What Entrepreneurs Need To Know About Hiring Their First Employee

For months, you’ve worked hard to build your business. And by and large, you’ve done a good job. You’ve got a saleable product. And you’ve got a list of interested clients, some of whom are buying right now or are ready to buy.

In fact, you’ve gotten so busy, that it’s become obvious that you need to take on a new member of staff. You would have thought that hiring a new member of staff would be quite easy. It always seemed to be whenever you went for jobs in the past.

But behind the scenes, there’s a lot that’s going on and a lot to remember. For starters, there’s a string of legal obligations, expenses, liabilities, and paperwork. But there’s also the additional financial costs of the recruitment and hiring process. On average, you can expect to pay in the order of £3,000 besides any employee wages.

But the biggest risks are legal. And so, in this post, we’re going to concentrate on the legal consequences of hiring your first employee. Here are some steps you should take if you want to protect yourself, and your business, from ethical and legal problems down the road.


Get The Appropriate Insurance Coverage

Practically every business in the UK has some type of insurance. It’s there to protect them primarily against litigation. And one of the biggest sources of litigation tends to be employees themselves. Until now, you’ve probably gotten by quite well with public and professional liability insurance. But, as soon as you hire a new employee, it’s essential that you take on employers’ liability insurance too. In the UK, it’s a legal requirement for all limited liability companies.

Business insurance companies will often offer varying levels of cover. Often the range of cover will go from a low of about £500,000 to a high of £10 million.

The type of cover you choose should reflect the risks to which your employees are exposed. Businesses who hire consultants to liaise with clients in offices might opt for cover at the lower end. And businesses who are contracting with oil platforms or dealing with heavy machinery might want to opt for cover at the upper end.


Seek Out Advice

Legislation on what you can and cannot do while employing somebody has multiplied over recent years. And not following the law to the letter can result in legal action against you. There are all sorts of potential issues you could face. These range from accusations of discrimination to not providing a suitable working environment. What’s more, each business is unique. And so each business will have its own potential pitfalls that need to be addressed.

Experts, like employment law solicitors, Peninsula Group, can assess the risks faced by your business. Often they can uncover ways you’re putting yourself and your business at unnecessary risk of litigation. Ultimately, this information can prove invaluable. It helps you prevent damage to both your business’s finances and your reputation.


Find Out If You Need A DBS Check

It’s a legal requirement in many lines of work to have a DBS check carried out. DBS checks, (formerly CRB checks) check to see whether a potential employee is suitable to work around vulnerable people.

A number of industries are affected by this, including education, care work, and security.


Register The New Employee With HMRC

If you’re going to be paying your new employee more than the National Insurance Lower Earning Level, you’ll have to register with HMRC. The taxman will then send you a reference number that you can then use from that point onwards to identify the employee.

Once you’ve set this up, it’s your responsibility to deduct any income tax or national insurance from their wages.

business team


The taxman advises that you register with them before you pay your new employee any money. But don’t bother filing, unless you’re certain that you will be taking somebody on. Canceling an application can involve in a lot of paperwork. And to make matters worse, HMRC will often issue fines for the inconvenience. Or they may still demand income tax or national insurance, despite the fact you’ve not hired any employees.


Collect The New Hire’s P45 Form

Usually, your new employee will have come from a previous employer. And as a result, they will have brought with them their P45 form.

This form is important to you for a number of reasons. The first is that it will show you how much the employee earned in the previous tax year. This is important because it will also show you how much tax they paid over the previous year. You need this information, as a new employer, to work out how much tax they need to pay for the remainder of the tax year. If they’ve earned a lot of money so far this year, it’s likely you’ll have to deduct tax in the 40 percent bracket and hand that over to HMRC.

The P45 form will also contain a tax code. This helps you decide which tax bracket the employee falls into. Tax codes can sometimes indicate whether an employee is still paying off unpaid taxes from previous years. If they are, you’ll have to adjust deductions accordingly.

If your new employee was formerly self-employed, they won’t have a P45. But HMRC still expects you to calculate how much tax they owe. You can find out how much money they’ve earned so far this tax year using HMRC’s Starter Checklist. This is something you’ll just have to work through to find out what you need to deduct from their wages.

Write An Employment Contract

Just as there are rules governing sick pay and time off, there are also rules governing employment contracts. In the UK, employers have two months to provide new employees with a written contract. The contract has to include information on holiday, how much they’ll get paid, and how much time they can have off work each year.

Don’t worry if this sounds complicated. There are plenty of templates floating around the internet that you can use.



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