Taking on your first employee is the moment a UK small business stops being just you — and the moment a long list of legal duties starts, most applying from day one and several carrying fines in the thousands. None of it is complicated once written down in order, and it is cheaper than most first-time employers expect: the Employment Allowance wipes out the employer National Insurance bill on a typical first hire entirely. This checklist covers what to do before you hire, before day one, on day one, and in the first 90 days, using the 2026/27 rates and the new day-one rights.
Before you hire: is an employee the right answer?
Decide first whether you need an employee at all. If the work is irregular, a freelancer might suit — but be careful with status: if you control how, when and where someone works and supply their tools, they are usually an employee whatever the contract says, and misclassifying them creates tax, holiday-pay and dismissal risks. HMRC’s CEST tool gives an indication, though it is not definitive. If the numbers only work in a perfect month, wait.
The checklist at a glance
1. Work out the true cost, including the Employment Allowance. 2. Check the right to work, before they start. 3. Get employers’ liability insurance, from day one. 4. Register as an employer with HMRC, before the first payday. 5. Give a written statement of terms, on or before day one. 6. Set up a workplace pension and enrol them if they qualify. 7. Know the 2026 day-one rights and the January 2027 changes. 8. Run payroll: tax, National Insurance, holiday and sick pay. 9. Plan the first 90 days — probation, reviews and records.
Step 1 — Work out what the job really costs
The table below works out the cash cost of a first hire at three salary levels, using the 2026/27 rates: employer NI at 15% above £5,000 a year, employer pension at 3% of qualifying earnings (£6,240–£50,270), and roughly £450 a year for insurance and payroll software.
| Salary | Employer NI (before allowance) | Employer pension (3%) | Total cash cost after Employment Allowance |
|---|---|---|---|
| £25,000 | £3,000 | £563 | ~£26,013 |
| £30,000 | £3,750 | £713 | ~£31,163 |
| £40,000 | £5,250 | £1,013 | ~£41,463 |
The figure most guides miss is the Employment Allowance: up to £10,500 a year off your employer NI bill, which covers the whole NI charge at all three salary levels above — so a first-time employer who claims it pays no employer NI in year one. A limited company cannot claim it where the only employee paid above £5,000 a year is a director, but a genuine first employee makes the business eligible. Claim it through payroll software when you set up.
Holiday is 5.6 weeks a year — 28 days for a five-day week — paid time you still fund. The minimum wage sets the floor: from 1 April 2026 the National Living Wage is £12.71 an hour for 21 and over, £10.85 for 18 to 20, and £8.00 for under 18s and apprentices — £24,784.50 a year full-time (37.5 hours a week).
Step 2 — Check the right to work, before day one
You must check that every employee has the right to work in the UK before their employment begins — not on day one, before it. Check original documents or use the Home Office online checking service with a share code, and keep a dated copy of the evidence. The civil penalty is up to £60,000 per worker, and a check completed a day late is no defence. Our right to work checks guide walks through the three ways to check.
Step 3 — Get employers’ liability insurance
As soon as you employ someone you must have employers’ liability insurance with at least £5 million of cover, from an authorised insurer. Many policies are set at £10 million as standard. The fine for not having it is up to £2,500 for every day you are uninsured, plus up to £1,000 for not displaying the certificate. Arrange it before the start date — the duty applies from the first hour of the first day.
Step 4 — Register as an employer with HMRC
You must register as an employer before the first payday, and no earlier than two months before you start paying anyone. HMRC posts your employer PAYE reference, so allow up to two weeks. From then on you report every payment to HMRC on or before payday through payroll software, using a Full Payment Submission. Each payday, deduct Income Tax and employee NI, pay employer NI, and issue a payslip. You can run payroll yourself, use an accountant, or outsource it — but you remain responsible for its accuracy, and PAYE records must be kept for at least three years.
Step 5 — Give them a written statement on day one
Every employee and worker is entitled to a written statement of the main terms of their employment on or before their first day: pay, hours, holiday, place of work, start date, job title, probation, training, sick pay, other paid leave and notice periods. Some further details, such as pensions and disciplinary and grievance procedures, can follow within two months. A short, clear contract covering all of this is the simplest way to comply, and ACAS publishes free templates. Our new-starter legal compliance checklist lists every day-one document.
Step 6 — Set up a workplace pension
Your automatic enrolment duties start on the day your first member of staff starts work. For 2026/27 you must enrol anyone aged between 22 and State Pension age, earning more than £10,000 a year, and working in the UK. Contributions are worked out on qualifying earnings — £6,240 to £50,270 a year — and the minimum total contribution is 8%, of which at least 3% must come from you. Choose a scheme before the start date and declare compliance with The Pensions Regulator within five months.
Step 7 — Know the day-one rights that changed in 2026
The Employment Rights Act 2025 is being brought into force in stages:
| Change | From | Status |
|---|---|---|
| Day-one SSP, no lower earnings limit | 6 April 2026 | In force |
| Day-one paternity and unpaid parental leave | 6 April 2026 | In force |
| Fair Work Agency launches | 7 April 2026 | In force |
| Tribunal time limit doubles, 3 to 6 months | 1 October 2026 | In force |
| “All reasonable steps” duty to prevent sexual harassment | 30 October 2026 | In force |
| Unfair dismissal qualifying period 2 years → 6 months; cap removed | 1 January 2027 | Coming |
Use a probation period, keep notes of performance conversations, and get the paperwork right from the start — the window for letting a new employee go with little risk is getting shorter. Anyone hired now will have six months’ service when the new unfair dismissal rules start on 1 January 2027.
Step 8 — Holiday, sick pay and working time
Full-time employees get 5.6 weeks’ paid holiday a year — 28 days for a five-day week, bank holidays included if you choose — pro rata for part-time staff. The 48-hour weekly average limit applies unless the employee opts out in writing, and you must keep holiday records for six years. Statutory Sick Pay is now £123.25 a week, or 80% of average weekly earnings if lower, payable from the first day of sickness since 6 April 2026 — the old three waiting days are gone, with no minimum earnings level to qualify. Our statutory sick pay guide covers the 2026 rules in detail.
Step 9 — The first 90 days
Cover induction, health and safety, systems access and early training, and hold two or three check-ins within the first month. Set a probation period — commonly three to six months — with review dates in the diary, and confirm outcomes in writing. Our employee onboarding checklist gives a week-by-week plan. Keep the paperwork from day one: PAYE records for three years, right to work evidence for two years after employment ends, and pension and holiday records for six years.
Common first-time mistakes
The expensive errors are almost always the same five: registering with HMRC after the first payday; the right to work check on day one instead of before it; the written statement a week late; forgetting the pension, whose Declaration of Compliance has a five-month deadline; and budgeting on salary alone, then discovering the on-costs in the first pay run. Every one is avoidable if this checklist is worked through before the start date.
Frequently asked questions
What do I need to do before hiring my first employee in the UK?
Check the pay meets the minimum wage, check the right to work, get employers’ liability insurance, and register with HMRC before the first payday. On day one, give a written statement of terms and start the pension duties.
How much does it cost to employ someone in the UK?
On top of pay, budget for pension contributions of at least 3% of qualifying earnings plus insurance and payroll — roughly £1,000–£1,500 a year on a £25,000–£40,000 salary with the Employment Allowance claimed. Without it, add employer NI at 15% of earnings above £5,000 a year.
Related reading
- Right to Work Checks: UK Small Employer Guide
- Statutory Sick Pay: Employer Guide 2026
- Employee Onboarding Checklist for UK Small Businesses
- New Starter Legal Compliance Checklist UK