There are six jobs to do before your first employee's first payday. Do them in order in the fortnight before the start date. If they are left until after the employee starts, they can lead to penalties and backdated pension contributions.

This post sets out the steps at 2026/27 rates, then the full cost of the hire, including the Employment Allowance, which a company usually becomes eligible for when it takes on its first employee.

1. Register as an employer with HMRC

You need an employer PAYE reference before you can report payroll to HMRC. If the company already runs payroll for a director's salary, it is already registered and can skip this step. Two timing rules apply: you must register before the first payday, and you cannot register more than two months before you start paying people. That leaves a window of about eight weeks, so register on the day the offer is accepted.

If the reference has not arrived by payday, still pay your employee on time. Run the payroll, keep the submission, and send it as a late Full Payment Submission once the reference arrives, as HMRC's guidance sets out.

2. Check right-to-work documents, and keep the evidence

The penalties for getting this wrong are high. The civil penalty for employing someone without the right to work rose in early 2024 to a maximum of £45,000 per worker for a first breach and £60,000 per worker for a repeat breach within three years.

You have a statutory excuse against the penalty if you carry out the check in the way the Home Office prescribes before employment starts, and keep the evidence. You are then not liable even if the person turns out not to have the right to work. The excuse depends on following the prescribed process, and acting in good faith is not enough on its own. Do the check, date it, and keep the copy with the personnel file.

3. Issue the written statement of employment particulars

The principal statement must be given on the first day of employment. The rule used to allow two months, and it now applies to workers as well as employees. It has to cover names, job title, start date, pay and pay frequency, hours and how they may vary, holiday entitlement, work location, any probation period and its conditions, benefits, and any obligatory training.

A wider written statement, covering pension arrangements, collective agreements and training entitlement, follows within two months. Information on sick pay, other paid leave and notice periods is also due on day one, either in the principal statement or in a document the employee can readily access.

4. Buy employers' liability insurance

You must hold employers' liability cover of at least £5 million from the moment you become an employer. The fine is £2,500 for every day you are uninsured, and a further £1,000 for failing to display the certificate. You do not need it if you employ only family members, or only people based outside England, Scotland and Wales. Neither usually applies to a startup's first hire.

5. Set up the workplace pension

Auto-enrolment duties start on your employee's first day. You must enrol anyone aged 22 to State Pension age earning over £10,000 a year, and the minimum contribution is 8% of qualifying earnings, of which at least 3% must come from you.

Qualifying earnings are the part of pay between £6,240 and £50,270 for 2026/27. On a £30,000 salary that is £23,760 of qualifying earnings, so your 3% is £712.80 a year. NEST, the scheme set up by the government, accepts any employer and does not charge employers to set up.

You must also complete a declaration of compliance with The Pensions Regulator within five months of your duties start date. This is a separate legal duty from enrolling staff, and it applies even if your only employee has opted out.

6. Report payroll to HMRC on time

Under Real Time Information, HMRC's payroll reporting system, a Full Payment Submission must reach HMRC on or before every payday. Late filing penalties are charged monthly and depend on the number of employees: £100 a month for 1 to 9 employees, £200 for 10 to 49, £300 for 50 to 249 and £400 for 250 or more. HMRC does not charge a penalty for the first late report in each tax year.

What a £30,000 hire costs

These figures are for a company whose founder is its only director, on a £12,570 salary, hiring one person on £30,000 from 6 April 2026. The figures are illustrative and use 2026/27 rates.

  • Salary: £30,000
  • Employer National Insurance: 15% on earnings above the £5,000 secondary threshold = (£30,000 − £5,000) × 15% = £3,750
  • Pension: 3% of £23,760 qualifying earnings = £712.80
  • Employers' liability insurance, laptop, software seats: roughly £1,000–£2,500 in year one

Total cost before relief: roughly £35,500–£37,000, or about 1.18–1.23× salary.

The Employment Allowance

The Employment Allowance is £10,500 a year off your employer's Class 1 National Insurance bill. A company cannot claim it if its only employee paid above the secondary threshold is a single director, which rules out many startups before their first hire.

Once you take on an employee, the company can claim it. In the example above:

  • Employer NI on the new hire: £3,750
  • Employer NI on the founder's own £12,570 salary: (£12,570 − £5,000) × 15% = £1,135.50
  • Total employer NI: £4,885.50, all of it covered by the £10,500 allowance

So the company pays no employer NI in year one, on the new hire or on the founder. The total cost falls to about £31,700–£33,200, or roughly 1.06–1.11× salary. You claim the allowance through your payroll software each tax year. If you forget, you can usually still claim it later for up to four previous tax years.

Since April 2025, employers with more than £100,000 of Class 1 liabilities can also claim the allowance.

Employee, worker or self-employed

Decide what the person will legally be before you make an offer, because their status sets what you owe them and what you owe HMRC. Employment law has three main groups. Employees work under a contract of employment and have the fullest set of rights, including statutory sick pay, minimum notice periods and, once they qualify, protection against unfair dismissal. Workers, such as some casual staff, have a smaller set of rights that still includes the National Minimum Wage and paid holiday. Self-employed contractors run their own business, invoice you and pay their own tax.

Status depends on how the work is actually done. Someone is probably an employee if they must work regularly, a manager decides how and when they do the work, they cannot send someone else in their place and the company provides their equipment. Courts and tribunals make the final decision on employment rights, and tax law has its own test, which can give a different answer. HMRC's Check Employment Status for Tax tool gives HMRC's view for tax. If you are weighing up a contractor for the role, read our guide to contractors, freelancers and IR35.

Employer National Insurance for 2026/27

The company pays employer National Insurance on top of each employee's salary. For 2026/27 the rate is 15% on earnings above the secondary threshold of £5,000 a year, which is £417 a month or £96 a week, with no upper limit. For employees under 21 and apprentices under 25, the employer rate is 0% on earnings up to £50,270 a year and 15% above that.

Employees pay their own National Insurance out of their salary, at 8% on earnings between £12,570 and £50,270 a year and 2% above £50,270. Together with income tax and their pension contribution, these deductions come out of the agreed salary and do not add to the company's cost. HMRC publishes every figure in its rates and thresholds for employers.

National Minimum Wage and National Living Wage

Everyone who counts as a worker must be paid at least the minimum hourly rate for their age. From 1 April 2026 the rates are:

  • £12.71 an hour for workers aged 21 and over, known as the National Living Wage
  • £10.85 an hour for workers aged 18 to 20
  • £8.00 an hour for workers under 18
  • £8.00 an hour for apprentices who are under 19, or who are 19 or over and in the first year of their apprenticeship

The minimum applies to pay for the hours actually worked, so a salaried employee who works long hours can fall below it. Paying less than the minimum wage is a criminal offence. HMRC can check your records at any time, and if you have underpaid, you must pay the arrears straight away, you will be fined and you may be named by the government. Keep records that show you pay at least the minimum for six years.

Sick pay, holiday and other rights

Since 6 April 2026, Statutory Sick Pay has been paid from the first full day of sickness, with no minimum earnings requirement. The rate is £123.25 a week or 80% of average weekly earnings, whichever is lower, for up to 28 weeks. You can ask for a fit note after more than seven days off in a row, including non-working days. Any company sick pay above the statutory amount must be in the contract.

Almost all workers are entitled to 5.6 weeks of paid holiday a year, which is 28 days for a five-day week, and bank holidays can count towards it. Part-time staff get 5.6 weeks pro rata, so a three-day week gives 16.8 days. Since 6 April 2026 you must keep records of leave and holiday pay for at least six years.

Paternity leave and unpaid parental leave became rights from the first day of employment on 6 April 2026. For dismissals from 1 January 2027, the qualifying period for unfair dismissal claims falls from two years to six months, so use the probation period to review a new hire properly.

What to do this week

  1. Register for PAYE on the day the offer is accepted, and no earlier than two months before the first payday.
  2. Do the right-to-work check before the start date and file the dated evidence.
  3. Draft the principal statement now so it can be handed over on day one.
  4. Get an employers' liability insurance quote. The fine for having no cover is £2,500 a day.
  5. Open the pension scheme and diarise the declaration of compliance for five months out.
  6. Put the start date, the total cost and the Employment Allowance into your cashflow forecast, because the timing of hires has a large effect on how fast a startup spends its cash.

If share options are part of the package, read our page on EMI share options. To hold EMI options, an employee must work for the company for at least 25 hours a week, or for at least 75% of their working time if that is less.

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