Hiring your first employee is a major step for a small business. It can give you more time to focus on growth, improve customer service and take on work you could not manage alone. But the cost of employing someone goes beyond their agreed salary.
As a first-time employer, you need to budget for employer National Insurance, pension contributions, paid holiday, insurance and payroll administration. You must also register with HMRC, check the employee’s right to work in the UK and provide the correct employment documents.
This guide explains what hiring your first employee in the UK involves in 2026, including the main costs, payroll steps and legal responsibilities.
How Much Does It Cost to Hire Your First Employee?
The total cost depends on the salary, working hours, the employee’s age, pension eligibility and benefits you offer.
As well as wages, employers may need to pay:
- Employer National Insurance contributions
- Workplace pension contributions
- Employer’s liability insurance
- Paid annual leave and statutory sick pay
- Recruitment, equipment and training costs
- Payroll software or accountant fees
For many businesses, these additional expenses can make the real employment cost noticeably higher than the employee’s gross salary. Business.gov.uk advises employers to allow for additional employment costs when preparing a hiring budget.
Employer National Insurance in 2026/27
For the tax year running from 6 April 2026 to 5 April 2027, the standard employer Class 1 National Insurance rate is 15% on an employee’s earnings above the secondary threshold.
The main secondary threshold is £5,000 a year, or £417 a month for monthly payroll. Different thresholds and reliefs can apply to certain employees, including eligible workers under 21 and apprentices under 25.
For example, if you employ someone on a £30,000 annual salary and the standard rate applies throughout the year, the approximate employer National Insurance liability is:
(£30,000 − £5,000) × 15% = £3,750 a year.
This is before any Employment Allowance claim or other applicable relief. Check the current HMRC rates before calculating your own payroll costs.
Employment Allowance Can Reduce the Bill
Eligible employers can claim Employment Allowance to reduce their employer National Insurance liability by up to £10,500 per tax year in 2026/27.
However, not every business qualifies. For example, a company with only one director cannot claim if that director is the only employee liable for secondary Class 1 National Insurance. Check the eligibility rules before including the allowance in your budget.
Minimum Wage Rates
You must pay at least the legal minimum wage for the employee’s age and circumstances. The rates in force from 1 April 2026 are:
| Worker category | Minimum hourly rate |
|---|---|
| Aged 21 and over | £12.71 |
| Aged 18–20 | £10.85 |
| Under 18 (above compulsory school-leaving age) | £8.00 |
| Eligible apprentice rate | £8.00 |
The apprentice rate generally applies to apprentices under 19 and those aged 19 or over who are in the first year of their apprenticeship. Once an apprentice aged 19 or over has completed the first year, the age-related minimum wage normally applies.
Workplace Pension Contributions
Most employers must automatically enrol eligible employees into a workplace pension scheme and make contributions.
In general, automatic enrolment applies when a worker:
- Is aged between 22 and State Pension age
- Earns at least £10,000 a year
- Normally works in the UK
The minimum employer contribution is usually 3% of qualifying earnings. The minimum total contribution is normally 8%, including the employee’s contribution.
For most schemes, qualifying earnings fall between £6,240 and £50,270 a year. This means the employer contribution is not necessarily 3% of the employee’s entire salary.
For example, on a £30,000 salary, a 3% contribution on qualifying earnings of £23,760 would be approximately £712.80 a year. The calculation can vary depending on the pension scheme’s contribution basis.
Step-by-Step: How to Hire Your First Employee
Once you have confirmed that the business can afford the role, work through the following steps before the employee starts.
1. Decide What Role You Need
Write a clear job description covering the responsibilities, required skills, working hours, location and salary range.
Think carefully about whether you need a full-time employee, part-time employee or someone on a fixed-term contract. Also consider whether the work genuinely requires an employee or could be provided by a self-employed contractor.
Employment status matters because different legal and tax rules apply. The label in a contract does not, by itself, determine someone’s employment status.
2. Register as an Employer with HMRC
Before your first payday, register as an employer with HM Revenue and Customs (HMRC). You will normally need to do this even if you are employing just one person.
HMRC will provide the employer PAYE reference needed to operate payroll. You cannot register more than two months before you start paying staff.
3. Set Up Payroll
You must calculate the employee’s gross pay, Income Tax, National Insurance and any other required deductions.
You can run payroll yourself using suitable software or use an accountant or payroll provider. Before the first payment, collect the employee’s relevant information, including their P45 or HMRC starter checklist details.
You must report pay and deductions to HMRC through a Full Payment Submission (FPS) on or before payday, unless a permitted exception applies. You also need to pay the tax and National Insurance due by the relevant HMRC deadline.
4. Check the Employee’s Right to Work
You must complete a right-to-work check before the person starts working for you.
Depending on their circumstances, this may involve checking original documents, using an approved digital identity service or completing a Home Office online check. Keep the required evidence and arrange follow-up checks where permission to work is time-limited.
Failing to carry out the correct checks can expose your business to a civil penalty.
5. Provide Written Employment Terms
Employees and workers must receive a written statement of employment particulars. The main statement must be provided on or before their first day of work, with the wider statement supplied within two months.
The main document should explain:
- Job title and responsibilities
- Salary and payment frequency
- Working hours and days
- Holiday entitlement
- Workplace or work location
- Probation period, if applicable
- Notice arrangements and other relevant terms
You should also provide accessible information about sick pay, other paid leave and disciplinary procedures. A written statement is not necessarily the whole employment contract, so use clear, consistent documents.
Other Legal Responsibilities as an Employer
Your responsibilities continue after the employee’s first day. Several rules affect everyday working arrangements and the business’s operating costs.
Paid Holiday
Almost all workers are entitled to at least 5.6 weeks of paid holiday each year. For someone working five days a week, this is normally 28 days.
You can include bank holidays within this entitlement, provided the employee still receives the statutory minimum. Part-time workers receive a proportionate entitlement based on their working pattern.
Statutory Sick Pay
Statutory Sick Pay (SSP) rules changed on 6 April 2026. Eligible employees can now receive SSP from their first full day of sickness absence, and the previous lower earnings limit has been removed.
For 2026/27, SSP is the lower of £123.25 a week or 80% of the employee’s average weekly earnings. It can be payable for up to 28 weeks. Your payroll process and sickness policy should reflect these rules.
Employer’s Liability Insurance
Most businesses that employ staff must have employer’s liability insurance as soon as they become an employer. The policy must provide at least £5 million of cover and come from an authorised insurer.
There are limited exceptions, including certain businesses that employ only close family members. Failing to maintain the required cover can result in a fine of £2,500 for each day without proper insurance.
Workplace Health and Safety
You must provide a safe working environment. Assess risks relevant to the role, provide suitable equipment and training, and take reasonable steps to protect employees from workplace hazards.
The exact requirements will depend on the type of work and where it is carried out.
Common Mistakes First-Time Employers Should Avoid
A first hire can create administrative problems if the basic requirements are overlooked. Watch out for these common mistakes:
- Budgeting for salary alone: Include employer National Insurance, pension contributions, insurance and other employment costs.
- Registering with HMRC too late: Complete employer registration before the first payday.
- Skipping right-to-work checks: Carry out the correct check before employment begins.
- Using unclear employment terms: Put pay, hours, holiday and responsibilities in writing.
- Missing payroll deadlines: Submit the required information to HMRC on time.
- Misclassifying a worker: Check employment status rather than relying only on the job title or contract wording.
- Forgetting ongoing duties: Monitor pension eligibility, holiday, sickness absence and changes to employment terms.
FAQs About Hiring Your First Employee in the UK
Do I need to register with HMRC before hiring my first employee?
You normally need to register as an employer before the first payday. This allows you to obtain your PAYE reference and set up payroll to report pay, tax and National Insurance.
Can a small business employ just one person?
Yes. A sole trader or limited company can employ one person, provided it meets the relevant employer, payroll, insurance and employment-law requirements.
Do I need an accountant to run payroll?
No. You can run payroll yourself using suitable software. However, an accountant or payroll provider may be helpful if you are unfamiliar with PAYE, National Insurance, pension deductions and reporting deadlines.
Is a workplace pension compulsory for every employee?
Not every employee must be automatically enrolled. The duty depends on age, earnings and working circumstances. However, employers must assess staff and provide the required pension options and contributions where the rules apply.
What is the minimum wage in the UK in 2026?
From 1 April 2026, the National Living Wage for workers aged 21 and over is £12.71 an hour. The rates for younger workers and eligible apprentices are lower and depend on their circumstances.
Final Thoughts
Hiring your first employee in the UK is easier to manage when you plan the costs and legal requirements before advertising the role. Calculate the full employment budget, register with HMRC, arrange payroll and insurance, check the employee’s right to work and provide written employment terms.
Once the employee starts, keep payroll, pension and workplace records up to date. If you are unsure about employment status, contracts or a specific legal obligation, seek advice from a qualified accountant or employment-law professional before making a decision.
