Employing Someone for the First Time: What You Need to Do

Taking on your first member of staff is quite frankly enough to make you sweat (and other things not suited to a professional blog). It is also one of those times where getting the paperwork wrong has real, immediate consequences, since several of the obligations below apply from day one, with fixed deadlines and no grace period for not knowing.

Carolyn says:

In this article we’ll work through what needs to happen, in the order you need to do it, before and after someone joins.

What Do I Need to Have Sorted Before Their First Day?

Four things need to be in place before anyone starts work, not after: a PAYE scheme registered with HMRC, employers’ liability insurance, a completed right to work check, and a written statement of their employment terms. Missing any of these is not a paperwork inconvenience, each one carries a specific legal consequence, covered below, and none of them can be fixed retrospectively in the way a late invoice or a missed filing can.

How Do I Register as an Employer, and When?

You register online with HMRC to set up a PAYE scheme, and the timing has a firm window either side. You cannot register more than two months before you intend to make your first payment, and you must register before that first payday. In theory, the employer PAYE reference should take around five working days to arrive, longer at busy points such as the start of the tax year, so advice used to be to register two to four weeks before you expect to pay anyone. You need a PAYE scheme even if you are the sole director of your own company paying yourself a salary, this is not only triggered by hiring someone else.

The rules say you can’t register more than two months before your first payday, and now the reference itself can take more than two months to arrive so be prepared to end up paying someone before the reference arrives. If this happens, HMRC’s guidance is to run payroll and pay them on time regardless, then submit a late Full Payment Submission once the reference comes through. What you cannot do is wait for the reference before paying anyone, that just compounds the lateness.

What Has to Be in Their Contract or Written Statement?

Every employee and worker has been entitled to a written statement of employment particulars from their first day since April 2020, not after a probation period and not once they have proved themselves. It needs to cover the basics: names of employer and employee, start date, pay and how often it is paid, hours of work, holiday entitlement, sick pay arrangements, notice periods, job title or a brief description of the work, and place of work. A short, clear contract that covers all of this properly at the outset is far cheaper than trying to reconstruct one later once a dispute has already started.

What Checks Do I Have to Do Before Someone Starts?

A right to work check must be completed before employment begins, not on their first day and not once they have settled in. Doing this properly, and keeping the evidence, gives you what is called a statutory excuse against liability if it later turns out someone was not entitled to work. Without it, the civil penalty starts at £45,000 per illegal worker for a first breach and rises to £60,000 for a repeat breach, and this applies to every employer, regardless of size, and whether or not you knowingly employed someone without the right to work.

This is also an area that is expanding. From 1 October 2026, new legislation widens who counts as an employer for these purposes, extending the checking obligation towards individual subcontractors and people found through online job matching platforms, alongside conventional employees. If your hiring extends beyond straightforward employees, it is worth checking whether these wider rules now touch your business too.

Do I Need Employers’ Liability Insurance?

Yes, almost certainly. Employers’ liability insurance has been a legal requirement since 1969 for any business that employs staff, and it needs to be in place from the moment you become an employer, not arranged once someone has already started. The legal minimum is £5 million of cover from an authorised insurer, though most policies default to £10 million as standard. Going without it carries a fine of up to £2,500 for every day you are uninsured, and a further fine for failing to display or produce your certificate when asked. The main exemption is genuinely small: businesses employing only close family members, and only if you are not a limited company.

What About a Workplace Pension?

Automatic enrolment duties begin on your duties start date, which is simply the day your first member of staff starts working for you. There is no size threshold and no grace period, a business with one employee has the same duties as one with a thousand. You need to assess anyone you employ against the earnings thresholds, currently £10,000 a year to be automatically enrolled, with a qualifying earnings band running from £6,240 to £50,270, and you need to have a pension scheme in place to enrol them into if they qualify. You are allowed to postpone assessment by up to three months from their start date if you need the time, but the clock still starts on day one, not on the date you get round to it.

Carolyn says:

Once your duties have started, you must submit a declaration of compliance to the Pensions Regulator within five months, confirming what you have done. This applies whether or not anyone ends up in a pension scheme, a business that assesses its first employee and finds nobody currently qualifies still has to make the declaration. The one genuine exemption is a company where the only person on the payroll is a director with no contract of employment, in which case you tell the Pensions Regulator you are not currently an employer for these purposes rather than filing a declaration.

How Does Payroll Work Month to Month?

Once registered, you report pay and deductions to HMRC in real time through Full Payment Submissions, using payroll software rather than working it out by hand. Several packages are free for smaller employers, typically fewer than ten staff, so cost need not be the barrier to getting this right. Each pay run needs to correctly apply tax codes, National Insurance, and from April 2026 the current minimum wage rates for the person’s age band, £12.71 an hour for anyone 21 or over, £10.85 for 18 to 20 year olds, and £8.00 for 16 and 17 year olds and first year apprentices under 19.

Employer National Insurance is charged at 15% on earnings above the secondary threshold of £96 a week, though eligible employers can offset up to £10,500 of this through the Employment Allowance. It is worth checking whether you qualify rather than assuming you do not, a surprising number of small employers miss this without realising.

What Rights Does a New Employee Have From Day One?

This is an area that has moved substantially in the last year, and it catches out business owners who are working from an outdated picture of what employment law requires. Statutory Sick Pay is now payable from the first day of sickness absence rather than the fourth, and the previous earnings threshold has been removed, so lower paid staff who would once have missed out now qualify from day one too. Paternity leave and unpaid parental leave can also be taken from day one of employment, although paternity pay itself still requires 26 weeks of service, worth explaining clearly to new staff, so nobody expects pay they have not yet earned.

You are also now under a statutory duty to keep proper records of each employee’s holiday entitlement, the leave they take, and how their holiday pay was calculated, from their very first day. This catches out businesses whose holiday tracking has always lived in someone’s head or a whiteboard in the staff kitchen, that is no longer good enough, and the record keeping duty applies from a single employee upwards.

We have written a fuller breakdown of everything the Employment Rights Act 2025 changes and when each part lands: The Employment Rights Act 2025: What It Means for Your Business and Payroll.

What Should I Think About With Probation and Dismissal Risk?

Right now, employees generally need two years of service before they can bring an unfair dismissal claim, which gives a reasonably long runway to assess whether a new hire is working out. That is changing. From January 2027, the qualifying period drops to six months, and the change applies based on when a dismissal takes effect, not when someone started, so anyone you have already hired since around the middle of 2026 will already have built up six months of service by the time the new rule lands. If you are taking someone on now, it is worth setting up a proper probation process with real check-in points, rather than treating the first months as an informal trial you can end without a clear reason.

Bringing It Together

Say you’re an electrician, and you are about to take on your first part time member of staff (re-wires are definitely easier with two of you), twenty hours a week at £13 an hour. Before their start date you would need to register for PAYE, ideally two months ahead, arrange employers’ liability insurance, complete their right to work check, and give them a written statement covering their pay, hours and holiday entitlement. Once they start, their weekly pay of £260 puts them above both the National Insurance secondary threshold and, on an annual basis, comfortably above the £10,000 pension earnings trigger, so if they are 22 or over you would need to assess them for automatic enrolment and get a scheme in place. From their very first shift, they are entitled to day one Statutory Sick Pay if they are off unwell, and you are already under a duty to keep proper records of their holiday. None of this is optional, and none of it can be tidied up retrospectively once they have already started.

Carolyn says:

DIY or Outsource?

I know it’s a bit like asking a turkey to Christmas dinner but please hear me out because I’m about to tell you the 7 biggest mistakes we see payroll-DIY business owners getting wrong.

1. Expecting the software to fix everything
   The software providers all have support functions, but they will only tell you how to use their software. They can’t and won’t explain payroll concepts to you. As with all things technological, if you put rubbish in, you will get rubbish out. I still call this the “Adele rule” after my lovely tax tutor who used slightly fruitier language to drum this into us. You must understand the underlying rules and concepts to enter the right raw data into the system.
2. Using the wrong tax code
   A lot of DIY employers don’t check PAYE tax codes before they run payroll, so they apply out-of-date codes and frequently miss the W1/M1 flags. This can mean that an employee wither over or under pays tax during the year. The former leaves them struggling to get by on their wages. The latter can mean years of hardship paying back what they owe.
3. Errors in pension contributions
   To get pensions right, you will need to understand the difference between relief at source and net pay arrangement schemes, as well as the concepts of qualifying earnings and thresholds. You could have employees on different schemes and directors may have employer-only contributions which makes this a high risk area for someone without the right knowledge and experience.
4. Wrong holiday entitlement
   If your employee is salaried and only ever works a full working month, no problem. But if you have employees who work variable hours and/or get paid at variable rates, then this impacts the amount of holiday they are entitled to and the rate of pay applied to those hours. This must be calculated over a minimum 52-week period, and we haven’t found any payroll software doing this well so it’s something we handle manually in-house (most unlike us). Getting it wrong means an employee can insist that you correct up to 2 years of inaccurate payments. That’s a recipe for poor employee relations and a big chunk of cash going out the door in one go.
5. Giving people tax and National Insurance relief on net pay deductions
   What do I mean by a net pay deduction? It’s something that you deduct from someone’s pay after you’ve calculated their tax and National Insurance – something that is not entitled to tax relief. For example, an earnings order or a loan repayment.
6. Putting the wrong opening figures in for new starters
   If an employee joins you part-way through the tax year and they’ve had another job since 6 April, they will have had tax and National Insurance deducted already. This should show on their P45 which you may get when they join you but sometimes this never arrives or it comes through after you’ve run payroll. A bit like a wrong tax code, a mistake here can mean over or underpaid tax with financial implications for the employee affected.
7. Student Loans *groan*
   There are now five student loan plans. Each has their own thresholds and rates. Some people can also have more than one student loan if they have an Under and Postgraduate loan. Choosing the wrong loan and making a mistake about when it should start or stop being repaid are the top problems we see.

These are just a few of the reasons our clients choose not to run their own payroll. We do this in a cost-effective way and take a huge amount of stress out of running a business. We can also set up payment files to make sure everyone gets paid on time. Here’s a bit more about our payroll and pensions solutions.

If you are about to take on your first employee, or you have recently done so and are not confident everything is in place, it is worth having the whole picture checked properly rather than finding gaps one at a time. Get in touch and we will go through exactly what your business needs, in the right order.

We will only use your details to send you this series and occasional updates from Composure Accounting. You can unsubscribe at any time. For more information see our Privacy Policy.