Hiring your first employee is a big step in growing any small business. You will need to register as an employer with HMRC, run payroll, set up a workplace pension and issue compliant payslips.
It is easier than it might seem, as long as you complete each step in the right order. This step-by-step guide explains what you need to do, based on the current rules published on Gov.UK.
Steps To Consider Before You Hire Your First Employee
Step 1: Make Sure You’re Legally an Employer
First, check that the person you are taking on is actually an employee and not a self-employed contractor. Generally, if someone works regularly under your control and direction, and does not take on business risk or profit in their own right, they are likely to be an employee. Getting employment status wrong can leave you with backdated tax and National Insurance bills.
If you are the director of a limited company and pay yourself a salary, the company is your employer and must register for PAYE, even if you are the only director and have no other staff.
Step 2: Register As An Employer With HMRC (PAYE)
This is an essential step because you cannot pay anyone through payroll without it.
When to register: You must register before your first payday. HMRC will send your employer PAYE reference number to you by letter, not by email. You cannot register more than two months before you start paying people, but do not leave it too late, as the letter can take some time to arrive.
Who needs to register: You normally need to register as an employer as soon as you start employing staff. In practice, you must register if an employee is paid £129 a week or more (2026/27), receives expenses or benefits, or has another job or a pension. Even if none of these apply, you must still keep payroll records.
How to register: Register through the GOV.UK “Register as an employer” service. You will need a Government Gateway login, or you can create one during the process. Have your business details, your company registration number (if you have one) and the date you plan to first pay your employee ready. Once you are registered, HMRC will send you two key payroll references:
Your Employer PAYE reference
Your Accounts Office reference
You will need these references to run payroll and send a Full Payment Submission (FPS) to HMRC each time you pay an employee.
You will also need HMRC-recognised payroll software to calculate tax and National Insurance contributions. If running payroll sounds like a lot of work for a small business, you can hand it over to an accountant who offers payroll services.
Step 3: Understand National Minimum Wage Obligation
You must pay your employee at least the minimum wage for their age. The rates from 1 April 2026 are:
National Living Wage (age 21 and over): £12.71 per hour
Age 18 to 20: £10.85 per hour
Under 18s and apprentices: £8.00 per hour
The rates are set by the government each year, based on recommendations from the Low Pay Commission, and usually change on 1 April. Check the current rates on GOV.UK whenever you set or review pay.
Step 4: Set Up a Workplace Pension (auto-enrolment)
All UK employers have a legal duty to provide a workplace pension scheme and to automatically enrol eligible staff. Your duties start on the day your first employee starts work, and there is no exemption for new or small businesses.
Who must be auto-enrolled: An employee must normally be auto-enrolled if they:
are aged between 22 and State Pension age
earn more than the earnings trigger
usually work in the UK
The earnings trigger for the 2026/27 tax year:
The earnings trigger for automatic enrolment is £10,000 a year. Contributions are based on the qualifying earnings band of £6,240 to £50,270 a year.
The minimum total contribution is 8% of qualifying earnings, of which the employer must pay at least 3%. You can choose to contribute more.
You can postpone automatic enrolment for up to three months, as long as you write to the employee to tell them. You must also complete a declaration of compliance with The Pensions Regulator within five months of your duties start date.
The earnings thresholds are reviewed by the government each year, so check them every April.
Step 5: Issue Compliant Payslips
By law, all employees and workers, including part-time, casual and zero-hours staff, are entitled to an itemised payslip on or before each payday. This right comes from the Employment Rights Act 1996, and an employer who fails to provide payslips can face an employment tribunal claim, even if the pay itself is correct.
As a minimum, every payslip must show:
Gross pay: the total earned before any deductions, including salary, allowances, commission, overtime and bonuses
Net pay: the take-home amount after deductions
Variable deductions, itemised separately, such as Income Tax, National Insurance and Student Loan repayments
Fixed deductions, which can be shown as a single total if you have given the employee a written statement listing them
Hours worked, if pay varies depending on the time worked (for example, hourly-paid staff)
It is also good practice (though not a legal requirement) to show the tax code, employee and employer pension contributions, the pay period and your employer PAYE reference. Employees often need these details for mortgage or loan applications.
Step 6: Track and Do Not Miss Deadlines
Once your first employee is on the payroll, your ongoing tasks will include:
Sending a Full Payment Submission to HMRC on or before each payday
Paying PAYE tax and National Insurance to HMRC by the 22nd of the following month (if paying electronically), and paying pension contributions to your provider on time
Keeping payroll records for at least three years after the end of the tax year they relate to
Checking pension eligibility each pay period, as it can change if earnings vary
Checking minimum wage rates and auto-enrolment thresholds every April
Getting It Right the First Time
Taking on your first employee is exciting, but payroll comes with legal pitfalls. Mistakes with PAYE registration, pension auto-enrolment or payslips can lead to penalties, tribunal claims and a loss of trust with your new employee.
If you would rather focus on growing your business than keeping up with HMRC deadlines and pension thresholds, let Lexarox Accounts set up your PAYE scheme, manage your workplace pension duties and produce accurate, compliant payslips every pay period, from day one. Whether you are hiring your first employee or your fifth, you are in safe hands.
Email info@lexaroxaccounts.co.uk today and get your first hire right from the start.
Lexarox Accounts, Unit 128, 203-213 Mare Street, Hackney, London E8 3JS
Tel: 020 8533 1358 | WhatsApp: 07472 356282 | Email: info@lexaroxaccounts.co.uk
Conclusion
Hiring your first employee is an exciting milestone, but it comes with real responsibilities: registering for PAYE, setting up a workplace pension and providing accurate payslips.
Getting these steps right keeps you compliant and gives your new employee confidence from day one.
With the right payroll system and expert support from Lexarox Accounts, you can focus on growing your business, knowing your employee is paid accurately and on time.
Frequently Asked Questions
When should I register as an employer with HMRC?
Before your first payday, but no more than two months before you start paying people. Register early, as your PAYE reference is sent by post.
Do I have to register for PAYE if I only have one employee?
Usually, yes. You must register if your employee is paid £129 a week or more (2026/27), or receives expenses or benefits, or has another job or a pension. Limited companies must register even if the only employee is the director.
What is the UK minimum wage for 2026/27?
The National Living Wage for workers aged 21 and over is £12.71 an hour from 1 April 2026. Lower rates apply to workers under 21 and to apprentices.
Do I have to put my first employee in a workplace pension?
Yes, if they are eligible. Employees aged 22 to State Pension age who earn over £10,000 a year and work in the UK must be automatically enrolled. Employees who do not meet these criteria may still have the right to opt in or ask to join.
What information must a payslip include?
Every payslip must show gross pay, net pay and deductions. If pay varies with the number of hours worked, it must also show the hours worked.
How often do I have to report payroll to HMRC?
You need to make a Full Payment Submission (FPS) to HMRC on or before each payday.
How long should I keep payroll records?
You must keep payroll records for at least three years after the end of the tax year they relate to.
Can an accountant run payroll for my first employee?
Yes. An accountant can handle everything from PAYE registration to payroll calculations, RTI submissions, pensions and payslips, keeping you compliant from day one.
