Hiring your first employee is a major milestone. It also brings responsibilities that should not be underestimated.

Once you employ staff, you must operate PAYE, keep payroll records and submit information to HMRC.

Payroll is not just paying wages, it includes calculating deductions and Benefits in Kind, reporting in the right way and paying HMRC on time.

Late payments or reporting errors can trigger interest and penalties, even where the underlying mistake is small.

Equally, not paying your staff properly can risk the loss of talented employees and disputes that can sour a good relationship.

Minimum pay rules and budgeting for growth

Wages must meet National Minimum Wage (NMW) or National Living Wage (NLW) requirements, which are reviewed annually, with changes typically implemented and coming into effect on the 1 April each year.

You can find the latest rate of NMW and NLW here.

This means you need to keep an eye on rate changes and employee birthdays, because eligibility and rates can change during the year.

When you are budgeting for hiring, it is important to consider the full cost, not just salary.

National Insurance (NI) is something that falls to both the employer and employee to cover.

While some portion of your employees’ wages will be deducted as part of their National Insurance Contribution (NIC), there is a need for you to ensure that you pay a set amount as well.

Benefits in Kind

If your company provides any benefits beyond just salary to your staff or yourself, you’ll need to complete a P11D form for each individual and file a P11D(b) employers’ declaration form with HMRC every tax year.

However, from April 2026 this will change, P11D forms will disappear and benefits in kind will then be required to be payrolled.

Benefits in kind can include things like medical insurance, company cars and fuel, company vans, or gym and health club memberships, amongst others.

We’re here to help with all the necessary reporting, making sure your payroll is set up to streamline the process.

We can also offer advice on a range of tax-exempt and tax-efficient benefits, such as mobile phones and electric cars, to make sure you’re getting the most out of your benefits package.

Pensions

Providing pensions for your staff is an important consideration. Thanks to auto-enrolment rules, all employers are required to enrol their qualifying employees in a workplace pension scheme.

This applies to staff aged between 22 and State Pension age who earn at least £10,000 per year and work mainly in the UK.

Employers need to contribute at least three per cent to their employees’ pensions, and employees should get a total of eight per cent of their wages in pension contributions.

You can choose to cover the extra five per cent yourself or have it come out of the employee’s contributions.

Even though employees can opt out of the pension scheme, you must still enrol them initially and re-enrol them periodically.

Don’t forget, contracts of employment are a legal requirement. They should outline the standard terms and conditions, including salary and benefits, to ensure clarity and compliance.

Staying on top of risk

As businesses grow, payroll quickly becomes complex and outsourcing payroll to an experienced accountancy firm can reduce risk and free up time to focus on growth.

If you would like help establishing and managing your payroll process, please get in touch with our payroll team.

This is the fifth article in a series of blogs to guide you through the process of establishing your next business.

Please find the rest of the series below:

Posted in Blog news.