Hiring your first employee means registering with HMRC as an employer before your first payday, checking the person’s right to work in the UK, giving them a written statement of terms on day one, running payroll through Real Time Information (RTI), enrolling them in a workplace pension and buying employers’ liability insurance. In 2026/27 you also need to budget for employer National Insurance at 15% on pay above £5,000 a year, although the £10,500 Employment Allowance can wipe out most or all of that for a small business.

This checklist walks through each step in order, with the 2026/27 rates and a worked example of what a first employee really costs. It applies to sole traders, partnerships and limited companies in England, Wales and Scotland.

First employee checklist: the steps in order

Use this as your running order. Most of it has to be done before the person starts work or before you pay them for the first time.

Step	When	Why it matters
Decide pay and hours	Before you advertise	Must be at least the National Minimum Wage
Check right to work	Before they start	Gives you a defence against an illegal working penalty
Register as an employer	Before your first payday	You need a PAYE reference to run payroll
Buy employers’ liability insurance	From the first day of employment	£2,500 fine for each day you are not insured
Written statement of terms	On their first day	A legal right for every employee and worker
Set up payroll and RTI	Before your first payday	Each pay run is reported to HMRC on or before payday
Workplace pension	From their start date	Automatic enrolment duties begin straight away
Claim Employment Allowance	On your first EPS of the year	Up to £10,500 off employer NI

Step 1: Set the pay rate

From 1 April 2026 the National Living Wage for workers aged 21 and over is £12.71 an hour. Workers aged 18 to 20 must get at least £10.85, and under-18s and first-year apprentices £8.00. Paying below these rates can lead to arrears, penalties and being publicly named, so check the rate against the employee’s age before you make an offer.

Step 2: Check their right to work

You must check that your first employee has the right to work in the UK before they start. There are three ways to do it: a manual check of original documents from the Home Office lists, an online check using a share code the person gives you, or a check through a certified digital verification provider. Keep a dated copy of the evidence.

Biometric residence permits are no longer issued, so many non-British workers now prove their status through an eVisa and a share code. If you do not carry out a proper check and the person turns out not to have the right to work, you can face a civil penalty.

Step 3: Register as an employer with HMRC

You must register as an employer before your first payday, but you cannot register more than two months before you start paying people. HMRC sends your employer PAYE reference and Accounts Office reference by post, so allow time for the letter to arrive.

If you run a limited company and already pay yourself a director’s salary, you may already have a PAYE scheme. In that case you simply add your first employee to it. Our guide to a tax-efficient director salary explains how director pay fits in.

Step 4: Employers’ liability insurance

Most employers must have employers’ liability insurance with cover of at least £5 million from an authorised insurer, from the day your first employee starts. The fine for not being insured is £2,500 for every day without cover. You do not need it if you only employ close family members, such as a spouse, parent or child.

Step 5: Contract and written statement

Your first employee is entitled to a written statement of employment particulars on their first day. This must cover pay, hours, holiday, job title, place of work, any probation period, sick pay, other paid leave and notice periods. Pension, disciplinary and grievance details can follow within two months.

Day-one rights have widened. Since 6 April 2026, Statutory Sick Pay is payable from the first day of sickness rather than the fourth, and statutory paternity leave and unpaid parental leave are available from the first day in the job.

Step 6: Set up payroll and report through RTI

Once you have a PAYE reference you run payroll using HMRC-recognised software. Every time you pay your first employee you send a Full Payment Submission (FPS) to HMRC on or before payday, showing their pay and deductions. You then pay HMRC the income tax, employee and employer National Insurance and any student loan deductions, usually by the 22nd of the following month if you pay electronically.

Each payroll run needs to deduct:

• Income tax, using the tax code HMRC gives you.
• Employee National Insurance at 8% on earnings between £12,570 and £50,270 a year, and 2% above.
• Student loan or postgraduate loan repayments, if applicable.
• Employee pension contributions.

At the end of the tax year you give the employee a P60. Many small businesses hand payroll to an accountant at this point, as the penalties for late or wrong RTI submissions add up. Our payroll service covers RTI, payslips and pension submissions.

Step 7: Workplace pension (automatic enrolment)

Your duties start on the day your first employee starts. You must enrol staff aged 22 to State Pension age who earn over £10,000 a year into a qualifying pension scheme. For 2026/27, minimum contributions are calculated on qualifying earnings between £6,240 and £50,270. The employer must pay at least 3%, with a total minimum of 8% including the employee’s share.

You must also send a declaration of compliance to The Pensions Regulator, even if your employee is not eligible to be enrolled.

Step 8: Claim the Employment Allowance

The Employment Allowance cuts your employer National Insurance bill by up to £10,500 a year. You claim it through your payroll software on an Employer Payment Summary (EPS). Most businesses qualify, but a limited company whose only employee paid above the secondary threshold is its sole director cannot claim. Hiring a first employee who earns above £5,000 a year usually changes that, which can make the allowance available for the first time. Check the Employment Allowance eligibility rules before you claim.

What does a first employee cost in 2026/27?

Worked example

Ayesha runs a café in Bolton town centre through her own limited company. She is the sole director and takes a small salary. She hires her first employee, Jordan, aged 24, on the National Living Wage for 37.5 hours a week.

Cost	Without Employment Allowance	With Employment Allowance
Gross salary (£12.71 x 37.5 x 52)	£24,785	£24,785
Employer NI (15% above £5,000)	£2,968	£0
Employer pension (3% of qualifying earnings)	£556	£556
Total annual cost	£28,309	£25,341
Monthly cost	£2,359	£2,112

Because Jordan earns well above £5,000, Ayesha’s company is no longer a single-director company for Employment Allowance purposes. The allowance covers Jordan’s employer National Insurance in full, saving around £2,968 a year, and the unused balance can cover NI on Ayesha’s own salary too.

The figures are illustrative and exclude employers’ liability insurance, training, equipment and the cost of covering holidays. Use our National Insurance calculator to test other salaries.

Common mistakes when hiring a first employee

• Paying someone before registering as an employer, which means sending a late FPS.
• Skipping the right to work check for someone who “has always lived here”.
• Forgetting that employers’ liability insurance must be in place from day one.
• Not claiming the Employment Allowance, or claiming it when the company is not eligible.
• Missing the pension declaration of compliance.
• Treating the person as self-employed when they work set hours under your control. See our guide to self-employed vs employed status.

Frequently asked questions

Get help taking on your first employee

Taking on your first employee is a big step, and getting payroll, pensions and the Employment Allowance right from the start saves penalties later. Cangaf’s ACCA-qualified team in Bolton can register you as an employer, run your payroll and check what each new hire will cost. Request a fixed-fee quote and we will tailor it to your business.

Official guidance: Register as an employer, Rates and thresholds for employers 2026 to 2027, Employers’ liability insurance and Employment Allowance: check if you’re eligible.