Hiring Your First Employee: A Complete UK Guide

By David Williams · Last updated 2026-06-08

Is It Time to Hire?

Hiring your first employee is a major milestone — and a significant responsibility. Before you hire, be honest about whether you genuinely need a full-time employee or whether the work could be done by a freelancer, contractor, or part-time worker. Each option has different legal, tax, and cost implications.

Consider hiring when:

• You have consistent, ongoing work that exceeds your capacity

• The work requires someone to be available during specific hours

• You need someone to represent your business to customers

• The work requires training and institutional knowledge that a contractor cannot build

Consider alternatives when:

• The work is project-based or seasonal

• You need specialist skills for a short period

• You are not yet sure if the demand is sustained

The True Cost of an Employee

Many first-time employers underestimate the true cost of an employee. The salary is just the starting point.

On top of the gross salary, you will pay:

• Employer National Insurance: 15% on earnings above the £5,000 annual secondary threshold

• Employer pension contributions: Minimum 3% of qualifying earnings under auto-enrolment

• Employers' liability insurance: £60–£200/year (legally required)

• Recruitment costs: Job boards, agency fees (typically 10–20% of first year salary), time spent interviewing

• Training and onboarding: Equipment, time, courses

• Holiday pay: Minimum 28 days (including bank holidays) for a full-time employee

• Sick pay: Statutory Sick Pay (SSP) of £116.75/week (2024/25) for up to 28 weeks

• Maternity/paternity pay: Statutory Maternity Pay (SMP) of 90% of average weekly earnings for 6 weeks, then £184.03/week for 33 weeks

Rule of thumb: Budget 1.3–1.5x the gross salary for the true cost of employment.

Before You Hire: Legal Preparations

1. Register as an Employer with HMRC

You must register as an employer with HMRC before you pay your first employee. Do this at least 2 weeks before the first payday.

• Go to gov.uk and search "register as an employer"

• You will receive an Employer PAYE reference number and an Accounts Office reference number

• You need these to set up payroll and pay HMRC

2. Get Employers' Liability Insurance

Legally required before your first employee starts. Must provide at least £5 million of cover. Keep the certificate and display it at your workplace (or make it available digitally). Fine for non-compliance: £2,500 per day.

3. Set Up a Payroll System

You need payroll software to calculate and report PAYE (Pay As You Earn) tax and National Insurance. Options include:

• HMRC Basic PAYE Tools: Free software from HMRC, suitable for up to 10 employees

• Xero Payroll: Integrated with Xero accounting (£5/employee/month)

• QuickBooks Payroll: Integrated with QuickBooks (£4/employee/month)

• Sage Payroll: Comprehensive payroll software (£8–£15/month)

• Outsourced payroll bureau: Many accountants offer payroll services (£5–£20/employee/month)

4. Enrol in Auto-Enrolment Pension Scheme

All employers must automatically enrol eligible employees into a workplace pension scheme. Eligible employees are those aged 22–state pension age earning over £10,000/year.

• Minimum contributions: Employer 3% + employee 5% of qualifying earnings

• Qualifying earnings band (2024/25): £6,240–£50,270

• Pension providers: NEST (free, government-backed), The People's Pension, Aviva, Legal & General

You must enrol employees from their first day of employment. Failure to comply can result in fines from The Pensions Regulator.

The Recruitment Process

Writing a Job Description

A good job description:

• Clearly states the job title and reporting structure

• Lists the key responsibilities (5–10 bullet points)

• Specifies required qualifications, skills, and experience

• States the salary range, location, and hours

• Describes your company culture and benefits

Tip: Be honest and specific. Vague job descriptions attract unsuitable candidates and waste everyone's time.

Advertising the Role

Free options:

• Indeed (free basic listings)

• LinkedIn (free basic listings)

• GOV.UK Find a Job (free)

• Your own website and social media

• Local Facebook groups

Paid options:

• Indeed Sponsored Jobs (pay per click, typically £50–£200/month)

• LinkedIn Premium job postings (£200–£500/month)

• Industry-specific job boards

• Recruitment agencies (10–20% of first year salary, no upfront cost)

Shortlisting and Interviewing

• Review CVs against your job description criteria

• Shortlist 3–6 candidates for interview

• Prepare structured interview questions (same questions for all candidates to ensure fairness)

• Include at least one practical element (a work sample, case study, or skills test)

• Take notes during interviews

• Check references before making an offer

Making an Offer

Make a verbal offer first, then follow up with a written offer letter. The offer letter should include:

• Job title and start date

• Salary and payment frequency

• Hours of work

• Holiday entitlement

• Notice period

• Any conditions (e.g., satisfactory references, right to work check)

Legal Requirements Before the First Day

Right to Work Check

You must check that every employee has the legal right to work in the UK before they start. Failure to do so can result in a civil penalty of up to £20,000 per illegal worker.

How to check:

• Ask for original documents (passport, biometric residence permit, share code)

• Check the documents are genuine and belong to the person

• Keep a copy of the documents

• For non-UK/Irish nationals, use the Home Office online checking service

DBS Checks

A Disclosure and Barring Service (DBS) check reveals criminal convictions. Required for roles involving work with children or vulnerable adults, and recommended for roles involving access to sensitive data or finances.

• Basic DBS: Shows unspent convictions (£18)

• Standard DBS: Shows spent and unspent convictions, cautions, reprimands (£38)

• Enhanced DBS: As above plus any relevant police information (£38)

The Employment Contract

You must provide a written statement of employment particulars (effectively an employment contract) on or before the employee's first day. Since April 2020, this must be provided from day one (previously it was within 2 months).

The contract must include:

• Names of employer and employee

• Start date and, if applicable, end date (for fixed-term contracts)

• Pay and payment frequency

• Hours of work (including any flexibility)

• Holiday entitlement

• Sick pay entitlement

• Notice period (both employer and employee)

• Job title or description

• Place of work

• Any probationary period and conditions

Recommended additional clauses:

• Confidentiality and non-disclosure

• Intellectual property ownership

• Restrictive covenants (non-compete, non-solicitation — must be reasonable to be enforceable)

• Disciplinary and grievance procedures

• Data protection acknowledgement

Where to get a contract: Use a solicitor (£200–£500 for a bespoke contract), an HR platform (BrightHR, Breathe HR), or a reputable template from ACAS or a professional HR service.

Ongoing Employer Obligations

Payroll

• Run payroll on each payday (weekly, fortnightly, or monthly)

• Calculate Income Tax (PAYE), employee NI, and employer NI

• Submit a Full Payment Submission (FPS) to HMRC on or before each payday

• Pay HMRC the PAYE and NI owed by the 19th of the following month (22nd if paying electronically)

• Provide payslips to employees on or before each payday (required by law)

Holiday

• Minimum entitlement: 5.6 weeks per year (28 days for a 5-day week, including bank holidays)

• You can include bank holidays within the 28-day entitlement

• Employees accrue holiday from day one

• Holiday pay must be at least the employee's normal rate of pay

• Unused holiday can be carried over in limited circumstances (e.g., during sick leave or maternity leave)

Statutory Sick Pay (SSP)

• Payable from the 4th day of absence (the first 3 days are "waiting days")

• Rate: £116.75/week (2024/25)

• Payable for up to 28 weeks

• You cannot reclaim SSP from HMRC (except in limited circumstances)

Performance Management

• Conduct regular 1:1 meetings and annual appraisals

• Address performance issues early and informally before they escalate

• If formal action is needed, follow a fair disciplinary process (ACAS Code of Practice)

• Keep written records of all performance conversations and disciplinary actions

Dismissal

Employees have the right not to be unfairly dismissed after 2 years of continuous employment. Before dismissing an employee, you must:

• Have a fair reason (capability, conduct, redundancy, statutory restriction, or some other substantial reason)

• Follow a fair procedure (investigation, disciplinary hearing, right of appeal)

• Give appropriate notice (or pay in lieu of notice)

Unfair dismissal claims at an Employment Tribunal can result in compensation of up to £115,115 (2024/25). Always take HR or legal advice before dismissing an employee.

Key Employment Law Resources

• ACAS (Advisory, Conciliation and Arbitration Service): acas.org.uk — free guidance on all employment law matters

• GOV.UK: gov.uk/browse/employing-people — official government guidance

• CIPD: cipd.co.uk — HR professional body with extensive resources

• Employment Tribunal: If a dispute cannot be resolved, employees can bring claims to an Employment Tribunal. Early conciliation through ACAS is required before a claim can be lodged.