Payroll, pensions and employing staff in the UK

Employing someone in the UK means registering as an employer, deducting income tax and National Insurance from every payment, reporting each payment to HMRC on or before the day it is made, and enrolling eligible staff in a workplace pension. None of it is difficult. All of it has deadlines and penalties, and a subsidiary with two employees has the same obligations as one with two hundred.

What employing someone costs

• Employer National Insurance at 15% of each employee's earnings above £5,000 a year. On a £50,000 salary that is £6,750.
• The Employment Allowance takes £10,500 off the employer NIC bill each year. A group can claim it only once across all its connected UK companies, and a company whose only employee earning above the threshold is a director cannot claim it.
• Workplace pension. A minimum of 8% of earnings between £6,240 and £50,270, of which the employer pays at least 3%. On £50,000 the employer's share is about £1,313.
• Paid holiday of 5.6 weeks a year, including bank holidays, and statutory sick pay from the fourth day of absence.

The employment cost calculator gives the full figure for any salary.

Two things that must be in place before the first employee starts

• Employers' liability insurance of at least £5 million, from an authorised insurer, from the day the company employs anyone in Great Britain. It is a legal requirement with a daily penalty for going without, which is the most commonly missed item on a new subsidiary's set-up list.
• A sponsor licence, if the company wants to employ someone who does not already have the right to work in the UK. The Home Office fee is £611 for a small or charitable sponsor and £1,682 for a medium or large one, and a licence application takes around eight weeks. On top of that, the immigration skills charge is £480 a year for a small sponsor and £1,320 a year for a larger one, for each sponsored worker, payable up front for the whole period. Immigration advice is a regulated activity that Buzz does not provide, so we introduce you to an immigration adviser and make sure the payroll and the company's records line up with what the sponsor duties require.

What we run

1. Registration. The employer reference takes a few weeks to arrive, so we apply the moment you know you will hire.
2. Each pay run. Payslips, the submission to HMRC, the pension contributions file, and a summary of what to pay HMRC and the pension provider and by when. Monthly is standard; weekly and fortnightly runs are quoted separately.
3. Starters and leavers. Tax codes, right-to-work checks recorded, P45s.
4. Statutory pay. Sick pay, maternity, paternity and shared parental pay, and the reclaims available.
5. Year end. P60s for every employee, the final submission, and the return of benefits and expenses.
6. Pensions. Every employee assessed every pay run, eligible ones enrolled, contributions uploaded, the declaration of compliance made to The Pensions Regulator, and re-enrolment every three years.

Staff and share awards from the parent

Two things trip up subsidiaries of overseas groups. Employees from head office who work in the UK for short periods can create a UK PAYE obligation from the first day; a short-term business visitor agreement with HMRC removes the need to run payroll for them where the treaty exempts them, and we put one in place. Stock options and restricted stock units granted by the parent to UK employees are taxed through the UK subsidiary's payroll when they vest or are exercised, and every plan must be reported to HMRC annually by 6 July. The plan is administered in the parent's country, and the UK obligation still sits with the UK company.

Employer of record, or the company's own payroll

An employer of record service employs the UK staff on the group's behalf, for a monthly fee per employee that is typically several hundred pounds. It suits a first hire made before the subsidiary exists. Once the subsidiary is formed, running its own payroll is materially cheaper, gives the group the employment relationship directly, and keeps the employees on the subsidiary's books for corporation tax and R&D purposes.