It’s a milestone moment: the business has grown beyond what you can do alone, and it’s time to hire your first employee. It’s also the moment your legal obligations multiply. Here’s how to hire your first employee in the UK: every legal requirement in order, the costs beyond the salary, and the practical advice that makes the first hire a success rather than a regret.
I’ve watched first hires go brilliantly (the business doubled in a year) and badly (an expensive, stressful mess). The difference was rarely the person — it was the preparation. Employers who set up payroll, contracts, and expectations properly before day one almost always succeed; those who “figure it out later” almost always struggle. Let’s prepare properly.
How to Hire Your First Employee in the UK
1. Register as an employer with HMRC
Before your employee’s first payday, register for PAYE with HMRC — do it online, and allow up to 5 working days (though it’s often faster). You’ll receive an employer PAYE reference and an Accounts Office reference. You can’t run payroll without these. (Sole traders: yes, you can employ people — you just operate PAYE alongside your Self Assessment.)
2. Get employers’ liability insurance (£5m minimum)
Legally required from the moment you employ anyone — with fines of £2,500 per day without it. Costs roughly £100–£300/year for a first employee in a low-risk business. Arrange it before the start date, and display the certificate where employees can see it (digital display is now acceptable).
3. Check the right to work
You must verify every employee’s right to work in the UK before they start — with fines up to £60,000 per illegal worker for getting it wrong. Use the Home Office online checking service or check physical documents from the official lists (passport, biometric residence permit, etc.). Keep copies securely. Do it for everyone — selective checking is discrimination.
4. Issue a written statement of employment (day one)
You’re legally required to give employees a written statement of terms on or before their first day, covering: job title and description, start date, pay and pay frequency, hours, holiday entitlement, sick pay, notice periods, disciplinary procedures, and pension arrangements. The full written contract must follow within 2 months. Don’t use a random internet template for anything beyond the basics — an employment solicitor or HR adviser reviewing your first contract (£200–£500) is money well spent.
5. Set up payroll (RTI)
You must report pay to HMRC on or before every payday via Real Time Information (RTI) — using payroll software (FreeAgent, QuickBooks, Xero, Sage, or HMRC’s free Basic PAYE Tools). Payroll deducts Income Tax and employee National Insurance, and you pay employer National Insurance on top (15% above the threshold — a significant cost; see below). File RTI accurately and on time — penalties apply.
6. Enrol them in a workplace pension (auto-enrolment)
Under auto-enrolment, you must enrol eligible employees (aged 22 to State Pension age, earning over £10,000/year) into a qualifying workplace pension and contribute a minimum 3% of qualifying earnings (employee contributes 5%). Choose a scheme (NEST is the government-backed default — free to set up; The People’s Pension and Smart Pension are alternatives), enrol the employee, and handle opt-outs correctly. The Pensions Regulator fines non-compliance — and they do check.
7. Pay at least the National Minimum Wage
Check current rates at gov.uk — they rise every April, with different bands for age groups (under-18, 18–20, 21+). The rates apply to every hour worked — including unpaid overtime, travel time between appointments, and training. HMRC investigates underpayment proactively, and the penalties (200% of arrears) plus public naming-and-shaming are severe. When in doubt, pay above the minimum — the best small businesses do.
8. Know the basic employment rights
From day one, employees have rights including: paid holiday (5.6 weeks/year pro-rata — that’s 28 days for full-time, including bank holidays), rest breaks, maternity/paternity rights, protection from discrimination, and statutory sick pay eligibility. After 2 years’ service, unfair dismissal protection applies (with some exceptions). Our gov.uk employing staff overview is the authoritative reference — bookmark it.
The True Cost of an Employee (Beyond the Salary)
A £28,000 salary costs you significantly more. Budget for:
- Salary: £28,000
- Employer National Insurance (~15% above threshold): ~£3,300
- Pension (3% minimum): ~£800
- Employers’ liability insurance: ~£200
- Recruitment costs: £0 (DIY) to £3,000+ (agency at 15–20% of salary)
- Equipment, training, onboarding: £500–£2,000
- Payroll software/accountant time: £200–£500/year
- Total first-year cost: roughly £33,000–£37,000 for a £28,000 salary.
Rule of thumb: budget 1.2–1.3× the salary for the true cost. And the employee needs to generate roughly 2–3× their cost in value to be a good hire (covering their cost, your management time, and profit). If the maths doesn’t work, consider alternatives first (below).
Finding the Right Person
- Write a real job description: specific duties, required vs nice-to-have skills, salary range (advertising the salary gets 30%+ more applicants — and it’s increasingly expected). Be honest about the realities of a small business — no corporate ladder, lots of variety, direct impact.
- Where to advertise: Indeed and LinkedIn (broad reach), local Facebook groups and Gumtree (local roles), industry-specific boards (targeted), your own network (best source — employee referrals consistently produce the best hires).
- Interview properly: structured questions asked of every candidate (fairness + comparability), a practical task relevant to the role (the best predictor of performance), and a trial half-day paid if appropriate. Check references — actually call them.
- Sell the role too: good candidates have options. Flexibility, autonomy, direct mentorship, and genuine impact are advantages small businesses have over corporates — lead with them.
- Consider apprenticeships: government funding covers 95–100% of training costs for apprentices, and you get motivated talent you train your way. Worth serious consideration for trainable roles.
Alternatives to Hiring (Consider First)
- Freelancers/subcontractors: no PAYE, no pension, no employment rights — flexible and fast. But check IR35/employment status rules carefully; HMRC penalises disguised employment. Genuine freelancers (multiple clients, own equipment, control over how they work) are fine.
- Part-time employee: all the same legal obligations apply, but lower cost and commitment. Often the right first step.
- Automation/outsourcing: can software or a virtual assistant handle the workload? A £50/month tool sometimes replaces a £2,000/month hire.
- Delay and systematise: document your processes first — hiring into chaos just creates two chaotic people. The business should be ready for an employee, not just desperate for one.
Making the First Hire Succeed
- Onboard properly: first-day plan, first-week goals, first-month milestones. The biggest predictor of early retention is whether the new hire felt prepared-for and welcomed.
- Set clear expectations: what does good look like? How will you measure it? Review at 1 month, 3 months, 6 months.
- Communicate constantly at first: daily check-ins for the first two weeks, then weekly. Small businesses fail new hires through neglect, not malice.
- Handle problems early: the probation period exists for a reason — address issues in weeks, not months.
- Keep records: holidays, sickness, performance notes, training — our record-keeping principles apply to people as well as money.
Hiring your first employee is the moment you stop being self-employed and start building a business. Get the legal foundations right before day one, budget the true cost honestly, hire for attitude and train for skill, and invest in the relationship from the start. Done well, the first hire is the highest-ROI decision you’ll ever make. For ongoing obligations as you grow the team, gov.uk’s employing staff hub remains your authoritative reference.
Before advertising the role, make sure you’ve budgeted the full cost with our guide to what taxes a small business pays — employer National Insurance catches many first-time hirers out — and review what insurance your business needs, since employers’ liability cover is legally required from day one.
