The moment everything changes
Hiring your first employee is one of the biggest operational shifts a small business goes through — suddenly you're not just running a business, you're an employer, with a specific set of legal and tax obligations that don't apply when it's just you (or you and co-founders as directors). None of it is complicated in isolation, but it's easy to miss a step if nobody's told you the full list.
1. Register as an employer
Before your new employee's first payday, you need to register with HMRC as an employer (this can take a couple of weeks to come through, so don't leave it until the last minute) and set up a PAYE scheme to handle their tax and National Insurance.
2. Run payroll properly
Once registered, you'll need to run payroll each pay period — calculating and deducting income tax and employee National Insurance, reporting this to HMRC in real time (known as Real Time Information, or RTI), and paying HMRC what's owed. Most businesses use payroll software for this rather than doing it manually — it's not somewhere you want to be improvising the calculations.
3. Understand employer National Insurance
As an employer, you pay employer's Class 1 National Insurance at 15% on salary above the secondary threshold of £5,000 a year, for 2026/27. This is a real cost on top of the salary itself, and it's worth building into what a new hire actually costs the business, not just their headline salary.
4. Claim the Employment Allowance
Most small employers can claim the Employment Allowance, currently £10,500, which reduces your employer National Insurance bill directly — for many small businesses hiring their first employee or two, this can wipe out most or all of the employer NI due for the year. It's not automatic — you need to actively claim it through your payroll software.
5. Set up workplace pension auto-enrolment
Almost every employer has automatic enrolment duties from an employee's first day, even with just one member of staff. The key figures for 2026/27:
- Earnings trigger for enrolment: £10,000 a year — above this, eligible employees must be automatically enrolled.
- Qualifying earnings band: £6,240 to £50,270 — contributions are calculated on earnings within this band.
- Minimum contribution: 8% of qualifying earnings in total, with the employer required to pay at least 3% and the employee making up the rest (typically 5%).
You'll also need to complete a declaration of compliance with The Pensions Regulator within five months of your first employee's start date, confirming you've met your duties — this applies even if the employee opts out.
6. Get the basics of employment right
Beyond the tax and pension side, there's a set of legal essentials: a written statement of employment particulars (a basic contract, effectively) from day one, right-to-work checks before they start, and clarity on statutory entitlements like holiday pay and statutory sick pay. These sit slightly outside accountancy as such, but they're worth having sorted alongside the payroll setup, not as an afterthought.
Bringing it together
None of this is difficult on its own, but it's a lot of new moving parts to get right simultaneously for the first time. We set this up for clients as a complete package — employer registration, payroll running each period, auto-enrolment compliance, and the Employment Allowance claimed — so hiring your first employee is a genuinely exciting step, not a stressful one.