How to hire your first employee in a UK startup

This guide covers the legal and payroll steps for a UK startup taking on its first employee in the 2026/27 tax year, and what that employee costs over a full year.
By Buzz Accounting · Updated 16 September 2026

Your duties as a first-time employer

Taking on your first employee brings a set of legal duties that start on or before their first day. You need to check they have the right to work in the UK, give them a written statement of their terms, pay them through payroll reported to HMRC, enrol them in a workplace pension if they qualify and hold employer's liability insurance. Most of these duties have fixed deadlines, and several carry fines if you miss them.

On top of salary, for 2026/27 the company pays employer National Insurance at 15% on each employee's pay above £5,000 a year, and at least 3% of their qualifying earnings into a pension. The first hire can also change what the company pays on your own salary. A company whose only employee paid above £5,000 is its sole director cannot claim the Employment Allowance, which takes up to £10,500 a year off employer National Insurance. Once the company pays someone else above that level, it can claim the allowance for the whole tax year, against your salary as well as theirs.

What this guide covers

Employment status, right to work checks and the written statement
Registering as an employer and running payroll
Employer National Insurance, minimum wage, pensions and insurance
A worked example of the full annual cost of a hire

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.

Checking the right to work in the UK

You must check that a new employee is allowed to work in the UK before they start. If you employ someone without the right to work and did not make a correct check, the Home Office can charge a civil penalty of up to £60,000 for each illegal worker. If you can show you made the correct check, you do not pay it. You can check in three ways:

Online, using a share code the applicant gets from the Home Office.
By hand, looking at original documents such as a passport with the applicant present. Biometric residence cards and permits are no longer accepted.
Through an identity service provider using certified document checking technology.

British and Irish citizens cannot get a share code, so check their passport by hand or use a provider. For a check by hand, keep a copy that cannot be altered, such as a photocopy, record the date, and keep it for the whole employment and two years after it ends. If permission to work is time-limited, check again before it runs out. The Home Office's right to work guidance lists the documents you can accept.

Giving a written statement of employment particulars

Every employee and worker must get a written statement of their main terms. The principal statement is due on their first day and must cover at least:

names of the employer and employee, the job title or description, and the start date
pay and how often it is paid
hours and days of work, and how they can vary
holiday entitlement, and whether it includes public holidays
where they will work
how long the job is expected to last, or the end date of a fixed-term contract
any probation period and its conditions
other benefits and any training they must complete

On day one they must also get information on sick pay, other paid leave and notice periods, which can be in a separate document they can easily reach. A wider statement covering pensions, collective agreements, other training and disciplinary and grievance procedures must follow within two months. A written contract of employment that contains this information and is given by the first day can meet the requirement. Tell the employee in writing about any change within one month.

AD Solicitors, a separate SRA-regulated law firm, has a guide to what the law requires when hiring a first employee.

Registering as an employer with HMRC

To pay anyone a salary, the company must be registered with HMRC as an employer for PAYE, the Pay As You Earn system employers use to deduct income tax and National Insurance from pay. Register before the first payday. You cannot register more than two months before you start paying people, and HMRC posts the employer PAYE reference to you, so leave time for the letter to arrive. Most limited companies with between one and nine directors can register online.

If you already pay yourself a salary as a director, the company is registered and you add the new employee to the existing payroll. If you need to pay someone before the reference arrives, run payroll as normal, keep the payroll report and send it to HMRC late once you have the reference.

Running payroll and reporting to HMRC

Payroll software reports to HMRC through Real Time Information, the system that tells HMRC what you pay each employee every time you pay them. Before the first pay run, get the starter's P45 or ask them to complete HMRC's starter checklist, so the software can set their tax code and any student loan deductions. For each pay run:

Work out gross pay, income tax, National Insurance, student loan deductions and pension contributions.
Send HMRC a full payment submission, the report of each person's pay and deductions, on or before payday, including anyone paid less than £96 a week.
Give each employee a payslip on or before payday.
Send an employer payment summary by the 19th of the next tax month to claim the Employment Allowance or reclaim statutory pay.
Pay HMRC by the 22nd of the next tax month, or the 19th if paying by post.

If you usually owe less than £1,500 a month, you may be able to pay HMRC quarterly, but you still report every payday. If you would like us to run payroll, it costs £8 per employee a month (£12 if you pay weekly or fortnightly), with a £25 monthly minimum and a £75 set-up fee. Running the workplace pension costs £2 a month for each employee in the scheme and £150 to set up. All prices are plus VAT.

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.

The Employment Allowance

The Employment Allowance cuts an eligible employer's National Insurance by up to £10,500 a year. It reduces each payroll bill until the £10,500 has gone or the tax year ends. You claim it on an employer payment summary through your payroll software, again each tax year, and for 2025/26 onwards there is no limit on the size of the employer's National Insurance bill. A company cannot claim if:

its only director is also the only employee paid above the secondary threshold
it has two or more directors, only one of them is paid above the threshold and no other employee is
it does more than half of its work in the public sector, unless it is a charity
another company in its group of connected companies already claims

A company whose only director is the only person on payroll therefore pays full employer National Insurance on the director's salary. HMRC's guidance for single-director companies says that once another employee is paid above the secondary threshold, the company is eligible for the whole tax year, and the allowance can then be set against employer National Insurance on the director's salary as well as the employee's. Employer National Insurance on payments to contractors caught by the off-payroll working rules cannot be included.

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.

Workplace pensions and automatic enrolment

Your automatic enrolment duties begin on the day your first member of staff starts work, which The Pensions Regulator calls your duties start date. A company whose only staff are directors without employment contracts has no duties before then. On that date, assess each member of staff. Anyone aged from 22 to State Pension age who earns more than £10,000 a year (£833 a month or £192 a week) must be put into a workplace pension scheme, and you both pay in. Staff aged 16 to 74 outside those limits can ask to join, and you must pay in for those earning at least £6,240 a year. The steps are:

Choose a scheme that can be used for automatic enrolment and enrol eligible staff. You can postpone assessment for up to three months if you tell staff in writing.
Write to each member of staff within six weeks of the duties start date explaining how automatic enrolment applies to them.
Pay contributions every payroll. The minimum is 8% of qualifying earnings, which for 2026/27 are earnings between £6,240 and £50,270, with at least 3% from the employer. Contributions taken from pay must reach the scheme by the 22nd of the next month.
Complete your declaration of compliance with The Pensions Regulator within five months of the duties start date, using your PAYE reference and the letter code the regulator sends.
Every three years, re-enrol eligible staff who have left the scheme and complete a re-declaration.

Staff who opt out within a month of enrolment must get their contributions refunded within a month of asking. The Pensions Regulator's guidance for new employers covers each step.

Employer's liability insurance

Employer's liability insurance pays compensation if an employee is injured or becomes ill because of their work. You need it from the day you become an employer, with cover of at least £5 million from an authorised insurer. A company whose only employee is its owner, holding 50% or more of the shares, is exempt, so a founder-only company may not have needed a policy before. The exemption stops applying once you employ anyone else.

Display the certificate where employees can read it. You can display it electronically, as long as employees know where to find it and can reach it. The Health and Safety Executive can fine you up to £2,500 for each day without proper insurance, and up to £1,000 if you do not display the certificate or refuse to show it to an inspector. These rules cover employees based in England, Scotland and Wales. Northern Ireland has its own law requiring employers to insure.

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.

A worked example of the annual cost of a first hire

The figures in this example are illustrative. A software startup's only employee is its founder, the sole director, on a salary of £12,570. With no Employment Allowance, the company pays £1,135.50 of employer National Insurance on that salary, which is 15% of the £7,570 above £5,000. At the start of the 2026/27 tax year it hires a developer, aged 22 or over, on £45,000.

Salary: £45,000.00
Employer National Insurance: 15% × (£45,000 − £5,000) = £6,000.00
Minimum employer pension contribution: 3% × (£45,000 − £6,240) = 3% × £38,760 = £1,162.80
Total before the Employment Allowance: £45,000.00 + £6,000.00 + £1,162.80 = £52,162.80

Paying the developer above the secondary threshold makes the company eligible for the Employment Allowance for the whole tax year. The year's employer National Insurance is £6,000.00 + £1,135.50 = £7,135.50, which the £10,500 allowance covers in full, leaving £3,364.50 for further hires that year. The developer then costs £45,000.00 + £1,162.80 = £46,162.80 a year, or £3,846.90 a month. Because the company no longer pays £1,135.50 on the founder's salary, its total payroll cost rises by £46,162.80 − £1,135.50 = £45,027.30.

The developer's income tax, employee National Insurance and pension contribution of at least 5% of qualifying earnings come out of the £45,000, and their 28 days of paid holiday are within it. The example leaves out employer's liability insurance, equipment, software and recruitment, which depend on the quotes you get. To see the payroll cost of a different salary, use our cost of hiring calculator.

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Common questions

When do I need to register as an employer?

Register with HMRC before the first payday, and no more than two months before you start paying people. If the company already pays you a director's salary through payroll, it is already registered and you add the new employee to that payroll. HMRC posts the employer PAYE reference, so leave time for the letter to arrive. If you have to pay someone before it does, run payroll as normal, keep the full payment submission and send it to HMRC late once you have the reference.

How much is employer National Insurance in 2026/27?

Employer National Insurance is 15% of each employee's earnings above £5,000 a year, which is £417 a month or £96 a week. On a £30,000 salary the company pays £3,750 a year. The rate is 0% on earnings up to £50,270 for employees under 21 and apprentices under 25. Eligible employers can reduce the bill by up to £10,500 a year with the Employment Allowance, but a company whose only employee paid above the threshold is its sole director cannot claim it.

Can my company claim the Employment Allowance if I am the only director?

Your company can claim once someone other than you is paid above the secondary threshold. While you are the sole director and the only person paid above it, the company cannot claim. HMRC's guidance says that when the company takes on an employee and pays them above the threshold, it becomes eligible for the whole tax year, and the allowance covers employer National Insurance on your salary as well as theirs. A company with two directors who are both paid above £5,000 a year can also claim.

Do I have to put my first employee into a pension?

You must enrol them in a workplace pension if they are aged from 22 up to State Pension age and earn more than £10,000 a year. The minimum contribution is 8% of qualifying earnings, which for 2026/27 are earnings between £6,240 and £50,270, and the employer must pay at least 3%. Your duties start on the day your first employee starts work. You must write to staff within six weeks and complete a declaration of compliance with The Pensions Regulator within five months.

What are the minimum wage rates from April 2026?

From 1 April 2026 the National Living Wage for workers aged 21 and over is £12.71 an hour. Workers aged 18 to 20 must get at least £10.85, and workers under 18 at least £8.00. Apprentices who are under 19, or aged 19 or over and in the first year of their apprenticeship, must get at least £8.00. The rates apply to pay for the hours actually worked. Paying less is a criminal offence, and HMRC can require the arrears to be paid straight away and issue a fine.

Is statutory sick pay paid from the first day of sickness?

Yes, since 6 April 2026 Statutory Sick Pay has been paid from the first full day of sickness absence, and the minimum earnings requirement has been removed. The weekly rate is £123.25 or 80% of the employee's average weekly earnings, whichever is lower, for up to 28 weeks. You pay it through payroll for the days the employee normally works, with tax and National Insurance deducted. You can ask for a fit note once someone has been off sick for more than seven days in a row.