Taking on employees can be essential for a business to grow and increase its capacity.
However, before taking on employees does your business make enough money to pay its wage bill each month?
When looking to take on employees you need to consider the true cost of employing them.
You may look at the salary you will pay an employee to see whether your business can afford them, but you also need to take account of Employers National Insurance and Workplace Pensions.
Employers National Insurance
At the time of creating this article Employers National Insurance is charged at 13.8% on an employee's wages above £166 a week.
This can make a significant difference to the expected cost of taking on an employee.
There is a relief for Employers National Insurance called the Employment Allowance, which means that businesses do not need to pay the first £3,000 of Employers National Insurance that they incur in a tax year.
Workplace Pensions are a requirement for all business that employ anyone that is between 22 and state pension age and earn more than £10,000 a year.
Employees and their Employer both need to contribute to the pension scheme and the minimum contribution for the 2019/2020 tax year is 5% for the employee and 3% for the employer.
There is no relief for the employers pension contributions, other than the contributions paid being tax deductible on the businesses tax return.
When you are considering whether you can afford to take on an employee you cannot simply look at their salary.
An example of the true cost of employing a member of staff is:
Employee's Annual Salary: £24,000
Monthly Gross Pay: £2,000
Monthly Employers NI: £176.73
Monthly Employers Pension: £60
Therefore the monthly cost of the employee is £2,236.73, which is £26,840.76 a year.
Processing a Payroll
Whether you have 1 employee or 100 employees, your business needs to complete submissions to HMRC for the wages that are paid to staff.
This can be very time consuming and if not done correctly can lead to fines, penalties and interest.
If you are unsure of your requirements or how to file your payroll information with HMRC why not outsource your payroll processing?
If you would like to discuss payroll outsourcing please contact Edwards Bailey Chartered Accountants on 01708 200675 or email us at firstname.lastname@example.org.