As business owners, we all want to take on employees. One of the greatest benefits of a growing business is being able to afford support in running it. Employment Allowance is designed to support small employers financially.
But going down the employment route can feel a bit scary and risky. Whether you’ve been working solo so far, or you already have a couple of employees, you may be feeling nervous about the formalities and responsibilities of being a new employer. Not to mention it can feel like a big deal to hand off a part of your work to someone new.
We aim to alleviate the fear of uncertainty when it comes to employment by covering two important considerations:
- Are you ready for an employee in the first place
- Are you aware of the financial support available to you when you are
Start by looking at your key numbers
The first thing you need to know is whether you have the money to hire. You may know (painfully well) that your business is ready for support. You’ll be struggling to meet demand and may have entirely forgotten what your evenings and weekends look like. Before you lose your sanity, look at your money.
This is where pulling together a budget is really helpful. Consider the potential cost of your employee and add in the salary and other costs into your monthly budget. Think about how much money the employee will bring in and/or save you, and play with potential scenarios to see what return you’ll get.
Don’t forget to factor in the whole cost of employment. Of course, you’re looking at a person’s wage. But you’re also looking at recruitment costs, providing pension contributions and employee benefits like maternity pay, sick pay, holiday entitlement. Here’s a full list from HMRC of your responsibilities as an employer. Make sure you have the capacity to train a new employee, and factor in any associated training costs.
Ask yourself if employment is the best option
Now you’ve considered the costs, you’re better positioned to decide whether employment is right for you, or look at the alternative options.
- How much support do you need?
- Do you need someone full time, or could they work part time or flexi-hours?
- Might it be more beneficial to outsource rather than employ?
If you’ve decided to go for employment, make sure you’re getting all the support available to you. This is where employment allowance comes in.
Employment allowance can help you save on the cost of a new employee
Employment Allowance was introduced in 2014 to encourage small businesses to take on more employees and help stimulate economic growth. The scheme allows qualifying employers to claim up to £5,000 (was £4,000 in 2021/22) against their employers Class 1 National Insurance liability in the tax year.
Here’s the technical rulesy stuff about who qualifies:
- You will qualify if you are a business or a charity and your total employers Class 1 National Insurance contributions were less than £100,000 in the previous tax year.
- If you have more than one payroll, operate as part of a group or have off-payroll salary payments then there are some additional points to check before a claim can be made.
- You can’t claim Employment Allowance if you are a public body or doing more than half of your work within the public sector.
Employers often fall at the biggest restriction on the scheme. You cannot claim if you are a company with only one employee paid over the Class 1 National Insurance secondary threshold (£8,784 for 2020/21) and the employee is a director of the company.
How to claim Employment Allowance
Claiming is easy. You just need to update your payroll settings (here are instructions for how to do this in Xero) and the claim will go through on your next EPS. If you’re using Xero for your payroll, the necessary adjustment will be shown on your P32 giving you the PAYE and NIC payable after the available deduction.
Once you’ve made your claim you may get a letter from HMRC telling you they have assumed you have self assessed the state aid de minimis rules. Employers within certain sectors have access to state aid – this aid is capped at certain levels as set by the European commission and Employment Allowance falls into the state aid category. The majority of employers will not breach those caps but if you think this may be an issue for you then we can offer a review to check.
Don’t be scared to ask for help
In every sense! If your business is struggling and you’re excited to grow, don’t be afraid of the changes that come with bringing someone else in. Whether you end up opting for employment or contract out the work, you’ll be grateful for the support! Your customers will love it, your business will be open to more opportunities and your family and friends will be pleased to see more of you.
Don’t be afraid to ask for help from us either. We’re a business with employees ourselves, and we help businesses every day in various stages of staffing. Sometimes you just need a confidence boost to know you’re on the right track. Whether it’s help with the numbers, or just some good ol’ fashioned reassurance, we’ve got you covered.
