Taking on a first member of staff turns a business into an employer, and with that status come duties that carry real financial teeth. An employer who fails to check a worker's right to work faces a civil penalty of up to £45,000 per illegal worker for a first breach, and an employer without valid employers' liability insurance can be fined up to £2,500 for every day it goes without cover [1]. These are not theoretical risks; they are the baseline obligations that attach the moment the first offer is accepted.
The good news is that the sequence is well defined. GOV.UK sets out the steps of becoming an employer: registering with HMRC, setting up payroll, arranging a workplace pension, getting insurance and preparing a written statement of employment [2]. Each step has its own rules, and getting them in the right order before the first payday keeps the business compliant from day one.
This guide walks through the full process for a first-time employer: the legal checks before the person starts, the pay and contract obligations, the PAYE and Real Time Information setup, and the workplace pension duty. It is written for the owner who is about to hire for the first time and wants the compliance picture in one place.
Key takeaways
- An employer must register with HMRC before the first payday and can do so up to two months in advance.
- A right-to-work check is mandatory before employment starts, with penalties of up to £45,000 per worker for a first breach.
- Employers' liability insurance of at least £5 million is required from the first day, and the certificate must be displayed or accessible.
- A written statement of employment particulars is a day-one right and must be given on or before the first day.
- From 1 April 2026 the National Living Wage for workers aged 21 and over is £12.71 per hour.
Before the employee starts: the legal checks
Two obligations must be satisfied before the new employee sets foot in the workplace: verifying their right to work, and putting insurance in place. Both carry penalties severe enough that they should never be left until after the start date.
Right-to-work checks
Every employer must confirm that a person has the legal right to work in the UK before employing them. The standard route is to ask for the applicant's share code, issued by the Home Office, and verify it through the GOV.UK online checking service, keeping a record of the check [3]. Carrying out and documenting the check is what establishes a statutory excuse against a penalty.
The stakes rose sharply following the increase in civil penalties. An employer found to be employing someone without permission to work can be fined up to £45,000 per illegal worker for a first offence, rising to £60,000 for repeat breaches [4]. A correctly conducted right-to-work check is the only reliable defence, which is why it belongs at the very start of the hiring process.
Employers' liability insurance
An employer generally must hold employers' liability insurance from the day it becomes an employer, with cover of at least £5 million from an authorised insurer [5]. The policy protects the business against claims from employees who are injured or made ill through their work.
The display rules carry their own penalties. An employer can be fined up to £2,500 for each day it is without valid cover, and a further £1,000 for failing to display or make the certificate accessible to staff [5]. Sorting insurance before the start date removes both risks at once.
The contract and pay obligations
Once the checks are done, the employment relationship needs to be documented and the pay set at or above the statutory floor. Both are legal requirements, not best-practice extras.
The written statement of employment particulars
Since 6 April 2020, the right to a written statement of employment particulars has been a day-one right for both employees and workers, meaning the principal statement must be provided on or before the first day of employment [6]. This is the core document that sets out the terms of the job.
The principal statement must cover the essentials: the names of the employer and employee, the start date, job title or description, the place of work, pay, working hours, holiday entitlement and notice periods [6]. Some further particulars can follow within two months, but the core terms cannot wait. Holiday entitlement in particular has its own statutory minimum, and most full-time workers are entitled to at least 5.6 weeks of paid leave a year [7].
Minimum wage from April 2026
Pay must meet or exceed the National Minimum Wage or National Living Wage for the worker's age. The rates changed on 1 April 2026, and an employer hiring a first employee must apply the correct band from the outset [8]. Underpayment, even by accident, can lead to HMRC enforcement and public naming.
The table below sets out the rates in force from 1 April 2026.
| Category | Hourly rate from 1 April 2026 |
|---|---|
| National Living Wage (21 and over) | £12.71 |
| 18 to 20 year old rate | £10.85 |
| Apprentice rate | £8.00 |
Setting the salary against the right band is a payroll input, and getting it wrong flows straight through to the pay run. The National Minimum Wage applies to almost all workers, and ACAS provides the entitlement detail where a worker's status is unclear [9].
Setting up payroll and PAYE
With the employee legally cleared and contracted, the business has to become operational as an employer, which means registering for PAYE and running Real Time Information.
Registering and telling HMRC about the new starter
First-time employers must register with HMRC before the first payday to receive the employer PAYE reference, and registration can be done up to two months ahead [2]. Leaving it late risks not having the reference in time to file.
The employer must then tell HMRC about the new employee on or before their first payday, using the starter information to set the correct tax code. Where the employee has a P45 it provides prior pay and tax; where they do not, a starter checklist is completed instead [10]. The first Full Payment Submission reports the new starter to HMRC as part of the ordinary RTI process [11].
Running the pay run
From the first payday onwards, the employer records pay, calculates Income Tax and National Insurance, produces a payslip and files the FPS on or before payday [12]. Payslips are themselves a legal requirement, and every employee must receive an itemised one on or before payday [13]. A first-time employer often chooses small business payroll software that produces the payslip and files RTI in one step, because the HMRC Recognised badge it carries is what allows the automatic submission. Businesses that would rather hand the whole task over can use a payroll platform for SMEs that runs the pay cycle end to end.
Employer National Insurance and the Employment Allowance
Employer National Insurance is a real cost of the first hire. For the 2026-27 tax year, employers pay 15% on earnings above the £5,000 Secondary Threshold [14]. A first employee earning a typical full-time salary generates a meaningful annual employer National Insurance bill.
The Employment Allowance can offset much of that. Unlike a single-director company, a business whose first employee is not a director and is paid above the Secondary Threshold can generally claim the allowance to reduce its secondary Class 1 National Insurance [15]. This is one of the few reliefs that directly lowers the cost of a first hire, and it should be claimed where the business qualifies. Accountants setting this up across several first-time-employer clients typically manage it through a multi-client payroll dashboard so eligibility is flagged per scheme.
The workplace pension duty
Automatic enrolment applies to first-time employers as much as to established ones. The employer must assess the new worker and, where they qualify, enrol them into a workplace pension scheme.
An employee who is aged between 22 and State Pension age, earns above the earnings trigger and works in the UK must be automatically enrolled, with the employer paying contributions [16]. The Pensions Regulator provides a duties checker for first-time employers to confirm exactly what applies to their situation [16].
Assessment happens every pay run
Auto-enrolment is not a one-off task at hire. The employer must assess the worker each pay period, because eligibility can change as earnings or age move, and must keep records and issue the required communications [17]. For a business with a single first employee, this is manageable, but it is easy to overlook when done manually. Payroll software that runs the assessment automatically each period keeps the pension position correct as the business grows, and cross-referencing the wider duties in a guide to auto-enrolment for new employers helps a first-time employer avoid a backdated correction.
A first-time employer checklist
Bringing the steps together, the sequence for a first hire runs from the pre-start legal checks through to the ongoing pay and pension duties. The table below orders them.
| Stage | Task | Timing |
|---|---|---|
| Before start | Right-to-work check | Before employment begins |
| Before start | Employers' liability insurance | From day one as an employer |
| Before start | Register for PAYE with HMRC | Up to two months ahead, before first payday |
| On or before start | Written statement of employment particulars | Day one right |
| First payday | Tell HMRC about the new employee | On or before first payday |
| Each payday | Run payroll, file FPS, produce payslip | On or before payday |
| Each pay period | Assess for auto-enrolment | Every pay run |
This ordering matters because several of the tasks, registration and insurance in particular, take time to arrange and cannot be completed retrospectively without penalty exposure. A business that produces one-off payments before its scheme is fully running can generate a compliant document through an instant payslip generator in the interim.
Conclusion
Hiring a first employee is less a single decision than a compliance sequence, and the order is what protects the business. The right-to-work check and insurance come before the start date because their penalties are the harshest. The written statement lands on day one. PAYE registration, RTI filing and auto-enrolment then settle into a monthly rhythm that continues for as long as the business employs anyone. None of it is optional, and most of it is time-sensitive.
The businesses that handle the first hire smoothly are the ones that treat these duties as a system to be set up once and then automated, rather than a stack of forms to be chased each month. As payroll and pension compliance increasingly runs inside the accounting and business tools an owner already uses, the administrative weight of becoming an employer is falling, which lowers the barrier to that important first hire.
Frequently asked questions
What do I legally have to do before my first employee starts?
Before the employee starts, an employer must carry out a right-to-work check, arrange employers' liability insurance of at least £5 million, and register with HMRC as an employer so PAYE is ready before the first payday. A written statement of employment particulars must be provided on or before the first day. The right-to-work check and insurance are the most time-critical because their penalties are severe and cannot be remedied retrospectively.
How much does it cost to employ someone once salary is set?
Beyond the salary itself, the main statutory cost is employer National Insurance, charged at 15% on earnings above the £5,000 Secondary Threshold for the 2026-27 tax year, plus workplace pension contributions for an enrolled employee. A business whose first employee is not a director can often claim the Employment Allowance to reduce its secondary Class 1 National Insurance. Employers' liability insurance and payroll software or service fees are the other recurring costs.
Do I have to set up a workplace pension for one employee?
Usually yes, if that employee qualifies. An employee aged between 22 and State Pension age who earns above the earnings trigger and works in the UK must be automatically enrolled into a workplace pension, with the employer contributing. The Pensions Regulator's duties checker confirms the position for a specific hire. The main exception is a one-person company consisting only of a single director, which is not treated as an employer for automatic enrolment.
When do I need to tell HMRC about my new employee?
An employer must tell HMRC about a new employee on or before their first payday, which happens through the first Full Payment Submission under Real Time Information. The employee's P45 or a completed starter checklist provides the information needed to set the correct tax code. Registering for PAYE should be done in advance, up to two months before the first payday, because the employer PAYE reference can take a couple of weeks to arrive.
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Documentary-style wide shot, the interior of a small UK business office with a second desk being set up for a new hire, a UK business owner seen from behind reviewing a printed employment contract, an empty chair and a boxed monitor nearby, soft daylight from a tall sash window, mid-morning, palette of warm grey, oak, off-white, a brick building visible through the window, off-centre composition with the owner in the right third, shot on a Leica Q3 at 28mm f/4, photojournalism, gentle film grain, no AI artefacts, no warped hands, no warped text, landscape orientation 16:9.
