Payroll for 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, and deducting the correct tax and National Insurance before you make your first payment. Get this right before day one — not after.
Register as an employer with HMRC
Before you pay anyone, you need to register as an employer with HMRC. Do this as soon as you know you are taking someone on, ideally at least two weeks before the first payday. HMRC will issue you a PAYE reference number and an Accounts Office reference, both of which you will need to submit payroll reports.
You register online through the Government Gateway. If you are a sole trader or director paying yourself a salary for the first time, the same registration applies.
Understand what you owe on each payslip
Every time you run payroll, three main deductions and contributions are in play.
Income tax is deducted from the employee's gross pay using a tax code issued by HMRC. Most employees start on a standard 1257L code, which reflects the £12,570 personal allowance — the amount they can earn before income tax applies. Above that, they pay 20% on earnings in the basic-rate band, 40% in the higher-rate band, and 45% on any earnings above the additional-rate threshold. Your payroll software calculates this automatically once you enter the correct tax code.
Employee National Insurance is deducted at 8% on earnings between the lower and upper earnings limits, and 2% on anything above the upper limit. Again, your software handles the calculation — you just need to make sure the employee's category letter is correct. Most employees are category A.
Employer National Insurance is your cost, not the employee's. You pay 13.8% on earnings above the secondary threshold. This is on top of the gross salary you agreed, so factor it into your total employment budget from the start. If you have not done this, the bill can be a surprise.
Set up auto-enrolment from day one
Under automatic enrolment rules, most employees must be enrolled in a qualifying workplace pension. As the employer, you contribute a minimum of 3% of qualifying earnings. The employee contributes a minimum of 5%. You deduct the employee's contribution through payroll and pay both contributions to the pension provider.
Your staging date — or duties start date for new employers — determines when your obligations begin. For a new employer taking on a first employee, duties typically start on the first day that employee is paid. Choose a pension provider, set up the scheme, and enrol eligible employees on time. Failing to do so can result in fines from The Pensions Regulator.
Run payroll and report to HMRC in real time
The UK uses Real Time Information (RTI) reporting. This means you must submit a Full Payment Submission (FPS) to HMRC on or before every payday — not monthly, not quarterly, but each time you pay. The FPS tells HMRC what you paid each employee and what deductions you made.
You will need payroll software to do this. HMRC maintains a list of approved software, including some free options suitable for employers with a small number of employees. Commercial payroll software automates most of the calculations and the RTI submission.
At the end of the tax year, give your employee a P60 by 31 May. If they receive any benefits in kind — a company car, private medical insurance, and so on — you will also need to file a P11D with HMRC by 6 July and provide a copy to the employee.
Know your obligations beyond pay
Payroll is one part of employing someone. A few other obligations are worth knowing upfront.
Employees are entitled to 5.6 weeks of statutory paid annual leave per year — that is 28 days including bank holidays for someone working a standard five-day week. This is a legal minimum, not a discretionary benefit.
Statutory Sick Pay applies when an employee is off sick for a qualifying period. Statutory maternity, paternity, adoption and shared parental pay also apply in relevant circumstances. You handle these payments through your payroll.
The Employment Rights Act 2025 has strengthened day-one rights for employees, meaning protections that previously required a qualifying period now apply from the first day of employment. Review your contracts and policies to make sure they reflect the current position.
Finally, you must provide your employee with a written statement of particulars — commonly called an employment contract or written statement — on or before their first day. This is a legal requirement, not optional paperwork.
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