How to hire your first employee in the United Kingdom
Reviewed by Mellow Editorial Team, HR & payroll content team
Hiring your first employee in the UK means registering as an employer with HMRC, setting up payroll, issuing a written contract, and meeting a handful of statutory obligations before the person's first day. Get these steps right and you avoid penalties; miss them and the consequences range from fines to tribunal claims.
Register as an employer with HMRC
Before you pay anyone, you need to register as an employer. Do this through HMRC's online service — you can register up to four weeks before you make your first payment. HMRC will send you a PAYE reference number and an Accounts Office reference. Keep both safe; you will use them on every payroll submission.
If you are a sole trader or a limited company director paying yourself a salary for the first time, this step applies to you too.
Set up payroll before the first payday
You must run payroll using HMRC-recognised software — either commercial payroll software or HMRC's own Basic PAYE Tools. Your software needs to calculate:
- Income tax under PAYE, using the employee's tax code. The personal allowance is £12,570; earnings above that are taxed at 20% (basic rate), 40% (higher rate), or 45% (additional rate).
- Employee National Insurance at 8% on earnings within the standard band, and 2% above the upper earnings limit.
- Employer National Insurance at 13.8% on earnings above the secondary threshold — this is your cost on top of the salary.
Under Real Time Information (RTI), you must submit a Full Payment Submission (FPS) to HMRC on or before every payday. Missing this deadline triggers automatic late-filing notices, so build submission into your payroll routine, not an afterthought.
At the end of the tax year, issue a P60 to every employee still on your books by 31 May. If you provide taxable benefits in kind — a company car, private medical cover and so on — file a P11D for each employee by 6 July.
Issue a contract and a written statement of particulars
Every employee is entitled to a written statement of employment particulars from day one. This is a legal requirement under the Employment Rights Act, not a courtesy. It must cover:
- Job title and start date
- Pay rate and pay frequency
- Hours of work
- Holiday entitlement
- Notice periods
- Sick pay arrangements
On statutory annual leave: a full-time employee working five days a week is entitled to 5.6 weeks (28 days) per year, including bank holidays. Part-time entitlement is pro-rated.
The Employment Rights Act 2025 has strengthened day-one rights further, so even in a probationary period your employee has meaningful legal protections. Take legal advice if you want a probation clause that reflects current law.
Enrol the employee into a workplace pension
If your new hire is aged between 22 and State Pension age, earns above the earnings trigger, and works in the UK, you must auto-enrol them into a qualifying workplace pension scheme. You need to have a scheme chosen and ready before their start date, not after.
The minimum contributions under auto-enrolment are 3% from you (the employer) and 5% from the employee, both calculated on qualifying earnings. You can contribute more; you cannot contribute less. You also have duties to write to the employee explaining their enrolment rights and to keep records of your compliance.
If the employee asks to opt out, they can — but you must not encourage them to do so, and you must re-enrol eligible employees every three years.
Check the right to work, get employer's liability insurance, and think about tax status
Three things that are easy to forget in the rush of onboarding:
Right to work. You are legally required to check that your new employee has the right to work in the UK before they start. Keep a copy of the documents you checked and the date you checked them. Getting this wrong can result in a civil penalty.
Employer's liability insurance. The moment you take on an employee, you are legally required to hold employer's liability insurance to a minimum level. Display the certificate where employees can see it (or make it accessible digitally).
Employment status. Make sure you are genuinely taking someone on as an employee, not misclassifying a worker or self-employed contractor. HMRC's Check Employment Status for Tax (CEST) tool can help, but the substance of the working relationship is what matters. If HMRC later determines you should have been running PAYE, you will owe the tax and NI — plus interest and penalties.
If you are hiring across borders or want to understand how payroll works when your team is distributed, how Mellow runs payroll across six countries gives a practical overview of the moving parts.
Keep records from day one
Good record-keeping is not bureaucracy for its own sake. HMRC can inspect your payroll records, and an employment tribunal can request documentation going back years. At minimum, keep:
- Payroll records and RTI submissions
- Right-to-work check evidence
- Pension enrolment records and correspondence
- The signed contract and any amendments
HMRC generally expects you to retain payroll records for at least three years after the end of the tax year they relate to. Pension records have their own retention requirements under The Pensions Regulator's rules. Store records securely and make sure you can retrieve them quickly if challenged.
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