Your business is ready to hire when you can afford to pay for the entire salary, can offer a stable workplace, and are prepared to meet your employer duties. This hiring first employee UK guide covers cash flow, payroll registration, paperwork and the first payday, as well as pensions.
A first employee is a person who will address a problem that is clear and ongoing. Identify the work they will take over before you advertise and how that will benefit the business.
Busy doesn't necessarily mean you need a permanent hire. It may be a temporary rush, a poorly designed process or work that requires expert assistance for just a few hours a month.
Record the things you would like someone to do in a typical week. Estimate time needed and determine who will train and supervise them.
If an owner is spending 15 hours a week on customer enquiries and order administration, for instance, he or she might need to hire a part-time administrator at the beginning. A full-time position may cause unnecessary stress when there is not enough appropriate work.
Ask yourself:
Are there sufficient recurring hours for the proposed hours?
Will the employee have an impact on increasing capacity, improving services or releasing valuable time?
Can the business fund the role while the person learns the job?
Have you allowed time for training and supervision?
Think about how successful you will be at the end of 3 months. This could be reduced enquiries that are not answered, faster order turnaround or more time for the owner to attend customers.
When it comes to making a decision, reliable figures can make the process easier. Knowing the fundamentals of bookkeeping for UK small businesses is useful for determining if there's been consistent growth to warrant continued involvement.
Gross pay should not be the only component of your budget; include employer contributions, equipment and administration. The advertised salary is but a fraction of the cost.
The example below makes assumptions about an annual salary of £30,000 and how it is treated by the employer for National Insurance purposes, and that the pension is based on the qualifying earnings.
| Cost beyond salary | Illustrative annual amount | What to include in your budget |
|---|---|---|
| Gross salary | £30,000 | The employee’s pay before deductions |
| Employer National Insurance | Approximately £3,750 before relief | Based on the annual £5,000 threshold and standard 15% rate |
| Employer pension contribution | £712.80 | Assumes 3% of qualifying earnings above £6,240 |
| Payroll administration | Obtain a quote | Setup, calculations, submissions and year-end work |
| Equipment and software | Depends on the role | Computer, licences, security and replacements |
| Recruitment and training | Depends on your approach | Advertising, induction and management time |
| Insurance and absence cover | Depends on the business | Additional premiums and temporary cover where needed |
The salary, estimated employer National Insurance and pension contribution total approximately £34,462.80, before the other costs.
In 2026/27, the employer will be able to claim up to £10,500 in Employment Allowance from their employer's National Insurance. Make sure to confirm eligibility before making a cut. The actual amount of payroll may vary from the annual estimates due to thresholds for pay periods and rounding. Check HMRC's employer rates and thresholds. See HMRC’s employer rates and thresholds.
The pension estimate assumes the typical minimum employer contribution and the latest qualifying earnings range. Some schemes assess contributions in a different way or may call for more contributions.
Don't pay a salaried employee for two paid holidays: It's usually a part of their pay and is not a new holiday. There may be an indirect cost, if someone else is being paid to take the place of the absentee.
If you are required to register for PAYE, do so before the first payday. Collect employee information and double check first calculation before arranging payroll.
You can register within two months of beginning to pay people with HMRC. Submit the official Register as an employer service and save your PAYE references securely when they are submitted.
Use the appropriate software to handle your own payroll or payroll providers to do it for you. In any case, there must be someone who has to provide information, check calculations and make payments.
The amount of money they are required to pay out.
The reporting hours, overtime and expenses deadline.
Who checks and authorizes payroll.
The person who is responsible for sending payroll data to HMRC.
Who funds the employee, it's HMRC and the pension provider.
This is a separate task. A provider who does the calculations for wages does not necessarily mean that it will also transfer the wages.
Payroll Services for Small Businesses: Be careful when comparing payroll. Inquire if they provide assistance with new members, additional pay runs, corrections, and pension administration.
When the business owner and provider have a clear agreement, there is less of a chance that a task will be missed.
Some of the elements of your employee checklist should include role, employment agreement, working conditions and wages. Assign deadlines and owners to work tasks.
Define the role. Verify responsibilities, working time, place, reporting, expectations.
Check employment status. What really counts is the working relationship – don't let a label in an agreement define a person's status.
Complete right-to-work checks. Perform the necessary test prior to employment and keep the necessary documentation.
Check the pay rate. Verify that the requirements for the minimum wage are met, including working time.
Prepare written terms. Include pay, hours, holiday, notice and other necessary details. Look at the rules for the appropriate UK jurisdiction.
Arrange insurance. Determine if Employers' Liability insurance is needed and arrange appropriate cover.
Assess pension duties. Review and implement the appropriate scheme, communication, and contributions.
Prepare the workplace. Handle and secure equipment, access, health and safety, and personal information.
Take the employee’s proper personal information, beginning date, agreed pay, and bank account information safely.
Ask for their P45 (where available) or HMRC's starter checklist (where applicable). The P46 was replaced with the starter checklist. Falsely predicting a starter declaration can cause inaccurate tax deductions.
Describe the procedure for employees to follow when changes occur, e.g. a new bank account or address. Review sensitive changes to payment before payroll update, using a trusted process.
Follow a consistent process linking staffing costs, payroll deadlines and cash flow. Check out the job as you're getting comfortable in the position.
Begin with a cash forecast which includes wages, employer contributions, and other business obligations. Simulate the consequences of a key customer's late payment and of sales that are lower than desired.
Even if it is a profitable month, you may not have enough cash on your payday. Customer bills could not have been paid and wages, rent and supplier bills are still outstanding.
Establish a payroll cut-off and adhere to one agreed method for notifying of changes. When it comes to overtime or unpaid hours, it's easy to lose track of hours in multiple messages.
Check the draft against the employment contract and records before authorising payroll. Try to find the root cause of unexpected changes instead of taking it on faith that the software is OK.
Review during the first 3 months:
Whether the salary costs are in-line with budget.
If the work is done within the agreed hours.
The level of training and supervision needed.
Availability of appropriate equipment and information to the employee.
If the business has been sold or taken over, whether the existing pressure has been alleviated.
Take brief notes about improvements. A problem may be solved with less hours, if it's possible, with a clearer process or with better training.
To help you get it ready and continue with the calculations as you go, our payroll service for UK businesses can help you get ready for your first pay day.
May a sole trader have an employee?
Yes. A sole trader may have employees but not register as a limited company. There are still other employer duties to comply with, such as PAYE compliance, workplace pensions, insurance, and employment rights. Put the employee's total expense in your business budget before you agree to hire the employee.
Will there be no employer National Insurance if I claim the Employment Allowance?
It can cover your liability, subject to eligibility and the amount of liability remaining. Employment Allowance is £10,500 for 2026/27. It's not an exemption from payroll reporting or from any employee deductions or pension contributions.
When I have one employee, should I outsource my payroll?
This naturally varies according to your time and confidence as well as the nature of the employment commitments. You can enter information and approve the results, while the provider does the calculations and agrees to the results. Read the full service offering and the time and cost to complete the services and not just the monthly rate.
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