What is an employer?
An employer is a person or a business that hires an individual (eg an employee or a worker) to perform a specific job. The relationship is formalised through an Employment contract, which sets out the rights and responsibilities of both sides. As an employer, you are responsible for paying your employees' wages, deducting the correct tax and National Insurance contributions (NICs), and providing a safe working environment.
Checklist for new employers
When you become an employer, you take on several core legal obligations. Following this checklist will help you cover all the key steps, from checking someone's right to work to setting up a pension:
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| Prepare a Job description outlining the role’s duties, responsibilities, and requirements. This is the foundation for everything that follows. | |
| Decide on a salary, ensuring it meets the national minimum wage. Decide what other benefits and work arrangements you will offer (taking into account other statutory minimum rights). |
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| Conduct a risk assessment of your premises and processes to ensure the health and safety of the working environment. | |
| Prepare key workplace policies, such as Disciplinary, Grievance, and Health and safety policies. These can be consolidated in an Employee handbook. | |
| Make a formal Job offer letter to provide to your chosen candidate once you have completed your recruitment process. | |
| Check the employee’s right to work in the UK. This must be done before their first day. | |
| Get employers' liability insurance with at least £5 million of cover. This must be in place before your employee starts. | |
| Make the relevant contract (eg an Employment or Zero hours contract) and give it to your employee on or before their first day. Remember that employees are legally entitled to a written statement of employment particulars on their first day of employment. |
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| Register as an employer with HMRC before your first payday. | |
| Set up a payroll system to manage pay and deductions, reporting to HMRC on or before each payday. | |
| Set up a workplace pension scheme for eligible employees. |
What is PAYE and payroll?
One of your most important duties as an employer is to manage tax and NICs. This is done through a system called PAYE (Pay As You Earn), which requires you to register with HMRC and run a payroll.
How do I register as an employer with HMRC?
Registering as an employer is a legal requirement, and you must register before your first payday. You can register as an employer online on the government website up to two months before you start paying your employee.
During the registration process, you'll provide HMRC with details about your business and your new employee. Once it's complete, HMRC will send you a welcome pack containing your PAYE reference number and Accounts Office reference number. It can take up to five working days (sometimes longer) to receive these, so it's vital to register in good time. You'll need these reference numbers to set up your payroll software.
How do I set up a payroll system?
A payroll system is the process you use to manage everything related to paying your employees. For each payday, this involves:
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calculating your employee's gross pay (ie their full pay before deductions)
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working out and subtracting all required deductions. This includes statutory (legally required) deductions like income tax, NICs, and student loan repayments, as well as any other deductions agreed with your employee (eg pension contributions)
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providing your employee with a detailed payslip that clearly lists their gross pay and all deductions made
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reporting the pay and deduction details to HMRC
Most businesses use dedicated payroll software to handle this process, as it automates the complex calculations and simplifies reporting to HMRC. You'll need to input your PAYE reference numbers into the software to link it to your HMRC account. Alternatively, many businesses choose to outsource this work to an accountant or a specialist payroll bureau.
When running payroll, you'll need to meet several key deadlines:
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on or before each payday - provide your employee with a payslip and report their pay and deduction details to HMRC
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by the 22nd of the next month - pay HMRC the tax and NICs you've collected (this is the deadline for electronic payments)
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at the end of the tax year (which runs to 5 April) - give your employee a P60 form by 31 May and send a final payroll report for the year to HMRC
If you're ready to create the key documents for hiring, you can make a Job description, a Job offer letter, an Employment contract, a Zero hours contract, and an Employee handbook. For more information on hiring employees, read Hiring and Recruitment. If you have any questions about your responsibilities, do not hesitate to Ask a lawyer.
