When you take on a new employee there are important checks you have to make. You need to decide what their correct employment status is and check if they can legally work in the UK. If you employ them, you must check whether you need to operate PAYE (Pay As You Earn) on their earnings.
You need to get certain information from your employee and send it to HM Revenue & Customs (HMRC) on or before the employee's first payday. If this is your first employee, you may need to register with HMRC as an employer and set up a PAYE scheme.
This guide tells you what checks you need to make on potential new employees, what you need to do to register as a new employer and how to get the information you must report to HMRC.
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It's your responsibility to decide on the correct employment status of someone who works for you. If you get their employment status wrong you might have to pay extra tax, National Insurance contributions (NICs), interest and a penalty.
You must decide whether someone who is going to work for you is an employee or self-employed. You can't simply accept that someone's self-employed because they say they are. A person's employment status depends on the terms of the contract between you and them:
The guide 'Employment status: employed or self-employed?' will help you decide what sort of contract it is and explains what you have to take into account to make your decision. It also tells you how to use a tool to help you decide and how you can also ask HMRC for a decision.
If this is your first employee and any of the following apply:
You need to register with HMRC as an employer and operate PAYE. To find out more and how to do this, read HMRC's guide 'How to register as an employer'.
If you're already registered as an employer with HMRC, the guide 'New employer - getting started' summarises all the steps you need to take and where to find information on how to do them. The rest of this guide covers the key steps in taking on a new employee.
If you're a new employer, or have been in business for less than three years, you can also get advice by calling HMRC's New Employer Helpline.
When you pay someone for the first time, there are a number of things you can do to help you decide how much tax and NICs to deduct before you pay them.
You need to decide which method you're going to use to calculate tax, NICs and other deductions - this process is known as running your payroll. You can use an agent or payroll bureau or do it yourself using either commercial payroll software or HMRC's Basic PAYE Tools. You can read more about the options available in the guide 'Software packages and other payroll options'.
You also need the information listed above in 'Reporting employee information to HMRC' to give to an agent or payroll bureaux, to put into your payroll system or into Basic PAYE Tools. You need some of this information to send to HMRC when you report your payroll information on an FPS for your employee and some of it to help you calculate the right tax and NICs for them.
Other information that you have to put into your payroll system or the Basic PAYE Tools is information you will know - such as the start date, whether or not the employee is also a director, and the approximate number of hours worked each week.