How to Hire Your First Employee in the UK: A Complete Guide
Hiring your first employee in the UK requires: registering as an employer with HMRC at least 4 weeks before they start, setting up PAYE to deduct income tax and National Insurance from their pay, auto-enrolling them in a workplace pension, and giving them a written employment contract within 2 months. Budget an additional 15–20% on top of salary for employer NI and pension contributions.
- Before you hire: check you can afford it
- Registering as an employer with HMRC
- Setting up payroll and PAYE
- Employment contracts: what you must provide
- Workplace pensions: auto-enrolment
Before you hire: check you can afford it#
Hiring an employee costs more than just their salary. Employer's National Insurance (EmployerNI) is currently 15% on earnings above £5,000/year. Workplace pension contributions: you must contribute at least 3% of qualifying earnings. Holiday pay: employees are entitled to 28 days paid holiday per year (including bank holidays). Plus: recruitment costs, any equipment or software needed, and any training. A £30,000 salary employee actually costs approximately £34,500–£36,000 per year in total employer costs. Run a cash flow projection showing you can sustain those costs for at least 6 months before committing to hire.
Registering as an employer with HMRC#
You must register as an employer with HMRC before you can pay anyone. Do this at www.gov.uk/register-employer — register at least 4 weeks before your new employee's first payday. HMRC will send you a PAYE reference number and an Accounts Office reference. You need these to set up your payroll software and to make PAYE payments to HMRC. If you are a limited company, your company is the employer. If you are a sole trader, you personally are the employer.
Setting up payroll and PAYE#
PAYE (Pay As You Earn) is the system for deducting income tax and National Insurance from employees' wages and paying it to HMRC. You must report payroll to HMRC every time you pay your employee (Real Time Information, or RTI). Use HMRC's free Basic PAYE Tools for one or two employees, or paid payroll software (Xero Payroll from £5/month, QuickBooks Payroll, Sage Payroll, or Brightpay). Run payroll before each payday, submit the RTI report to HMRC, pay the employee their net pay, and pay HMRC the deducted tax and NI by the 19th of the following month (or 22nd for electronic payment).
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Employment contracts: what you must provide#
Every employee must receive a written Statement of Particulars on or before their first day (legally required since 2020). This document must include: their name and start date, job title, pay and frequency, hours of work, holiday entitlement, notice period, and sick pay entitlement. You do not need a solicitor for a standard employment contract — free templates are available from ACAS (acas.org.uk) and GOV.UK. For senior or sensitive roles, consider a solicitor-reviewed contract, but for a first employee in a standard role, a well-drafted template is fine.
Workplace pensions: auto-enrolment#
Auto-enrolment requires you to automatically enrol eligible employees into a workplace pension scheme and make contributions. Eligible employees are those aged 22–66 earning above £10,000/year. The minimum contribution is 3% employer + 5% employee (8% total) of qualifying earnings. Choose a pension provider before your employee starts — NEST (nest.org.uk) is the government-backed provider and accepts any employer with no minimum contribution. NEST is free to set up and has no minimum employee numbers. You must have a pension scheme ready before your employee's auto-enrolment date (usually after their first 3 months, or immediately if they request it).
Legal obligations every employer must meet#
Your legal obligations as an employer include: right to work checks (you must check every employee's documents confirming they have the right to work in the UK before they start — this applies even to UK nationals); Employers' Liability Insurance (legally required — minimum £5 million cover — costs £150–£600/year for a small employer); health and safety assessment (you must assess and document workplace risks even for a home office environment); and minimum wage compliance (ensure you are paying at least the National Living Wage — £12.21/hour for over-21s in 2025–26). Keep records of right to work checks for 2 years after employment ends.
People also ask
What do I need to do before hiring my first employee in the UK?
Register as an employer with HMRC (at least 4 weeks before first payday), set up payroll software, choose a workplace pension provider, prepare an employment contract, and have Employers' Liability Insurance in place before they start.
How much does an employee cost on top of their salary?
Budget an extra 15–20% on top of salary: Employer NI (15% on earnings above £5,000/year) plus pension contributions (minimum 3% of qualifying earnings). For a £30,000 salary employee, the total employer cost is typically £34,500–£36,000 per year.
Do I need a contract for my first employee?
Yes. Employees are legally entitled to a written Statement of Particulars from their first day of employment (since April 2020). Free templates are available from ACAS. The document must cover pay, hours, holidays, notice, and sick pay at minimum.
What is PAYE and how does it work?
PAYE (Pay As You Earn) is the system for deducting income tax and National Insurance from employees' pay. As an employer, you deduct these from gross pay, pay the employee their net pay, and pay the deductions to HMRC by the 19th of the following month. You must report payroll to HMRC on every payday using Real Time Information (RTI) reporting.
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