Hiring your first employee is a big step. It usually means the business has outgrown what one person can handle. It also introduces new legal, tax, and HR responsibilities that you cannot ignore.
This ByteStart guide is for UK sole traders and small limited companies, and takes you step by step through what to do before, during and after hiring a new employee.
What’s in this guide?
1. Deciding if you are ready to hire
Be clear on the problem you are hiring to solve. List the tasks you want to hand over and how many hours they actually take. If the work is irregular, a freelancer or short contract might be better.
If demand is steady and growing, a part-time or full-time hire can make sense.
Stress test your cash flow. You need room to cover salary and the extras for at least a few months.
If the numbers only work for a perfect month, it might not be the right time to take on a new employee.
There are numerous hidden costs – beyond the salary and related employment taxes, including equipment, software licences, training, and the time spent training up a new staff member.
2. Insurance and pre-hire checks
Employer’s liability insurance is a legal requirement for most employers.
Minimum cover is £5 million, but many policies are set at £10 million as standard.
The fine for not having insurance in place is £2,500 per day, and a further £1,000 fine applies for failing to display the certificate.
Even if someone is self-employed for tax purposes, the way they work with you can still mean you need cover.
See our overview: what is employer’s liability insurance and the official guidance on GOV.UK.
If the role involves work with children or vulnerable adults, plan the right level of DBS check before the start date. Read more at the Disclosure and Barring Service.
Start health and safety thinking now. Conduct a simple risk assessment to ensure the workplace, tools, and processes are safe. The Health and Safety Executive has some practical templates.
3. Registering with HMRC and setting up payroll
Register as an employer with HMRC before the first payday. It can take up to two weeks to receive your employer reference.
Once registered, you must run PAYE, deduct Income Tax and National Insurance, issue payslips, and submit a Full Payment Submission on or before each payday.
See GOV.UK register as an employer, PAYE for employers.
You can use payroll software or an accountant. You remain responsible for accuracy and, for PAYE, must keep records for three years from the end of the tax year.
Factor in student loan deductions where relevant, and year-end documents such as P60s and any benefits reporting on P11Ds.
4. Working out the true cost of an employee
Salary is only part of the picture. Add employer’s NI, workplace pension contributions, holiday, sick pay, insurance, training, equipment and supervision time. Underestimating the extras is the most common hiring mistake.
From 6 April 2025, the standard employer Class 1 NI rate is 15% on earnings above the Secondary Threshold (£5,000 a year).
| Salary | Gross pay | Typical extra employer costs |
|---|---|---|
| £20,000 full time | £20,000 | About £5,500 for NI, pension, holiday accrual and insurance |
| £30,000 full time | £30,000 | About £8,200 once extras are added |
| £12 per hour part time 20 hrs a week | ~£12,500 a year | About £3,200 once extras are added |
Here is a month-by-month view for planning.
| Item | Monthly estimate | Notes |
|---|---|---|
| Gross salary | £2,333 | £28,000 divided by 12 |
| Employer NI | ~£288 | 15% above the £5,000 Secondary Threshold. Employment Allowance (if eligible) can reduce your annual NI bill (up to the current allowance). |
| Employer pension | ~£70 | Based on minimum contributions on qualifying earnings |
| Holiday accrual | ~£250 | Cost of 5.6 weeks pro-rated into monthly budget |
| Insurance, software, training | ~£80 | Payroll software, EL insurance share, learning budget |
| Total monthly cost | ~£3,021 | Plan cash flow against this figure, not salary alone |
These figures are illustrative. Ask an accountant for a detailed breakdown before hiring any new employees.
5. Contracts and written terms
Give a written statement of employment particulars on or before day one.
At a minimum, include pay, hours, job title, place of work, holiday and notice.
Most employers also issue a full contract, as it provides better protection and clarity.
ACAS has practical examples of employment contracts.
| Term | Legally required | Useful extras to include |
|---|---|---|
| Start date, job title, pay | Yes | Pay review timing, bonuses or commission structure |
| Hours and place of work | Yes | Home or hybrid working rules, flexibility clauses |
| Holiday and notice | Yes | Carryover rules, closed periods, holiday on bank holidays |
| Probation period | No | Commonly 3 to 6 months with review meetings |
| Confidentiality and IP | No | Vital where you handle client data or create content or code |
| Disciplinary and grievance | No | Often set out in a handbook but referenced in the contract |
6. Right to work checks and employment status
Check the legal right to work for every new starter. The Home Office process is simple in principle. Obtain the original documents or share code.
Check the details and photos. Copy the evidence and date it. Keep records for at least two years after employment ends. Start with right to work checks.
Civil penalties for employing someone without permission to work were increased in 2024. The fine can be up to £45,000 per illegal worker for a first offence and up to £60,000 for repeat breaches. If the breach is deliberate, there can also be criminal liability. Take the checks seriously and follow the guidance carefully.
Be clear about status. Employees, workers and contractors have different rights.
Misclassifying someone can cause problems later with holiday pay, tax, and dismissals.
If you control how and when they work, supply the tools and require personal service, they are usually an employee. See GOV.UK employment status. For roles that might be better suited to freelance work, see our piece on IR35 and off-payroll working. Also visit IR35 Update for lots of straightforward guides.
7. Pensions, holiday and other duties
- Minimum wage. Pay at least the National Minimum or National Living Wage. Rates change each April. Use the official rates page.
- Working time. The 48-hour weekly average limit applies unless the employee opts out. Provide daily and weekly rest and paid holiday.
- Auto enrolment pensions. Assess staff, enrol eligible individuals in a workplace pension, and make employer contributions. Complete the Declaration of Compliance with The Pensions Regulator by the deadline. Re enrol eligible staff every three years, even if they opted out.
- Holiday. Full timers get at least 5.6 weeks paid leave each year. That is 28 days if you work a five day week. You can include bank holidays within the 28 days or add them on top. Part timers get a pro rata amount.
- Statutory Sick Pay. Pay SSP when eligibility conditions are met. Keep sickness records and follow your absence policy.
- Health and safety. Complete risk assessments and keep the workplace safe. HSE has simple checklists and guidance on first aid and fire safety.
- Data protection. Store HR and payroll data securely, only keep what you need, and set clear retention periods. See our overview on data protection for the self employed.
- Record keeping. Keep PAYE records for at least three years, pension records for longer in practice, and right to work documents for at least two years after employment ends. See how long to keep tax records.
8. Policies and a simple staff handbook
Write down the basics. Absence and sick pay, holiday requests, expenses, IT use, grievance and disciplinary rules. Keep it short and clear.
Refer to the handbook in the contract so that people know where to find the rules.
ACAS has plain English templates and step-by-step guides.
9. Recruitment and onboarding
Recruit fairly. The Equality Act 2010 applies to advertisements, interviews, and selection processes.
Avoid wording that could discriminate. Be cautious with candidate data and retain CVs only as long as necessary.
The Equality Act guidance explains protected characteristics.
Write a clear job description, advertise in places where candidates are likely to look, and plan interview questions that directly relate to the work you want someone to do.
Onboarding matters too. Cover induction, health and safety, access to systems, early training and how probation will work.
Two or three check-ins within the first month can make a significant difference in performance and retention.
FAQs for first-time employers
Can I employ a family member?
Yes. They still need a contract, payslips and the same rights as other staff. Pay must be commensurate with the duties and responsibilities. Keep good records to satisfy HMRC if asked. See our guide to hiring family members.
What about zero hours or casual contracts?
They are legal if written clearly. Workers on zero-hour contracts still receive the minimum wage and paid holidays. Explain how hours are offered and accepted, and how you calculate holidays for irregular hours.
Do I need a probationary period?
No, but most employers use one. It sets expectations and gives a structured review period. Put review dates in the diary and confirm outcomes in writing.
What if I need to dismiss someone?
You need a fair reason and a fair process. Capability, conduct and redundancy are common reasons. Notice pay and procedure depend on service length. ACAS has step-by-step guidance and letters you can adapt.
Do part-time employees get the same rights?
Yes. Rights apply pro rata. You cannot treat part-time workers less favourably because they work fewer hours. Keep holiday and benefits proportional and documented.
Do interns or volunteers count as employees?
It depends. If you control hours and work, and they provide personal service, you may have worker or employee rights, including the right to minimum wage. Treat unpaid roles with care and seek advice if you are unsure.
What about hiring under-18s?
Additional rules regarding working hours, rest periods, and night work apply. Check minimum wage age bands and safeguarding if the role involves a regulated activity. Risk assessments must specifically cover young workers.
Do I have to offer a pension to short-term staff?
If they meet the age and earnings thresholds, you must auto-enrol them, even for short contracts. If they opt out, you still need to re-enrol eligible staff every three years and keep records.
What happens if I get right to work checks wrong?
You risk a civil penalty of up to £45,000 per illegal worker for a first offence and up to £60,000 for repeat breaches. If it is deliberate, there can be a criminal offence. Follow the Home Office checklist and keep dated copies for your records.
Can I use self-employed contractors instead?
Yes, if the status is genuine. If you control how, when and where the work is done and require personal service, they are more likely to be employees. Status mistakes lead to tax, holiday pay and dismissal risks. If the role looks like a job, employ them.
How long must I keep the paperwork?
Keep payroll records for at least three years and pension and other tax records for six. Retain right to work evidence for a minimum of two years after employment ends. Hold on to contracts and other key HR documents for the applicable limitation period in case of claims. See our guide on how long to keep tax records.
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