Very useful for new founders, although as you quite rightly point out if you pay a half-decent accountancy firm to handle your company finances they should be sorting most of this out for you!
It's also be worth knowing that some insurance deals aimed at small businesses bundle up several of the most useful/legally required types of insurance, including Employer's Liability.
For example, my contracting company took out a policy for the Professional Indemnity cover, but it also comes with some Public Liability and sufficient Employer's Liability cover to meet statutory obligations if we take on employees.
I don't know whether this works out cheaper than finding separate policies for exactly what you need, so obviously please do your homework if you're in a position of needing this type of cover.
Often you'll buy what's called a 'commercial combined' policy, which will usually cover professional indemnity, employer's liability and product liability (if you sell things), plus extensions such as theft cover.
EL is the only compulsory insurance which applies to all private sector employers, although in certain industries you will have additional requirements (e.g. conveyancers have to purchase professional indemnity insurance).
What happens if you are employing someone at the limits and then they go out and get a bar job too? Would I then be liable for the relevant amount of contributions? Am i responsible for knowing that my employee hasn't gone and got another job without telling me??
Assuming i would be responsible for PAYE if they got more work, then am I allowed to make not having other employment part of their contract?
If i am not making PAYE contributions, does the employee have any NI contributions? (eg. paid by the state?), or are they elligable for any tax credits/benefits? (IIRC JSA could be claimed if working < 16h /wk -- although IIRC earnings would count against JSA money, NI would at least be paid, right?)
Finally, How do all these things change if you are employing someone from the EU, or outside??
second, some friendly advice: my approach would be to register them for PAYE even if they're only close to the threshold; this means they are future proofed if they step up hours / get a bar job. I know economists will tell you effort up front is worth more than cheaper effort in the future, but that's only one opinion!
finally, I believe that EU citizens are treated exactly the same once issued an NI number - but see my first comment about all matters of tax law!
It's not just effort, avoiding PAYE is saving money.. bootstrapping and all that.. similarly for the accountant, although i am due a meeting. Still, if anyone knows, please go ahead and share.
Great guide but I want to highlight the employer's responsibility for home-working employees (self-employed would cover this themselves) as your first employee, Hannah, falls into this category.
The employer is still responsible in providing suitable office equipments for the home-worker, i.e. office chairs, desks, lighting and computers. If the home-worker is using their personally-owned equipment for work, the employer is still liable in ensuring the equipment is fit for purpose and get it test/certified for electrical items.
It is up to the employer to ensure the home office is at the same health and safety and data protection standards as they would in the office and yes a H&S risk assessment will have to be carried out.
You may also have to purchase public liability insurance if they receive business visitors into their homes as well.
I'm not trying to put a downer to home-working (I do some myself) but few SMEs realise the true implications of offering home-working until they get a letter from the lawyers demanding compensation for their employees' injury from tripping on some cable they placed themselves in their home office whilst working.
I'm curious: Could you not simply designate the new hire a 'contractor' since they are working from their own premises? You could then save having to deal with all the employee paperwork and insurance...?
You have to be pretty careful with this sort of thing. You can't just say someone is a contractor and they become so. This is covered by something called 'IR35'.
What this basically says, is if someone looks like an employee, they're doing the job of an employee, then they are an employee, whether you like it or not.
Most UK IT contractors will be pretty familiar with this situation, and the ways to avoid being caught out by it.
However, as my employee is mostly customer service, admin etc, and doesn't work for anyone else, I don't think there's a way round it for me!
IR35 is not quite the same as whether someone is employed or a contractor - you could claim to be a self-employed contractor when working from home and IR35 would not apply. If you did that then it would be a question of whether you were employed or self-employed, and that would determine which forms of national insurance contributions were paid (your income tax would remain the same).
IR35 was introduced to stop contractors from setting up a limited company and then having the company contracted instead of the individual. The individual would then take dividends out from the company, which are taxed at a lower rate and not subject to national insurance.
I wonder if this IR35 issue also extends to other european citizens working as freelancers. I know nothing on UK law, but common sense dictates it does not forbid hiring other europeans.
It might be possible to hire remote freelancers based on other european startup hubs without being affected by IR35.
http://www.hmrc.gov.uk/employment-status/index.htm#1 would seem to indicate that it's similar to Canada & USA -- if the employer has control over the hours and way the work is performed, you don't get a choice over the employment status. The location really doesn't matter.
