As an employer, you will likely be asked to provide work references for employees when they leave their job. Do you know the difference between a simple and detailed reference? Do you know what the key elements are? Do you know what your legal obligations are? This article will answer all of those questions, as well as provide you with tips and examples for writing a good job reference for...
If you plan on hiring new employees, you need several pieces of information from them for your records. Whether you’re about to hire your first ever employee, your hundredth employee, or maybe just some temporary help over the holidays, there is quite a lot that you, as the employer, have to bear in mind.
- Check that they have the right to work in the UK
- Check that you need to pay them through PAYE
- Gather all their employee information
- Find out if they need to pay back a student loan
- Register your employee with HMRC
- Give the employee a payroll ID
- Checklist for registering a new employee
Check that they have the right to work in the UK
You could find yourself paying a penalty of up to £20,000 and a prison sentence of up to five years if you hire someone who isn’t allowed to work in the UK e.g. those in the country on a visitor visa or students with expired visas. You can either check the documents yourself and make sure they’re genuine and haven’t expired, or you can check online if the potential new hire has given you their share code.
Check that you need to pay them through PAYE
If the employee is to earn £116 or more a week (which equates to £503 per month or £6,032 per year), then they need to be paid through PAYE.
PAYE or “pay as your earn” refers to income tax that is deducted from your salary before you receive it. HMRC receives the money from your employer so it never actually reaches your account.
However, self-employed workers don’t need to be paid through PAYE. It is of utmost importance to check an employee’s employment status before you pay them because if you get it wrong, you might end up paying extra tax, National Insurance, interest, and even a penalty. PAYE also works a little bit differently depending on other types of work contract:
Temporary or agency workers
You need to operate PAYE on temporary workers that are paid directly by you as long as they are classed as an employee. This, however, isn’t the case for agency workers where the PAYE method isn’t needed (unless the agency happens to be abroad).
Employees that are only paid once
For this scenario, you have to set up a payroll record with the employee’s full name and address. You can also assign them a unique payroll ID if you wish. When you send the Full Payment Submission (FPS), you should use tax code “0T” on a “Week 1” or “Month 1” basis, put “IO” in the “Pay frequency” sections, and leave the start or leaving date blank. The employee should receive a statement showing what wage they received before and after deductions and the date it was paid. Do not issue a P45.
PAYE for students works in the same way that it does for other employees.
PAYE doesn’t need to be used for volunteers if they only get expenses that are not subject to tax or National Insurance. Here is a list of which expenses are affected.
Gather all their employee information
If you don’t have all the necessary information for the new employee, it will be difficult to assign the correct tax code and set them up properly on your payroll software. Most of the information you need can be found on the employee’s P45, but if the new hire doesn’t have a recent P45, then the starter checklist from HMRC (HM Revenue and Customs) can be used, which has replaced the P46 since this form is no longer in use.
From the employee, you need:
- Date of birth
- Full address
- Start date
From the employee’s P45, you need:
- Full name
- Date they left their last job
- Total pay and tax paid to date for the current tax year
- Student loan deduction status
- National Insurance number
- Current tax code
This information must be kept in your payroll records for the current year and the three succeeding tax years.
Find out if they need to pay back a student loan
Employees need to make student loan deductions if any of the following scenarios apply:
- The employee’s P45 shows that student loan deductions should continue
- The employee reveals that they are still paying their student loan back
- HMRC sends you form SL1 and it turns out that the employee earns over the income threshold for their repayment plan
Record the repayment plan that they are on in the payroll software, which will then automatically calculate and make the corresponding deductions. The employer is required to report these deductions to HMRC when the employee is paid. You will know when to stop deducting student loan repayments from your employee’s paycheck since HMRC will send you the SL2 form requesting you to stop.
Register your employee with HMRC
After you’ve got all the necessary information from the new employee, it’s time to tell HMRC. You register a new employee with them by including their details on a Full Payment Submission (FPS) the first time you pay them. On this form, you include:
- The information you have collected from them
- The tax code and starter declaration you believe to be correct
- Pay and deductions (e.g. National Insurance, tax, student loan deductions, etc.) since they began at the company. No previous figures are needed.
Give the employee a payroll ID
It’s a good idea to assign a payroll ID to your new employee to facilitate the payroll system. The number must be unique and even if you re-hire someone, they have to be given a different number from the one they previously had. If the previous ID is used, there will be a duplicate record in the system and the payroll will be incorrect.
Checklist for registering a new employee
Here’s a quick summary of the points you need to cover when hiring a new employee:
- Verify that they can work in the UK by checking their documents
- Check whether you need to pay them through PAYE
- Collect all the necessary information
- Find out if they still have their student loan to pay off
- Register the employee with HMRC
- Give the employee a payroll ID (optional)
Please note the legal disclaimer relating to this article.