Introduction
Hiring your first employee is an exciting milestone that marks your business’ growth, but it also brings new legal and payroll responsibilities. This practical, UK-specific guide walks you through every step when hiring staff for your small business, from knowing when it’s time to hire to registering as an employer, setting up payroll, and onboarding your first team member. Learn how to meet all compliance duties with confidence and build the foundations for long-term success.
Key Takeaways
- Evaluate when it's the right time to hire by monitoring your capacity, client demand, and work-life balance.
- Register as an employer with HMRC, conduct right-to-work checks, issue a written employment contract, and obtain employers’ liability insurance.
- Choose whether to manage payroll yourself or outsource it, and ensure accurate record-keeping from day one to stay compliant.
- Develop a clear onboarding plan and set 30/60/90-day goals to help your new hire succeed.
How do you know when it’s time to hire your first employee?
Hiring your first employee is a big step, and timing matters. Taking someone on too soon can strain your finances, but waiting too long can limit your growth.
The right time usually arrives when demand regularly outpaces your capacity. Perhaps you’re turning down work, working unsustainable hours, or seeing customer response times slip. These are signs your business has reached its operational limits as a one-person venture.
Equally, consider your own wellbeing. If the admin is taking over or essential growth tasks are being neglected, bringing in support can free you to focus on strategy and scaling.
Indicators such as customer feedback and service or product delivery times will help you gauge when hiring is no longer optional but essential.
What to do before hiring your first employee
Before advertising a role, ensure your business is ready – financially, operationally, and mentally.
Financial readiness means checking that you can comfortably afford the employee’s salary, National Insurance contributions, pension costs, and any software or insurance you’ll need to stay compliant. A cash flow projection will help you understand your affordability.
Operational readiness is about systems. Set up a simple payroll process, record-keeping tools, and secure digital storage for employee data. You’ll also need onboarding materials such as training guides or manuals.
Finally, be mentally prepared. Hiring means sharing responsibility, trusting others, and managing people. That shift requires good communication and leadership, which may be new skills for most first-time employers.
Creating a job description helps you clarify what you actually need from a new hire before you even start recruiting. It’s a useful exercise that defines responsibilities and goals, and helps you hire the right person for the job.
Legal responsibilities when hiring your first employee
Once you’ve found the right person, you’ll need to complete several legal steps before they start work. Getting this right from the start will keep you compliant and avoid costly penalties.
1. Conduct right-to-work checks
You must verify that your employee has the legal right to work in the UK. Acceptable documents include a passport, visa, or a share code (for non-UK or non-Irish citizens).
Check these documents in person or via an approved online system, keep a dated copy, and store it securely for at least two years after the employee leaves. Failure to complete right-to-work checks can lead to fines and criminal penalties.
2. Register as an employer with HMRC
Before your employee’s first payday, you must register as an employer with HMRC to operate PAYE (Pay As You Earn) for tax and National Insurance.
Registration is free and can be done online. Once completed, HMRC will issue you an employer PAYE reference number. This number allows you to report employee earnings and tax deductions correctly.
You cannot register more than two months before you plan to pay your first employee, so plan your timeline carefully.
3. Provide an employment contract and written particulars
By law, every employee must receive a written statement of employment particulars on or before their first day of work.
This document (often part of the employment contract) outlines key terms such as pay, working hours, job title, holiday entitlement, and notice period.
Issuing clear contracts protects both parties, sets expectations early, and reduces misunderstandings. While templates are widely available, consider having your first contract reviewed by a legal professional to ensure compliance with UK employment law.
4. Take out employers’ liability insurance
Employers’ liability insurance is a legal requirement for most businesses in the UK. It protects you if an employee becomes ill or injured at work.
Your policy must provide at least £5 million of cover, and you should display the insurance certificate where it’s visible or make it easily accessible online. Failure to hold valid insurance can result in daily fines.
5. Understand workplace pension duties
As soon as your first employee starts work, you take on automatic enrolment duties under UK pensions law.
If your employee is aged between 22 and the State Pension age and earns over £10,000 per year, you must enrol them into a qualifying workplace pension and make contributions.
You’ll also need to:
- Choose a compliant pension provider (such as Nest or The People’s Pension)
- Notify your employee in writing within six weeks of starting
- Submit a Declaration of Compliance to The Pensions Regulator
Even if your employee isn’t eligible, you must still complete the declaration.
Key legal requirements for hiring staff in the UK
| Requirement | What to do | Timing / deadline |
|---|---|---|
| Right-to-work check | Verify ID or visa and keep dated copies | Before employment begins |
| Register as an employer | Register with HMRC to operate PAYE | Before first payday |
| Employment contract | Provide written particulars | By first working day |
| Employers’ Liability insurance | Obtain minimum £5 million cover | Before employee starts |
| Workplace pension | Assess and enrol employee (if eligible) | From start date |
Payroll and payment: How to pay your first employee
Once registered with HMRC, you’ll need a reliable way to calculate pay, issue payslips, and submit tax deductions.
You can run payroll yourself using HMRC’s free Basic PAYE Tools or paid software such as Xero, QuickBooks, or FreeAgent. Paid systems offer automation, easy reporting, and integration with accounting tools as your business grows.
Alternatively, you can outsource payroll to an accountant, though this will typically cost between £50 and £200 per month, depending on the number of employees and pay frequency.
Each payday, you’ll need to:
- Calculate gross pay, tax, and National Insurance
- Send Real Time Information (RTI) reports to HMRC
- Provide your employee with a payslip showing deductions
- Keep accurate payroll and tax records for at least three years
Good record-keeping ensures smooth compliance, accurate accounts, and fewer headaches during audits or HMRC checks.
Hiring slowly but thoughtfully pays off in reduced turnover and stronger team fit.
Recruiting and selecting your first hire
Finding the right person is just as important as meeting the legal requirements, and building a strong recruitment process now will make future hiring much easier.
Begin by establishing a process that you can replicate and refine as your business expands. A consistent, well-structured approach not only saves time later but also helps you attract and assess talent fairly and effectively. The goal is to make hiring a repeatable system.
Use the ‘4 Cs’ framework
One practical framework is the ‘4 Cs’ approach. It’s a simple, four-stage process that helps you evaluate candidates from every key angle:
- Culture: Does the candidate align with your company’s values and working style?
- Capability: Do they have the skills, experience, and potential to perform the role effectively?
- Compensation: Are their salary expectations realistic and aligned with your budget?
- Commitment: Are they genuinely motivated to grow with your business for the long term?
Following the 4 Cs helps ensure that every hire is a good fit, both in terms of skills and culture. This is particularly important in small teams, where each person has a significant impact.
Place a job ad for the role
Begin with a clear job advertisement that accurately describes the role, the required skills, and the salary range. Be transparent about whether the position is office-based, hybrid, or remote, and avoid using discriminatory wording such as “recent graduate” or “young professional,” which can unintentionally exclude older applicants.
Free job boards such as Indeed, LinkedIn, and GOV.UK Find a Job are effective starting points. You can also reach candidates through local business networks, social media, or industry-specific boards.
How to screen job applications for the first time
When reviewing applicants, focus on both potential and experience. A candidate with transferable skills and enthusiasm can often outperform one with a perfect CV.
During interviews, maintain consistency and ask every candidate the same core questions to ensure fairness and accurate record-keeping. Keep notes and avoid questions about personal circumstances or protected characteristics (such as family plans or age).
Hiring slowly but thoughtfully, and using a structured process, gives you the best chance of securing great talent, reducing turnover, and building a team that grows with your business.
Onboarding your first hire
A well-structured onboarding process sets the tone for your new employee’s success.
Before their first day, ensure that everything is ready, including email accounts and passwords, workspace setup, and access to necessary tools or systems.
On day one, begin with a simple welcome meeting to outline the company's values, key policies, and expectations for the first week. Encourage questions and make time for feedback, as early communication fosters trust and engagement.
Setting 30/60/90-day goals can help both you and your employee stay aligned. For example:
- 30 days: Training, introductions, learning systems
- 60 days: Independent work, first project ownership
- 90 days: Review performance and agree on next goals
Onboarding is your opportunity to build loyalty and momentum from the very start.
Common mistakes to avoid when hiring your first employee
Even experienced entrepreneurs slip up during their first hire. Avoid these frequent errors:
- Skipping compliance steps. Failing to complete right-to-work checks or submitting late PAYE registrations can result in penalties.
- Hiring too quickly. A rushed decision often results in a poor fit and higher turnover rates. Take time to shortlist and assess candidates properly.
- Not providing a written contract. Verbal agreements cause confusion and offer no legal protection. Always issue written terms.
- Poor record-keeping. Store payroll, tax, and employment documents securely and systematically from day one.
Good habits at this stage save stress and money later.
Need help setting up your company or getting employer-ready? Explore 1st Formations’ company formation packages and start hiring with complete peace of mind.
Graeme Donnelly
Graeme Donnelly is the Founder and CEO of 1st Formations, with 25 years of experience driving innovation in the startup and SME sectors. A passionate advocate for entrepreneurship, Graeme has led the development of numerous cutting-edge business products and services through his leadership at 1st Formations and BSQ Group. As part of our commitment to a better future, 1st Formations is proud to be a carbon net-zero company, supporting environmental sustainability, and empowering local businesses and charities through impactful partnerships.
