SD writes: I set up a limited company at the start of the year and am looking to employ my first member of staff on a salary of £100,000. What will be the total cost to my company?
The gross salary is the main cost the company will incur and this will be stated as an expense each time you run a payroll, which is usually once a month. Assuming the £100,000 is split evenly across the year, this will be £8,333 each month, writes Jon Dawson, partner at Kingston Smith LLP.
From the gross salary, your new employee will have to pay tax and national insurance. It is the employer’s responsibility to deduct the correct amounts and hand them over to HM Revenue & Customs each month.
On top of the gross salary, your company must also pay employer’s national insurance at a rate of 13.8% of the gross salary. The government introduced an annual employment allowance in April, so the first £2,000 of employer’s national insurance is waived.
You must also enrol employees into a pension scheme, unless you are planning to operate a company scheme. The minimum level of contributions for an employer will be 3% of the gross salary, which is an additional cost. The compulsory starting date for your company will depend on when you register to operate a PAYE scheme. Assuming it is now, this will be from August 1, 2017, although you could decide to bring it in earlier.
Once you start employing staff, it is a legal requirement to have employer’s liability insurance, which will help to protect your company. If you don’t have it, you could face heavy fines.
The cost of administering the payroll also needs to be factored in. Unless you are operating one in-house, you will need to enlist a payroll bureau to run it, produce payslips and make Real Time Information submissions to HM Revenue & Customs.