Setting Up HR From Scratch: A Founder's Guide
Making your first hire is one of the most significant moments in a business's life. It means your idea is real enough that someone else is willing to stake their livelihood on it. It also means you are now an employer — with legal obligations, tax responsibilities, and HR requirements that did not exist when it was just you.
This guide covers what you actually need to do, in roughly the order you need to do it.
Before Your First Employee Starts
Register as an employer with HMRC: Before you run payroll for the first time, you need to register as an employer. You can do this via HMRC's online service. You will receive a PAYE reference and accounts office reference, which you need to run payroll. Allow up to five working days for registration.
Check your right-to-work obligations: Before your employee starts work, you must check that they have the right to work in the UK. For British and Irish citizens, this means checking their passport or birth certificate. For other nationalities, it means checking their visa and any associated conditions. Record the check and keep a copy of the document. This must happen before their first day.
Issue an employment contract: Employees are entitled to a written statement of employment particulars from day one (previously two months). This does not need to be an elaborate document, but it must include: job title, start date, pay rate and payment frequency, hours of work, holiday entitlement, notice periods, and sick pay arrangements.
Set up payroll: Your employee needs to be paid correctly, with PAYE income tax and National Insurance calculated and deducted at source. These deductions must be paid to HMRC and reported via Real Time Information (RTI) on or before each pay day.
Enrol your employee in a pension: Auto-enrolment applies from the first day of employment for eligible employees (aged 22-State Pension Age and earning over the earnings trigger, currently £10,000 per year). You must enrol them in a qualifying pension scheme and contribute at least 3% of qualifying earnings. You cannot delay this.
Your First Months as an Employer
Run payroll on time, every time: Payroll errors damage trust quickly. Your employee needs to be paid accurately and on time, every month. If you are running payroll manually, be honest with yourself about whether you can sustain this as the business grows.
Keep records: You are required to keep payroll records for three years and employment records for generally longer. Keep everything organised from the start.
Write your basic HR policies: You need, as a minimum: a holiday policy (total entitlement, notice requirements, carry-over), a sickness absence policy (how to report sickness, sick pay provisions), and a disciplinary procedure. These do not need to be complex — they just need to exist and be given to employees.
Understand your ERA 2025 obligations: ERA 2025 changed the unfair dismissal qualifying period. Unfair dismissal still requires two years' service (six months from 1 January 2027); a fair, documented process during probation remains best practice. Have honest performance conversations and document them from the start.
The Most Common Founder Mistakes
Starting payroll before registering with HMRC: You need the PAYE reference before running payroll. Register early.
Skipping the right-to-work check: This is a criminal offence if not done. No exceptions, no shortcuts.
Treating the probation period as a free pass: ERA 2025 means you can still dismiss during probation, but you need documented grounds. Informal conversations are not enough.
Using the wrong employment status: If you think you are engaging a contractor but HMRC thinks you have an employee, the financial consequences are significant. Get status determinations right from the start.
Not auto-enrolling immediately: Auto-enrolment applies from day one. Delaying it creates liability.
Making It Simple With Mellow
You do not need to be an HR expert or an accountant to get this right. Mellow handles payroll, pension auto-enrolment, right-to-work checks, contract storage, and HR records in one place. You set it up once, and it runs correctly every month.
For your first hire, Mellow's onboarding flow walks you through each step: employee details, right-to-work, contract generation, pension enrolment, payroll setup. It takes a few hours, not a few days.
If you are also setting up your business finances for the first time, Accounted handles bookkeeping, VAT, and payroll reconciliation — and connects with Mellow so payroll data flows directly into your accounts.
[Start a free trial of Mellow](https://mellowhr.com/trial) — get HR right from your very first hire.
Related reading: How to run payroll for the first time | Right to work checks — employer guide | Auto-enrolment pension obligations | The ERA 2025 unfair dismissal qualifying-period change