1. What is a PAYE scheme and do I need to operate one?
PAYE stands for Pay As You Earn, which simply means tax is calculated and deducted from earnings when the earnings are paid. Most employers will have to operate a PAYE scheme, whether this is done themselves or handled by outsourcing to a payroll bureau.
If you pay yourself or any employees below the Lower Earnings Limit (LEL) (£512/mth tax year 19/20) you don’t need to operate a PAYE scheme provided no employees have another job or receive a pension.
In the scenario where you’re operating a PAYE scheme and you then take on an employee whose gross pay is below the LEL then they will need to be included in the PAYE scheme.
2. Checking the employee has the right to work?
It’s important you check a job applicant’s right to work in the UK before you employ them. This can be done by either checking the applicant’s original documents or check the applicant’s right to work online if they give you their share code.
Please visit www.gov.uk/check-job-applicant-right-to-work to help you carry out the necessary checks.
3. What is the National Minimum Wage and National Living Wage?
Nearly all workers are entitled to the National Minimum Wage and if the worker is 25 or over they will be entitled to the National Living Wage. The rate received depends on the age of the worker and whether they are an apprentice. The National Minimum/Living Wage is based on the hourly rate a worker is paid.
You’re not entitled to the National Minimum/Living Wage if you are a director or self-employed.
The current rates are as follows;
|Year||25 and over||21 to 24||18 to 20||Under 18||Apprentice|
4. What is auto enrolment?
Since the introduction of workplace pensions all employers must automatically enrol all eligible employees into a qualifying pension scheme like NEST and offer a workplace pension scheme to those employees who do not qualify for automatic enrolment.
Auto enrolment is a very large subject, and one which can’t be ignored because The Pensions Regulator isn’t slow in handing out penalties to employers who don’t comply.
Essentially auto enrolment can be broken down into three parts;
- Provide a pension letter to employees within 6 weeks of their start date
- Assess employees and enrol any eligible employees automatically
- File a declaration of compliance with The Pensions Regulator
Once these initial tasks are complete employees need to be assessed each pay period and the necessary action taken depending on their status.
We handle pension set up and administration for NEST, The People’s Pension & NOW Pensions. If you use a different pension scheme please let us know as we might be able to help.
For further reading it’s worth going to www.thepensionsregulator.gov.uk/en/employers
5. Who pays the employee?
We perform the calculations based on the earnings you supply, provide you with payslips, a payroll summary report, a P32 report (taxes due to HMRC) and perform the pension administration. You pay the employee(s) net earnings and the employer and employee taxes to HMRC based on the figures we provide.
6. How do I pay tax to HMRC and when?
The easiest way to pay HMRC is to use internet banking. The payee details are;
Account name: HMRC Cumbernauld
A/C no: 12001039
Sort code: 08 32 10
Reference Example: 123AB12345678 plus a 4 digit suffix
The reference always starts with your Accounts Office Reference, which identifies your payroll so HMRC know which payroll scheme to allocate the payment to. Although it’s not mandatory it’s a good idea to add the 4 digit suffix to the Accounts Office Reference when you make a payment because this identifies the tax period you are paying. The first 2 digits identify the tax year and for tax year 2019-20 the first 2 digits are 20. The last 2 digits identify the tax month where April 2019 is tax month 1 so the last 2 digits are 01, May is 02 and so on. So for example the taxes for December 19 (tax month 9) is 2009.
The payment deadline is 22nd of the month after the tax month end. So the tax month end for December is 5th January so the deadline to pay the taxes is 22nd January.
7. What is the pay period and earnings period?
The pay period and earnings period are important to set out from the start of the payroll. The pay period is when you pay your employees, e.g. if you pay your employees weekly than the earnings period is weekly, if you pay employees monthly than the pay period is monthly and so on. Employees must receive a payslip every time they are paid and must receive a payslip by law on their pay day or shortly before, but not after.
The earnings period relates to when the money was earnt, this is particularly important if an employee is paid for variable hours worked. If for example we have an employee paid monthly on the last day of the month and works variable hours, you would want to have an earnings period that gives you time to collate the information, process the payroll and get the employee(s) paid. You may have an earnings period of the 25th-24th each month, therefore any hours worked between those dates will be paid on the last day of the month.
8. What information do you need from an employee to set them up on the payroll?
To be able to set an employee up on the payroll we would require;
- NI number
- Start date
- P45 or complete a starter checklist form which can be found online at HMRC
9. Does every employee need to receive a payslip?
Yes, simply every worker paid must be given a payslip no later than the day they are paid. If an employee works variable hours the payslip needs to show the hours worked. The employee needs to be able to understand the amount they’ve been paid and how that relates to the work they’ve completed.
10. What is the NI Employment Allowance?
If entitled to the NI Employment Allowance the first £3,000 of employers NI (Class 1) is waived. Entitlement depends on several criteria, the main one being the company employees a non-director who earns above the secondary threshold. If you are a single director company, you will not be eligible to the NI Employment Allowance. There are further criteria for a company to be entitled, please see the link below for further reading;
If the company is eligible during the tax year, you will be able to claim up to the full £3,000 Employment Allowance. Furthermore, if you become no longer eligible during the tax year, you can continue to claim for the remainder of the tax year and then turn off the eligibility from the start of the following tax year.
There are further changes coming in from April 2020. Employers with a total secondary NIC bill over £100,000 (this is from the previous tax year) will no longer be able to claim the NI Employment Allowance.
The NI Employment Allowance will have to be claimed each year by submitting an RTI.
NI Employment Allowance will operate under the de minimis State Aid.