How to Pay Salary to Your Employee in Small Business


The amount of gross pay, plus overtime rates if applicable, will have been agreed between you at the interview/job offer stage. It is also useful to agree at that early stage:

  • the method of payment (straight into bank account or building society by credit transfer, cheque or cash)
  • the frequency of payment (weekly or monthly)

From an employer’s point of view it is much less of a security risk to pay straight into an account by credit transfer. It is also more economical to pay monthly rather than weekly, because you usually pay in arrears, so you have the use of that money for about three weeks. An employee might wish to be paid weekly in cash. You, as the employer, must make up your mind what you are prepared to do and stick to it. You can ask an employee to change once he or she has started work, but it is better to lay down conditions of employment at the start.

Pay Salary Employee

As an employer you are committed to pay the employee the amounts and on the terms agreed which must not be below the national minimum hourly rate. You must pay this, no matter what state the business is in.

You also have to make statutory deductions from the gross pay. These are:

  • Income Tax
  • National Insurance – employee’s contribution

The employer’s contribution is paid over and above the agreed wage of the employee, and is a percentage of that figure

For all details of deductions, how they should be collected and how and when paid to the authorities, tax tables and so on, ask the DWP and HM Revenue & Customs. ACAS also do a very helpful leaflet called ‘Employing People in the Small Business’. You can get this from the Job Centre.

You must supply the employee with the following:

  • Detailed wage/salary slip showing the gross pay, all deductions and the net amount payable. It does not matter if the slip is handwritten, but it must be given with the pay
  • An annual P60 showing the amount of tax deducted in that financial year. This is the government’s financial year from 5 April to 4 April, not the company’s financial year
  • If the employee leaves your employment, a P45 showing the amount of tax deducted to date in that financial year. Your accountant can advise on this

Statutory Sick Pay (SSP)

As an employer, if your employee falls sick and is away for up to three working days, you do not have to pay them, but if he or she is off sick for four or more days, you must pay the employee sick pay, instead of a wage, for up to 28 weeks. You can get a rebate from the government if you keep details of people off sick, otherwise you have to pay for this. There are strict rules about how much must be paid, when and to whom, and about doctors’ certificates. Ask your local DWP for details and for help if you are having to do this for the first time, and keep records. Other than SSP there is no legal requirement to pay employees who are off sick.

Maternity rights and pay

A pregnant woman has four statutory rights:

1 Time off with pay for ante-natal care: she does not need to have worked for you for a specific length of time

2 Statutory Maternity pay if she has worked for you for at least 26 weeks up to the 15th week before the expected week of confinement (EWC). You can claim this back

3 The right to 18 weeks’ maternity leave with maintenance of all benefits except pay. If the woman has been with you for over one year at the 15th week of pregnancy, she has the right to up to 11 weeks’ leave before the birth and up to 52 weeks in total

4 The right to return to work after maternity leave if she wishes

There are detailed rules about managing maternity leave and Pay and returning to work. Ask the DWP for details on all these Points.

Pay Salary Employee

Parental leave

Both parents of a baby have the right to 13 weeks’ unpaid leave to be taken before the child’s 5th birthday (or 18th birthday if the child is disabled). New fathers who have been employed with you for over 26 weeks are entitled to two weeks’ leave paid at the minimum statutory rate. This can be recovered from the Department of Work and Pensions, www.dwp.gov.uk. For information on paternity rights visit www.tiger.gov.uk.

Pensions

There is no legal duty to operate an occupational pension scheme, but once an employer has five or more employees, they must introduce arrangements for a Stakeholder Pension (see government website www.opra.gov.uk). The normal age of retirement must be the same for both men and women.

Holiday

All employees are entitled to four weeks’ paid holiday. Part-time workers accrue their entitlement pro-rata. For details on how the minimum holiday rules operate.

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About the Author: Marie Mayle is a contributor to the MegaHowTo team, writer, and entrepreneur based in California USA. She holds a degree in Business Administration. She loves to write about business and finance issues and how to tackle them.

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