Deciding to become an employer is a significant milestone for any business. It marks a phase of growth and the need for additional support. In this post, we will explain what becoming an employer entails, the steps required, the key considerations, and the changes that come with this decision. We’ll also consider the pros and cons to help you make an informed choice.
What does becoming an employer entail?
For many businesses, the transition to an employer signals growth and expansion. However, it also introduces new challenges and responsibilities.
Becoming an employer means managing staff, including hiring, ensuring their wellbeing, handling wages and tax deductions, and complying with employment laws.
Hiring and managing staff
When you decide to become an employer, one of your primary responsibilities is hiring the right people. This process involves advertising job vacancies, conducting interviews, and selecting suitable candidates. Businesses increasingly focus on hiring employees with the right skills who fit the company culture well. This approach helps reduce turnover and foster a positive work environment.
Ensuring employee wellbeing
Employee wellbeing has become a significant focus for UK employers. Recent legislative changes, such as the Employment Rights (Flexible Working) Act 2023, allow employees to request flexible working arrangements from day one. This flexibility can include part-time work, remote working, or compressed hours. Employers must respond to these requests within two months and provide valid reasons if they deny any request.
These changes highlight the importance of considering employee well-being and maintaining a supportive work environment.
Training and development
One critical consideration of becoming an employer that often gets overlooked is the importance of employee training and development. Investing in your employees’ growth enhances their skills and improves your business’s overall success.
According to a 2023 study by LinkedIn, companies that provide extensive training opportunities see a 24% higher profit margin than those that spend less on employee development. Training can range from onboarding sessions that help new hires understand their roles and company culture, to ongoing professional development programs that keep employees up-to-date with industry trends and technologies.
Building a culture of continuous learning can improve employee engagement and retention. A report by the Chartered Institute of Personnel and Development (CIPD) found that 94% of employees would stay longer at a company if it invested in their career development. Therefore, as an employer, prioritising training and development boosts productivity and builds a loyal and skilled workforce, driving your business towards long-term success.
Handling wages and tax deductions
As an employer, you are responsible for calculating and distributing wages, including making the necessary tax and NI deductions. Ensuring compliance with National Minimum Wage and National Living Wage rates is crucial to avoid legal issues and financial penalties.
Compliance with employment laws
Compliance with employment laws is a critical aspect of becoming an employer. The UK has seen a flurry of changes in employment legislation set to take effect in 2024. For instance, the Carer’s Leave Act 2023 entitles employees to one week of unpaid leave per year to care for a dependent, starting from April 2024.
Additionally, the Protection from Redundancy (Pregnancy and Family Leave) Act 2023 extends redundancy protection for employees on family leave to 18 months.
Employers must stay updated with these changes to ensure they meet their legal obligations. Non-compliance can result in significant penalties and damage to the business’s reputation. Therefore, regular training for HR and management teams on the latest employment laws is essential.
Steps to becoming an employer
Register as an employer with HMRC: The first step is registering with HMRC. This should be done before the first payday. You’ll receive an employer PAYE reference number and accounts office reference number, both of which are essential for managing payroll and reporting to HMRC.
Set up payroll: Setting up a payroll system is crucial. This system will help you calculate and distribute wages and ensure correct tax and NICs. HMRC offers a free payroll tool called ‘Basic PAYE Tools’, but many businesses use payroll software which can significantly simplify this process.
Check employment rights: Ensure you understand and comply with employment rights, including minimum wage, working hours, and workplace safety. This protects both you and your employees.
Draft employment contracts: Every employee should have a written contract outlining their job role, salary, working hours, and other terms of employment. This document is a legal requirement and sets clear expectations for both parties.
Consider pensions: Employers must provide a workplace pension scheme and automatically enroll eligible employees. The employer also has an obligation to submit a ‘Declaration of Compliance’ to the Pensions Regulator.
Maintain records: Keep accurate records of employee details, pay, and tax information. This helps in managing payroll, and it’s also a legal requirement.
Key considerations
Legal obligations: Understanding and complying with employment laws is vital. This includes everything from fair hiring practices to ensuring a safe working environment. Noncompliance can result in legal issues and financial penalties. For instance, you must obtain Employers’ Liability insurance as soon as you become an employer. The policy must provide coverage of at least £5 million and be issued by an authorised insurer.
Failure to have proper insurance can result in a fine of £2,500 for each day you are uninsured.
Additionally, you can be fined £1,000 if you do not display your Employers Liability Insurance certificate or if you refuse to make it available to inspectors upon request.
Financial impact: Becoming an employer has financial implications. You’ll need to budget for wages, NICs, pensions, and possibly additional costs like recruitment and training.
Time commitment: Managing staff takes time. From payroll processing to addressing employee concerns, be prepared for an increased time commitment.
Pros and cons of becoming an employer
Pros:
- Business growth: Hiring staff allows you to scale your business and take on more work, potentially increasing revenue. • Skill diversity: Bringing in new employees can introduce fresh skills and ideas, enhancing your business’s capabilities.
- Workload distribution: Delegating tasks to employees can free up your time, allowing you to focus on strategic planning and growth.
- Employee loyalty: Providing jobs can build loyalty and a strong team culture, which is beneficial for long-term success.
Cons:
- Increased costs: Hiring staff means additional costs, including wages, taxes, and benefits. This can be a significant financial commitment.
- Administrative burden: Managing payroll, compliance, and employee relations adds to your administrative tasks.
- Risk of disputes: Employment relationships can sometimes lead to disputes, which can be time-consuming and costly.
- Training and development: Investing in employee training and development requires time and resources.
Help is available
Managing staff, ensuring compliance with ever-evolving employment laws, and handling payroll are just a few of your many responsibilities. This is where the expertise of an accountant or professional advisor becomes invaluable.
Professionals can set up and manage your payroll system, ensuring that wages, tax deductions, and NICs are accurately calculated and compliant with current laws. By leveraging their expertise, you can focus on your core business activities, confident that your employer responsibilities are managed professionally and efficiently.
We’re here to help you
If you’re considering becoming an employer, contact us on help@hsj.uk.com or call 01633 815800 for support to ensure a simplified transition.