30 Apr Thinking of Taking On Your First Employee? Here’s What You Need to Know
So, your business is growing: congratulations! Reaching the point where you can no longer do everything yourself is a massive milestone. Whether you’re a sole trader drowning in admin or a limited company director ready to scale, taking on your first employee is a clear sign that you’re doing something right.
But, as with most things in the world of business, it isn’t as simple as shaking hands and handing over a desk. There is a fair bit of "red tape" involved, from HMRC registrations to new pension rules and legal contracts. It can feel a bit overwhelming, but don’t panic. At Harrison's Accountancy, we’ve helped countless businesses navigate this transition, and it’s much easier when you break it down into steps.
In this guide, we’ll walk you through exactly what you need to do to stay compliant, keep your new team member happy, and ensure your finances are ready for the April 2026 changes.
Step 1: The "Real" Cost of an Employee
Are you budgeting for more than just the gross salary?
Before you post that job advert, you need to be sure the numbers actually stack up. Many first-time employers make the mistake of only budgeting for the salary they’ve agreed to pay. In reality, the cost of an employee is significantly higher.
When you hire someone, you need to account for:
- Gross Salary: The amount you agree to pay them.
- Employer National Insurance Contributions (NICs): This is a big one. As we move through 2026, it’s important to stay aware of the current NIC rates. Following the changes from April 2026, the landscape for employer contributions has shifted, and you need to ensure your margins can handle the secondary Class 1 NICs.
- Pension Contributions: Under auto-enrolment, you’ll likely need to contribute at least 3% of their "qualifying earnings" into a pension scheme.
- The Employment Allowance: On a positive note, you may be eligible for the Employment Allowance, which can reduce your annual NIC bill. However, there are specific rules about when this applies (for example, if you are a sole director/employee company, you generally can't claim it until you hire a second person).
Step 2: Registering as an Employer with HMRC
How do you tell the taxman you’re now a boss?
Even if you’re only hiring one person, you usually need to register as an employer with HMRC. This should be done before the first payday, but not more than two months before you start paying people.
Once registered, you’ll receive your PAYE (Pay As You Earn) Online login details and your Employer BRA (Business Reference Account). This allows you to report your payroll data to HMRC every month.
At Harrison’s, we often handle this for our clients through our payroll services. It saves you the headache of setting up the systems yourself and ensures that you are registered correctly from day one. If you’re using software like Xero or QuickBooks, you’ll need these HMRC credentials to link your accounts.
Step 3: The Legal Bit – Contracts and "Right to Work"
Have you checked their documents and given them a written statement?
You can’t just take someone’s word for it; you have a legal obligation to check that your new hire has the right to work in the UK. This involves checking original documents (like a passport) or using a share code if they have settled status. Failing to do this can lead to massive fines, so make it the very first thing you do on their first day (or before).
Secondly, you must provide a "written statement of employment particulars." Most people just call this an employment contract. This isn't something you should put off; it’s a legal requirement to provide the main document on or before the day they start. It should cover:
- Job title and duties.
- Pay rate and frequency.
- Working hours and holiday entitlement.
- Notice periods.
- Place of work.
Step 4: Employers’ Liability Insurance
Is your business protected if something goes wrong?
As soon as you become an employer, you are legally required to have Employers’ Liability Insurance. This must cover you for at least £5 million and come from an authorised insurer.
This insurance protects you if an employee gets ill or injured because of the work they do for you. If you’re caught without it, the Health and Safety Executive (HSE) can fine you up to £2,500 for every day you are uninsured. It’s one of those non-negotiables that you need to get sorted before the ink is dry on the contract.
Step 5: Understanding Auto-Enrolment Pensions
What are your duties for workplace pensions in 2026?
Workplace pensions are no longer just for big corporations. If your new employee is aged between 22 and the State Pension age and earns more than £10,000 a year, you must enrol them in a pension scheme and make contributions.
Even if they earn less than that, they still have the right to join a scheme if they ask, and in many cases, you’ll still have to contribute. You’ll need to:
- Set up a pension scheme (like NEST or a private provider).
- Communicate with your employee in writing about how the scheme works.
- Manage the monthly deductions and payments.
This is often the part of being an employer that business owners find the most frustrating because of the ongoing admin. Integrating your bookkeeping services with your payroll software is the best way to keep this automated.
Step 6: The April 2026 Employer NIC Changes
How do the latest tax updates affect your hiring plan?
Timing is everything in business. As we entered April 2026, the government introduced updates to the National Insurance landscape. For employers, this means staying sharp on your "Secondary Class 1" contributions.
If you haven't reviewed your staffing budget since the start of the 2026/27 tax year, now is the time to sit down with your accountant and run the numbers again. Small changes in thresholds or percentages can make a big difference to your annual bottom line, especially if you plan on hiring more than one person this year.
Step 7: Running Payroll and "RTI"
How do you actually pay them?
In the old days, you could write a cheque and figure out the tax later. Not anymore. Under the Real Time Information (RTI) system, you must tell HMRC about your employee's pay and deductions on or before the day you pay them.
Every month (or week), you’ll need to produce a payslip showing:
- Gross pay.
- Tax and National Insurance deductions.
- Student loan repayments (if applicable).
- Pension contributions.
- Net pay (what actually hits their bank account).
Getting this wrong is a surefire way to upset your new hire and trigger HMRC penalties. Most of our clients at Harrison's Accountancy prefer to outsource this to us so they can focus on training their new staff member instead of wrestling with payroll software.
Step 8: Setting Them Up for Success
Beyond the paperwork, how do you keep them?
Hiring is expensive. Between the recruitment time, the equipment, and the training, you’re making a significant investment. The best way to protect that investment is to have a solid onboarding process.
- Clear Expectations: Do they know what "good" looks like in their role?
- The Right Tools: Is their laptop ready? Do they have logins for the systems they need?
- Regular Feedback: Don't wait for a six-month review to tell them they're doing a great job (or where they can improve).
Need a Hand Getting Started?
Taking on your first employee is an exciting leap of faith. It’s the moment you stop being a "one-man band" and start becoming a "business owner."
At Harrison's Accountancy, we love seeing our clients grow. We can help you with everything from registering for PAYE and managing your monthly payroll to advising on the most tax-efficient way to structure your team’s compensation.
If you’re thinking about hiring and want to make sure you’ve got your ducks in a row for the 2026 tax year, why not get in touch with us today? We’ll handle the spreadsheets so you can focus on building your team.
Congratulations on the growth( now let’s get to work!)
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