Taking on your first employee is a significant milestone — but it comes with a raft of legal and tax obligations that many new employers aren't prepared for. Get it right from day one with this step-by-step guide.
Before You Hire: Checklist
Setting Up PAYE
PAYE (Pay As You Earn) is HMRC's system for collecting Income Tax and National Insurance from employees. As an employer, you're responsible for calculating and deducting these amounts from your employees' wages and paying them to HMRC.
- 01Register as an employer
Register with HMRC online at least 5 working days before your first payday. You'll receive a PAYE reference number and an Accounts Office reference.
- 02Get payroll software
You need HMRC-recognised payroll software to calculate deductions and submit RTI (Real Time Information) reports. Options include Xero Payroll, QuickBooks Payroll, or Sage Payroll.
- 03Collect a P45 or starter checklist
Ask your new employee for their P45 from their previous employer. If they don't have one, use HMRC's starter checklist to determine their tax code.
- 04Run payroll and submit RTI
Each time you pay your employees, you must submit a Full Payment Submission (FPS) to HMRC on or before payday. This is a legal requirement.
- 05Pay HMRC
Pay the Income Tax and NI deductions to HMRC by the 19th of the following month (22nd if paying electronically).
2024/25 National Minimum Wage Rates
Automatic Enrolment: Your Pension Obligations
From the day you take on your first employee, you have automatic enrolment obligations. You must automatically enrol eligible employees into a workplace pension scheme and make employer contributions.
Who must be automatically enrolled?
Employees who are:
- Aged between 22 and State Pension age
- Earning more than £10,000 per year (£833/month)
- Working in the UK
Minimum employer contribution
3%
of qualifying earnings
Minimum total contribution
8%
employee contributes the remaining 5%
Employment Allowance: Reduce Your NI Bill
Most employers can claim the Employment Allowance, which reduces your employer NI bill by up to £5,000 per year. This is particularly valuable for small businesses — it can effectively mean you pay no employer NI at all if your bill is under £5,000.
Note: You cannot claim the Employment Allowance if you're the only employee and also a director of the company. Our payroll team will check your eligibility and claim it on your behalf.
Let Us Handle Your Payroll
Our payroll service covers everything — PAYE registration, RTI submissions, auto-enrolment, payslips, and year-end P60s. From just £X per employee per month.