Hiring Your First Employee in the UK (2026 Guide)

Hiring your first employee is a major milestone — but it comes with responsibilities, costs, and compliance requirements.

Get it wrong, and you face penalties, disputes, and stress. Get it right, and you unlock growth and leverage.

At Brightson Accounting in Wolverhampton, we help businesses across the West Midlands navigate first-time hiring correctly.

Step 1: Register as an Employer

Before your first employee starts, register with HMRC as an employer.

What You'll Need:

• Your company or personal details
• Business address
• Contact information
• When you'll start paying employees

Register at: gov.uk/register-employer

HMRC will send you:

• PAYE reference number (within 5 working days)
• Accounts Office reference (separately by post)

From what we see with clients in Wolverhampton, most register 2-4 weeks before the first employee starts.

Step 2: Set Up Payroll

You're legally required to run payroll for all employees — even if it's just one person.

Payroll Responsibilities:

• Calculate PAYE Income Tax
• Calculate National Insurance (employee and employer)
• Deduct student loan repayments (if applicable)
• Submit Real Time Information (RTI) to HMRC
• Pay HMRC monthly (or quarterly if very small)
• Provide payslips to employees
• Issue P60s at year-end

Options:

• DIY: Use HMRC's free payroll software (basic)
• Software: Xero, QuickBooks, FreeAgent (£10-£30/month)
• Accountant: Most charge £10-£30 per employee per month

Many small businesses we work with in Birmingham outsource payroll from day one — it's faster, safer, and frees up time.

Step 3: Understand Employment Costs

Hiring costs more than just salary.

Total Employment Cost Breakdown:

• Gross Salary: What you advertise
• Employer's NI: 13.8% on salary above £9,100/year
• Pension Contribution: Minimum 3% of qualifying earnings
• Holiday Pay: 5.6 weeks (28 days) per year minimum
• Equipment: Laptop, phone, desk, software
• Recruitment: Job ads, interviews, onboarding

Example:

• Salary: £30,000
• Employer's NI: £2,884
• Pension (3%): £900
• Total cost: £33,784

Step 4: Auto-Enrollment (Pension)

You must auto-enroll eligible employees into a workplace pension.

Who Must Be Auto-Enrolled:

• Aged 22 or over and under State Pension age
• Earning £10,000+ per year
• Working in the UK

Minimum Contributions (2026):

• Employer: 3%
• Employee: 5%
• Total: 8% of qualifying earnings

Popular pension providers:

• NEST (Government scheme)
• The People's Pension
• Smart Pension

Step 5: Employment Contracts

You must provide a written statement of employment within 2 months of the start date.

What It Must Include:

• Job title and duties
• Start date
• Salary and pay frequency
• Working hours
• Holiday entitlement
• Notice period
• Probation period (if any)

Use a solicitor or HR template to ensure compliance.

Step 6: Understand Employment Law

Key Rights Employees Have:

• National Minimum Wage: £11.44/hour (21+), £8.60/hour (18-20)
• Holiday: 5.6 weeks (28 days) including bank holidays
• Sick Pay: £109.40/week (if eligible)
• Maternity/Paternity Pay: If eligible
• Protection from Discrimination: Age, gender, race, disability, etc.

Probation Periods:

Most employers use 3-6 month probation periods with reduced notice.

Step 7: Insurance and Liability

Once you hire, you need:

• Employer's Liability Insurance: Legally required, covers injury/illness claims (£100-£300/year)
• Professional Indemnity: If providing advice or services
• Public Liability: If customers visit your premises

Common Mistakes to Avoid

• Not registering as an employer before first payday
• Forgetting to set up auto-enrollment pension
• Paying below National Minimum Wage
• Not providing written employment terms
• Treating employees as contractors (HMRC IR35 rules)
• Not deducting PAYE and NI correctly

When to Hire vs Outsource

Before hiring full-time, consider:

• Contractors/Freelancers: Project-based, no employment obligations
• Part-time employees: Lower cost, more flexibility
• Virtual assistants: Admin tasks, remote
• Agencies: Temporary cover, no hiring risk

Only hire full-time when the cost of NOT hiring exceeds the cost of hiring.

Read: How to Scale Your Business Without Losing Control

Hiring in Wolverhampton & the West Midlands

At Brightson Accounting, we help local businesses:

• Register as employers with HMRC
• Set up payroll and auto-enrollment
• Calculate total employment costs
• Stay compliant with employment law
• Handle PAYE, NI, and pension admin

We offer fixed-price payroll services from £10 per employee per month.