How to pay your staff

How much should you pay your staff

Check what's being paid by companies similar to yourself, or for similar roles in the area.  Don't price yourself out of attracting the right candidates because you've gone in too cheap, but it's got to be a wage you can afford to pay so factor in:

• The wages you're going to pay
• Employer's NI contributions
• The cost of running or outsourcing a payroll
• Employer’s liability insurance (it's compulsory if you employ staff).  Get a quote for employer’s liability insurance
• Pension contributions.  From 2012 it's compulsory to either have a company pension scheme for your staff or to use the new National Employment Savings Trust (Nest)

National Minimum wage rates

You must pay your staff at least the national minimum wage rates (tips do NOT count as part of their wages)
 
The rates are usually increased in October each year.  From 1 October 2012 the new national minimum wage rates are:

•  £6.19 an hour for workers aged 21 and over (up from £6.08 in 2011)
•  £4.98 an hour for workers aged 18-20 (no increase from 2011 rate)
•  £3.68 an hour for workers aged below 18 who are no longer of compulsory school age (no increase from 2011 rate)

Running a payroll

HMRC has information on the PAYE aspects of taking on a new employee that includes an introduction to PAYE schemes, the paperwork involved and how to avoid employing an illegal worker.

If you employ staff you need to pay them, deduct the correct tax and National Insurance contributions from their wages, and provide them with an itemised pay slip.    Either buy and operate your own payroll software or consider using an outsourced payroll service.

From April 2013 all employers need to report PAYE payments to HMRC at the time they’re made rather than at the end of the tax year. This is called Real Time payroll Information, or RTI 

HMRC accredited payroll software will collect the necessary information and send it to HMRC Online.

You’ll be told when your business needs to make this move but all employers must be operating an RTI payroll system by October 2013.

Employed or self-employed

Freelancers are responsible for their own tax and national insurance contributions so this could be a simple way to get additional skills and resources into your business without the regulatory overheads of taking on salaried employees. However it's really important you check with HMRC whether someone is employed or self-employed for tax purposes to avoid any problems later on.