One of the key factors for employers to consider when expanding their business is the cost of labour and the financial impact of hiring new staff. We’ve outlined the basics below:

Rate of pay

If you are looking to hire a new employee or budgeting for future increases due to your employees crossing over pay thresholds, it’s important to consider the different rates that apply based on age and job roles.

As standard, the statutory pay rates increase based on age and are as follows:

• 16-17 years old – minimum wage set at £5.28 per hour
• 18-20 years old – employees are entitled to £7.49 per hour.
• 21-22 years old – the minimum wage increases to £10.18.

If you have employed someone on an apprenticeship scheme, the rates vary slightly. Apprentices in their first year of their apprenticeship are entitled to be paid £5.28. Between ages 19-20 the apprenticeship wage rises to £7.49, rising again to £10.18 for apprentices aged 21-22.

Anyone over 22 is entitled to the national living wage which is £10.42 per hour.

Normally, PAYE tax and employee national insurance is deducted (based on amounts paid) from the employee pay and paid over to HMRC by the employer, on behalf of employees.

There are other additional employer costs that should be considered in the running of your business:

Employer National Insurance

Employer national insurance must be paid to HMRC in addition to employee national insurance. The rate that you pay national insurance depends on how much an employee earns. It is paid monthly, to HMRC, alongside the PAYE payments.

The Employment Allowance can help reduce the yearly liability for employer national insurance – see our previous blog post for details around what this is and whether you’re eligible.

Pension contributions

The other additional cost that will need to be thought about is the cost of having an employee join the pension scheme. An employee will be automatically enrolled into the pension scheme if they meet the eligible jobholders’ requirements which are:

• aged between 22 and State Pension age
• earn over the earnings threshold (£10,000)
• work in the UK and have a contract of employment or have a contract to provide work and/or services personally.

An employer will be required to at least contribute 3% and the pension contributions must total at least 8% in total from both the employer and employee. If you would like to pay a larger percentage to equal the employee or the employee would like to contribute a higher percentage they can ask to do so.

There are also non-eligible jobholders who can ask to join the pension scheme if they meet the requirements:

• are aged either between 16 and 21 or State Pension age and 74, earn over the earnings threshold (£10,000) and work in the UK and have a contract of employment or have a contract to provide work and/or services personally.

or

• are aged between 16 and 74, earn between the lower earnings amount (£6,240 a year) and the earnings threshold (£10,000) work in the UK and have a contract of employment or have a contract to provide work and/or services personally.

Have you thought about all these costs when considering your employer responsibilities? If you would like any help or guidance then please don’t hesitate to get in touch with the team and CMA Accountancy.