Registering as an employer

Before you take on your first employee, you need to register with HMRC as an employer. This can take up to two weeks, so don't leave it until the day before payday. You'll receive an employer PAYE reference and an Accounts Office reference. You'll need these to report payroll and pay what you owe. If you're the sole director of a limited company and your only employee is yourself, you may not need to register — but the moment you hire someone else, registration is compulsory. You'll also need employers' liability insurance with cover of at least £5 million, which is a legal requirement in almost all cases. Check your policy before your new starter's first day.

Paying at least the minimum wage

Every worker aged 16 or over is entitled to the National Minimum Wage or National Living Wage. The rates depend on age and whether the worker is an apprentice. You must pay the correct rate for all time worked, including training, travel between assignments, and time spent on compulsory work-related activities. Common mistakes include deducting money for uniforms, tools, or accommodation in a way that pushes pay below the minimum, or paying apprentices the wrong rate once they turn 19 or finish their first year. Keep clear records of hours worked and pay for at least three years — HMRC can inspect them for up to six. Failing to pay the minimum wage can lead to penalties, back pay, and being publicly named.

Payslips and deductions

From day one, every employee must receive a payslip on or before payday. It must show gross pay, all deductions (with separate itemised amounts), and net pay. As an employer, you're responsible for operating PAYE. This means deducting income tax and employee National Insurance contributions from wages, then paying employer NICs on top. You must also handle statutory payments such as sick pay, maternity pay, and paternity pay when they apply. These aren't optional extras — they're legal entitlements. If you use payroll software, it will calculate most of this for you, but you still need to check that the right tax codes and NI categories are in place. Mistakes can be corrected later, but it's far easier to get it right first time.

Workplace pension enrolment

Even with just one employee, you have automatic enrolment duties. You must assess your staff, enrol those who are eligible into a pension scheme, and deduct contributions from their pay. The minimum total contribution is 8% of qualifying earnings, with at least 3% coming from you as the employer. Qualifying earnings are between £6,240 and £50,270 for the 2024/25 tax year. You must write to every worker explaining what's happening, and complete a declaration of compliance with The Pensions Regulator within five months of your duties start date. You can postpone enrolment for up to three months for new employees, but you must still write to them. Every three years you'll need to re-enrol eligible staff who opted out. Missing these deadlines leads to fixed penalties and daily fines.

Real Time Information reporting

Real Time Information (RTI) means you must report payroll to HMRC on or before every payday. You'll use payroll software to send a Full Payment Submission (FPS) showing each employee's pay, tax, and NI. If you haven't paid anyone in a tax month, you may need to send an Employer Payment Summary (EPS) instead. Late or missing submissions attract penalties. You must also pay the PAYE and NICs you owe to HMRC by the 22nd of the following month (or the 19th if paying by post). RTI is not optional — it's how HMRC tracks your employees' tax and benefit entitlements. Keeping accurate records for at least three years (six for some payroll records) will make any future check far less stressful.

Keeping good records and getting help

Good payroll records include wages, deductions, pension contributions, and hours worked. You'll also need to keep records of any statutory payments and your auto-enrolment communications. HMRC can ask to see these for up to six years, so a simple digital folder or payroll software backup is essential. If this feels like a lot, remember that you don't have to do it alone. Many small business owners use payroll software and an accountant or payroll bureau to handle the calculations and submissions. The key is to set up your systems before your first employee starts, not after. With the right processes in place, hiring your first employee can be a smooth and rewarding step for your business.