It goes without saying that every company that isn’t a one-man-band operation has at some point had to hire its first employee.

There aren’t many shops, restaurants, pubs, salons, engineering firms, solicitors, estate agents etc. without at least one employee on the payroll; one person can only take a business so far.

These days the Internet can allow many small service businesses to thrive by bringing together freelancers from all over the country, even the world, to cooperate  on projects without necessarily making any of them employees, but for most companies this is not an option. Someone inKazakhstancan build you a website but they can’t stock your shelves or give your clients a manicure (give it time though, Google are probably working on it).

But taking on even one employee is a big step, and the salary you’ll have to stump up every month is only one of your financial worries (and don’t forget you must pay your employee at least the National Minimum Wage). There are significant costs associated with taking on new employees, above and beyond the wage that you pay them.

Recruitment Costs

If you don’t know someone already that you’d like to take on, then you’ll probably have to advertise the position either via local media or through an agency. According to the most recent studies firms spend around £5,000 recruiting the average employee, and this goes up into the tens of thousands for senior roles.

Beyond the Salary

Good employees expect decent benefits as well as their salary, so you may need to account for things like pension contributions, company cars and health insurance, as well as for sick pay, holiday pay and possibly maternity/paternity leave.

Your employee will need training not just in-house by you but (depending on the business) possibly in regulatory matters such as hygiene or health and safety. Training courses can be costly especially when the downtime of your staff being away from the workplace is factored in.

Tax relief is available on training and many employee benefits so your bookkeeper should be able to offset some of the cost at least.

Accounting & Bookkeeping

Firstly you must tell HM Revenue and Customs (HMRC) that you intend to take on staff by registering as an employer - you can do this up to 4 weeks before you first pay your new staff. 

Taking on a new employee is likely to increase your tax bill - you must pay Employer’s Class 1 NICs on most of your staff’s salaries for a start (anything over £5772 in the 2014-2015 tax year).

You will also need to run a PAYE scheme and do all the relevant paperwork, such as paying PAYE and NICs online every month without fail, and an Employer Annual Return at the end of each tax year. You will need to invest in software and spend the time to do this, or more sensibly pay a local bookkeeper to do it for you.

Business insurance

If you take on staff for the first time, you’ll need to change your current business insurance policy and add Employers’ Liability insurance cover. This is a legal requirement for any incorporated business which has one or more employees. It’s not terribly expensive unless your work is inherently dangerous, involving chemicals or large machinery for example.

The best thing to do when you take on staff for the first time is hand all the legalities and financial work off to a local expert, it really isn’t worth your time battling with the endless accounting requirements.

If you’re in the Aldershot and Farnborough area then local bookkeepers and accountants The Financial Management Centre can take over all this for you and leave you free to concentrate on bringing in business and keeping your employees… employed!