Hiring your first employee is one of the most exciting milestones in a business’s journey. It is a sign of growth and a major step towards building a team. However, it also comes with a lot of new legal and financial responsibilities. For a first-time employer, the process can feel daunting.
This guide is written to give you a clear checklist to follow when you hire your first employee in the UK. By breaking the process down into manageable steps, you can ensure you meet all your obligations and get everything right from the start.
Step 1: Check Their Right to Work in the UK
Before you can employ someone, you have a legal responsibility to check that they have the right to work in the UK. You must do this for all employees, regardless of their nationality. This involves checking and taking copies of certain original documents, such as a passport or a birth certificate. The GOV.UK website has a detailed guide on which documents are acceptable.
Step 2: Decide on a Salary
You must pay your employee at least the National Minimum Wage or National Living Wage. The rate depends on their age. You should agree on a salary or hourly rate with your employee and confirm this in their employment contract.
Step 3: Get Employer’s Liability Insurance
As soon as you become an employer, you are legally required to take out Employer’s Liability insurance. This insurance helps you pay compensation if an employee becomes ill or is injured as a result of their work. You must have cover for at least £5 million. You can be fined for every day you are not properly insured.
Step 4: Register as an Employer with HMRC
Before your first payday, you must register as an employer with HM Revenue & Customs (HMRC). You can do this online, and it can take a few weeks to receive your PAYE reference numbers, so it is important to do this in good time.
You will need these reference numbers to run your payroll and pay HMRC.
In order to register your company for PAYE, you will need your ‘Company Unique Tax Reference’ Number (UTR) which will consist of a 10 digit number and your company’s Companies House Registration Number (which can be found publicly available on Companies House).
Step 5: Choose Your Payroll Software
You will need to have a system in place to run your payroll, calculate tax and National Insurance, and report to HMRC. Modern payroll software is the easiest way to do this. It will automatically calculate the deductions and generate the reports you need to send to HMRC. You must report your employees’ pay and deductions to HMRC on or before each payday.
Step 6: Gather New Employee Information
To set up your new employee on your payroll, you will need some information from them. This includes their full name, date of birth, and National Insurance number. You should also ask them for their P45 from their previous job (to see how much tax they have earned in the current fiscal year and to see what the employee’s current tax code is).
If they do not have a P45, you will need to ask them to complete a “starter checklist” from HMRC.
Without a P45, a new employee will most likely end up on an emergency tax code, which will be corrected automatically over the next couple of pay runs submitted to HMRC, when the employee’s correct Tax Code can be issued.
Step 7: Set Up a Workplace Pension
Under auto-enrolment rules, all UK employers must provide a workplace pension scheme for eligible employees.
You must automatically enrol any staff aged between 22 and State Pension age who earn over £10,000 a year. As the employer, you must also contribute to their pension.
Employees can opt out of the pension scheme once you have enrolled them, not before. If an employee does not want to pay into a pension after auto-enrolment, they must contact the pension provider directly to opt out.
The pension provider will give them an opt-out reference number. Your employee must provide this to you so you can update your payroll system and stop any contributions. If your employee made any contributions before opting out, they can claim a refund from the pension provider.
When Getting Advice Can Help
Hiring your first employee is a big step, and you are not expected to be an expert in employment law or payroll. Getting professional advice can be very helpful to ensure you have everything in place and are meeting all your legal responsibilities.
If you would like calm, practical support, Penney’s Accountancy works with UK small businesses in Farnborough and the surrounding areas. We can help you register as an employer, set up your payroll, and manage all your ongoing compliance, leaving you free to focus on managing your new team member.
Want to Learn More in Your Own Time?
For those who want to build their confidence and understand these topics in more detail, Penney’s Finance School offers an online, self-paced business and finance course. It covers everything from company setup to cash flow and tax, allowing you to learn at your own pace.
Important information
The information provided in this article is intended as general guidance for UK businesses only and reflects UK tax legislation and HMRC guidance as of February 2026.
Tax rules and business requirements can change, and individual circumstances vary. Before acting on any of the information above, we recommend speaking to a qualified accountant who can provide advice tailored to your specific situation.