Hiring your first employee is a big step. It usually means your business is growing, your workload is increasing, and you are ready to bring someone in to help you move forward. However, before you agree a start date and send over the first payslip, you need to make sure payroll is set up properly.
Payroll is not just about paying wages. It covers PAYE, National Insurance, pension duties, payslips, employee records, HMRC reporting and legal checks. With 30.3 million payrolled employees estimated across the UK in February 2026, payroll is a normal part of running a business, but it still needs to be handled carefully from day 1.
If you are hiring for the first time, getting help from Asmat Accountants accountancy firm can make the process clearer and help you avoid mistakes before they become expensive.
Understand whether you need to register as an employer
Before you pay your first employee, you need to check whether you must register as an employer with HMRC. In most cases, if you are paying someone through PAYE, you will need to register.
You must register before the first payday, but you cannot register more than 2 months before you start paying people. Once registered, HMRC sends your employer PAYE reference and Accounts Office reference, which you will need for payroll submissions and payments.
Do not leave this until the day before payday. It can take time for HMRC details to arrive, and you need these references to keep everything organised.
Choose how you will run payroll
You have 2 main choices. You can run payroll yourself using payroll software, or you can outsource it to an accountant or payroll provider.
If you run payroll yourself, you need software that can record employee details, calculate pay and deductions, produce payslips and report to HMRC. GOV.UK explains that setting up payroll includes registering as an employer, choosing payroll software, collecting and keeping records, and telling HMRC about your employees.
If you outsource payroll, you still remain responsible as the employer, but the admin can be handled for you. This can be useful if you do not want to deal with tax codes, National Insurance, pension deductions, statutory pay or HMRC submissions every month.
Check the employee’s right to work
Before you employ someone in the UK, you must check that they have the right to work. This should be done before employment starts, not after they have already begun working.
You can usually check this using the government’s online right to work service if the applicant gives you a share code, or by checking acceptable original documents where appropriate.
Keep a record of the check. This is not just a payroll issue, but it is part of setting up employment properly.
Collect the right starter information
To add someone to payroll, you need accurate employee details. These usually include their full name, address, date of birth, National Insurance number, start date and pay details.
You should also ask for their P45 from their previous employer. If they do not have a recent P45, they should complete a starter checklist. This helps you apply the correct tax code and starter declaration in your payroll software.
This step matters because the wrong starter information can lead to incorrect tax deductions. That can create problems for both you and your employee.
Agree pay, hours and contract terms clearly
Before payroll starts, make sure you are clear on how much the employee will be paid and how often. Will they be paid weekly, fortnightly or monthly? Are they salaried or hourly paid? Will overtime, commission, bonuses or expenses apply?
You also need to make sure pay meets the legal minimum wage rules. From April 2026, the National Living Wage for workers aged 21 and over is £12.71 per hour. The rate is £10.85 for 18 to 20-year-olds, and £8.00 for under 18s and apprentices.
Even small mistakes can matter. For example, unpaid training time, deductions for uniforms, or unpaid extra hours can sometimes push average pay below the legal minimum. This is why it is important to record hours properly, especially for hourly workers.
Set up PAYE, Income Tax and National Insurance correctly
PAYE is the system used to collect Income Tax and National Insurance from employees’ wages. Your payroll software calculates deductions based on pay, tax code, National Insurance category and other employee details.
You then need to pay the employee their net pay, which is the amount left after deductions. The deducted tax and National Insurance are then paid to HMRC.
This is where accuracy matters. If payroll is wrong, employees may be underpaid or overpaid, and HMRC records may not match what has actually happened. That can lead to time-consuming corrections later.
Send payroll reports to HMRC on time
Every time you pay your employee, you normally need to send a Full Payment Submission to HMRC. This tells HMRC what you have paid and what deductions have been made.
The Full Payment Submission must be sent on or before the employee’s payday, even if you pay HMRC quarterly rather than monthly.
This is one of the most common areas where first-time employers can slip up. Payroll should be run before payment is made, not treated as something to tidy up afterwards.
Provide a proper payslip
Your employee must receive a payslip. A payslip should clearly show earnings before and after deductions, the amount of deductions that change each time they are paid, and the number of hours worked if pay varies depending on time worked.
A clear payslip helps your employee understand how their pay has been calculated. It also reduces questions and protects you if there is ever a disagreement about pay.
Your payslip should be easy to read and should not leave the employee guessing what has been deducted or why.
Think about workplace pensions early
When you become an employer, you also need to think about automatic enrolment pension duties. You must assess your employee and decide whether they need to be automatically enrolled into a workplace pension scheme.
For the 2026 to 2027 tax year, the automatic enrolment earnings trigger remains £10,000. This means eligible workers earning above this level may need to be automatically enrolled, depending on their age and circumstances.
Even if your first employee does not need to be enrolled, you still have duties. You may need to write to them, keep records and monitor their earnings over time.
Budget for the full cost of employment
The cost of hiring someone is more than their agreed wage or salary. You may also need to budget for employer National Insurance, pension contributions, holiday pay, sick pay, payroll software, insurance, training, equipment and professional support.
For example, if you agree to pay someone £28,000 per year, the real cost to the business may be higher once employer costs are included. This is why you should check affordability before making the hire.
Good payroll planning helps you avoid cash flow pressure. You should know what the employee will cost each month and when HMRC payments are due.
Keep accurate payroll records
Payroll records should be kept properly from the start. These records may include employee details, pay, deductions, tax code notices, pension information, statutory payments, leave records and HMRC submissions.
Keeping records in order helps if HMRC asks questions, if an employee queries their pay, or if you need to review employment costs later.
Do not rely on memory or informal notes. Once you employ someone, proper records become part of running the business responsibly.
Final thoughts
Hiring your first employee is exciting, but payroll needs to be set up correctly before the first payday. You need to register with HMRC, choose the right payroll process, check right to work, collect starter details, apply the correct pay rates, report to HMRC, issue payslips and plan for pension duties.
When payroll is handled properly from the start, you protect your business, support your employee and avoid unnecessary stress. It also gives you a clearer view of the real cost of employment, which helps with cash flow and planning.
If you are preparing to hire your first employee and want payroll set up correctly, contact Asmat Accountants today for practical support with PAYE, payroll records, payslips and employer responsibilities.
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