers need to be cautious about hiring employees with a criminal record who, therefore, may be unable to take up the post.

You can run a DBS check with Basic or Enhanced disclosures depending on the nature of the role and whether your employee would have contact with children or vulnerable adults.

If in doubt, please review the Disclosure and Barring Service guidelines, which help to explain when you need a criminal records check and how to apply.

3. Create a Contract of Employment

Every employee should, ideally, have a formal contract, reviewed and signed by themselves and the employer, setting out the terms of their employment. For example, your contract should include:

  • The start date
  • Name and address of the employer and employee
  • Place of work, or primary place of work
  • The nature of the contract - e.g. temporary, permanent or fixed-term
  • A description of the duties
  • Details of the payment and any adjustments such as overtime
  • Holiday and sickness pay arrangements
  • Hours of work
  • Pension arrangements
  • Probationary periods
  • Notice periods for either party

Note that written contracts aren't always mandatory. Still, it is best practise to have a written document that covers all the terms and conditions of the employment to mitigate the potential for misunderstandings or future disagreements.

As a new employer, you may not have other policies such as a grievance procedure, disciplinary policy or code of conduct. Again, these aren't compulsory but can be extremely useful in setting out how you will manage your employee.

For example, a disciplinary policy might state when a verbal, written, or final warning is issued and the dismissal process so that, if your employee doesn't perform as you hope, you have a clear route to address any problems.

There is more information about employee rights and holiday pay on the Working, Jobs and Pensions pages.

4. Register With HMRC for PAYE

You will need to run payroll, usually once a month, to pay your employee and deduct the appropriate tax and National Insurance Contributions. Employers also need to pay Employer's National Insurance Contributions.

Businesses need to register with HMRC before they pay their employee for the first time and can either manage payroll in-house or outsource the role to an accountant or bookkeeping service such as SAS Accounting.

HMRC gives you 30 days to register a new employee from their start date, and you will need a copy of their P45 form to add details such as their National Insurance number.

5. Take Out Employer's Liability Insurance

All UK employers are advised to take out appropriate insurance. This may be optional but can protect you from liability if you ever have an employment-related dispute.

6. Set Up Payroll

There are several considerations when setting up payroll and deciding whether to run this yourself or use an experienced accountancy firm:

  • Printing payslips or producing electronic payslips
  • Keeping records of pay and deductions
  • Ensuring you are paying above the National Minimum Wage
  • Deducting National Insurance, Income Tax, pension contributions and other elements such as student loan repayments

Please get in touch if you would like further assistance with any of these elements of setting up your monthly payroll.

7. Review Your Pension Arrangements

Although much depends on the size of your business, you will likely be required to enrol employees in a workplace pension scheme.

New rules about auto-enrolment were introduced in 2012 and it is a legal requirement that you should automatically enrol most employees into a pension scheme. Employees can choose to opt-out, so you need to provide them with literature from your pension provider to explain how to do so.

You can find further information about auto-enrolment for employers on The Pensions Regulator site.

8. Make Contingency Plans

Several regulations apply to employers, and you must ensure you prevent workplace discrimination, consider flexible working requests, maintain a safe environment and make reasonable adjustments for disabled staff.

You must also adhere to the terms of your employment contract, and avoid asking employees to take on extra hours or additional levels of responsibility without dialogue, and potentially adjusting their pay.

Finally, it is advisable to have a contingency plan should things not work out.

Most new roles have a probation period, varying in length depending on the type of contract. Provided you have included this within your job offer and employment contract, it can be useful if you, or your employee, decide the role is not for them.

For advice on any of the requirements included on this checklist, please contact SAS Accounting for an informal discussion and further guidance.