Hiring your first employee is one of the biggest milestones for any startup. It means the business has grown past the point where you can do everything yourself — and that is worth celebrating.
But it also brings legal duties you did not have before: registering with HMRC, checking the right to work, sorting contracts and pensions. Get the order wrong and you risk fines and backdated tax bills.
The good news is that none of it is complicated. It is a checklist. Work through these seven steps before the first payday and your first hire starts smoothly — with you on the right side of the law.
How do you hire your first employee in the UK?
To hire your first employee in the UK, register as an employer with HMRC before the first payday, carry out a right to work check before their first day, take out employers’ liability insurance of at least £5 million, give them a written statement of their terms on or before day one, set up payroll to report earnings to HMRC every payday, and enrol them in a workplace pension. Each step takes an hour or two — the order matters more than the effort.
Before the paperwork: write the role down
Get the role clear on paper first. Write down the three or four outcomes you need from this person in their first 90 days, the hours and pay you can afford, and whether the work truly needs an employee — or could be done by a freelancer for now.
For finding candidates, the cheap routes work well for small businesses: Indeed, LinkedIn, local Facebook groups and word of mouth. Be honest about the stage of your business — people who join tiny startups want the adventure.
Step 1: Check they are really an employee
This step is easy to skip and expensive to get wrong. HMRC draws a sharp line between employees and self-employed contractors, based on how the work is actually done — not on what you call the person.
An employee generally works under your direction, has set hours, uses your equipment and cannot send someone else to do the job. If that describes your new hire, everything below applies. If they genuinely set their own hours, work for other clients and use their own tools, they are likely self-employed — but keep evidence of the arrangement.
If you are unsure, run the facts through HMRC’s free Check Employment Status for Tax (CEST) tool on GOV.UK first — misclassification can mean a backdated tax and National Insurance bill.
Step 2: Register as an employer with HMRC
Once you know you are employing someone, register as an employer with HMRC. Registration is free and done online, and you must do it before your first payday — without an employer PAYE reference number you cannot report payroll or pay the right tax.
Two timing details matter. First, HMRC says it can take up to 15 working days to issue your PAYE and Accounts Office references, so register as soon as the hire is confirmed. Second, you cannot register more than two months before the first payday, so do not do it months early either.
For the current tax year the personal allowance and PAYE threshold is £12,570. HMRC’s full walkthrough is the Employing staff guide on GOV.UK.
Step 3: Do the right to work check before day one
Before your new hire starts work, you must check they have the legal right to work in the UK. The check has to happen before the first day — not in the first week.
In practice this means examining original documents, such as a UK or Irish passport, or using the Home Office online checking service with the share code a migrant worker gives you. Record the date of the check and keep dated copies. Doing it correctly before they start gives you a “statutory excuse” — your legal defence against civil penalties if something later turns out to be wrong.
Build it into your offer process: ask them to bring their passport or share code along before the start date.
Step 4: Take out employers’ liability insurance
From the day you become an employer, you need employers’ liability insurance — a legal requirement for most UK businesses, with minimum cover of £5 million. It protects you if an employee is injured or becomes ill because of their work, and yes, that includes someone working from a spare bedroom.
Keep the certificate where staff can see it or easily accessible online. Businesses caught without valid cover can be fined for every day they are uninsured, so sort this before the first day, not after.
Step 5: Put the contract in writing
Every employee is entitled to a written statement of their employment terms, and it must be given on or before their first day of work — not within two months, as the old rule allowed.
The statement must cover the basics: both names, job title, start date, pay and pay frequency, working hours, holiday entitlement, notice periods, the place of work, and pension arrangements. Most small employers put all of this into a simple employment contract, which also lets you add the things that matter to a startup — confidentiality, who owns the intellectual property they create, and post-employment restrictions.
Keep it plain and fair: a short contract everyone understands beats a long one nobody reads.
Step 6: Set up payroll and report every payday
Every time you pay your employee, you must tell HMRC — on or before the payday itself. This is done through Real Time Information (RTI), usually a Full Payment Submission (FPS) from your payroll software, using the PAYE reference from step 2.
Most small employers use HMRC-recognised payroll software or hand it to an accountant for a modest monthly fee. What matters is that the FPS goes in on time and your employee gets an itemised payslip on or before payday — late reports attract HMRC penalties.
Step 7: Enrol them in a workplace pension
Your pension duties begin on your employee’s first day of work. Under automatic enrolment, you must assess your new hire and enrol them in a workplace pension if they are eligible — generally aged 22 to State Pension age and earning over £10,000 a year.
Enrolment must happen within six weeks of them becoming eligible. The minimum total contribution is 8% of qualifying earnings, with you paying at least 3%. You must also write to the employee about the enrolment, and submit a declaration of compliance to The Pensions Regulator within five months of your duties starting.
Pick a pension provider early — NEST is the government-backed default many small employers use — because setup takes time and the clock starts on day one.
What your first employee really costs
The salary is only the headline number. Budget for the employer’s extras too — they are what catch first-time hirers by surprise. Here is what a £25,000 salary actually costs in the 2026/27 tax year:
| Cost | Amount per year |
|---|---|
| Gross salary | £25,000 |
| Employer National Insurance (15% on earnings above £5,000) | £3,000 |
| Employer pension contribution (minimum 3%) | ~£750 |
| Total employer cost | ~£28,750 |
Also remember 5.6 weeks of paid holiday a year (pro rata for part-timers), sick pay, recruitment costs and equipment. And check pay against the National Minimum Wage: from 1 April 2026 it is £12.71 an hour for workers aged 21 and over and £10.85 for 18 to 20-year-olds. A £25,000 salary on a 37.5-hour week is about £12.81 an hour — just above the legal floor.
If you are still budgeting the whole venture, our breakdown of the cost of starting a small business in the UK walks through the other numbers you will need.
3 mistakes first-time employers make
- Registering with HMRC too late. Waiting until payday week is the classic error — the PAYE reference can take up to 15 working days to arrive, and you cannot run payroll without it.
- Skipping the right to work check. Ten minutes of document checking before day one protects you completely; skipping it leaves you exposed from the very first shift.
- Forgetting the true cost. Budgeting the salary but not the employer NI, pension and holiday pay means the hire looks affordable on paper and painful in reality. Run the full table above before you make the offer.
Frequently asked questions
When do I need to register as an employer with HMRC?
You must register before your first employee’s first payday. Register as soon as the hire is confirmed, because it can take up to 15 working days to receive your employer PAYE reference — and you cannot register more than two months before the first payday.
What is the minimum wage in the UK in 2026?
From 1 April 2026, the National Living Wage is £12.71 an hour for workers aged 21 and over. The rate is £10.85 for 18 to 20-year-olds, £8.00 for under-18s and £8.00 for apprentices.
Do I need employers’ liability insurance for my first employee?
Yes. It is a legal requirement for most UK employers from the day you take someone on, with minimum cover of £5 million. You can be fined for every day you operate without it.
Can I hire someone without a written contract?
You cannot skip the paperwork entirely: the law requires a written statement of employment particulars on or before the employee’s first day. A simple contract covering pay, hours, holiday, notice and pension satisfies this and protects you both.
Conclusion
Hiring your first employee is really seven small admin jobs in the right order: confirm the employment status, register with HMRC, check the right to work, insure yourself, write the contract, run payroll, and enrol them in a pension. Budget the full cost rather than just the salary, and start the HMRC registration early.
