What is the employer National Insurance rate in 2025?

15% on earnings above £5,000 per year per employee (the Secondary Threshold), increased from 13.8% in April 2025. The Employment Allowance also increased to £10,500 to help offset the cost for eligible smaller employers.

Do I have to set up a pension for just one employee?

Yes — if your employee is aged 22–66 and earns over £10,000 per year from you, you must automatically enrol them in a qualifying workplace pension scheme and contribute at least 3% of their qualifying earnings. NEST is a free government-backed option for small employers.

What is the minimum wage in the UK in 2024?

£11.44 per hour for workers aged 21 and over (the National Living Wage), from April 2024. The rate is £8.60 for ages 18–20, and £6.40 for under 18s and apprentices in their first year. These rates are reviewed annually.

When must I register as an employer with HMRC?

Before your first payday — HMRC registration can take up to 5 working days, so register as soon as you know you are taking on staff. You must submit Real Time Information (RTI) payroll submissions on or before each payday.

Is Employers Liability Insurance compulsory for small businesses?

Yes — Employers Liability insurance is legally required the moment you employ anyone, including family members, part-time staff, and temporary workers. You must hold a minimum of £5 million cover. The HSE can fine you £2,500 for every day you operate without it.

Hiring Your First Employee — UK Employer Guide 2026

Taking on your first member of staff is a major milestone — but it comes with a raft of legal and financial obligations. This guide walks you through every step you need to take before your new employee starts work, from registering as an employer with HMRC to setting up a workplace pension.

Important: Most of these steps must be completed before your employee's first day. Leaving them until later can result in penalties from HMRC or employment tribunal claims.

Step 1 — Decide Whether You Actually Need an Employee

Before hiring, consider whether the role genuinely requires an employee or whether a self-employed contractor or freelancer would suit your needs. The distinction matters: HMRC's IR35 rules and the employment status tests look at control, substitution, and financial risk. Getting this wrong means you could end up liable for unpaid PAYE and National Insurance.

If the person will work set hours, use your equipment, and cannot send a substitute, HMRC will almost certainly treat them as an employee. Use HMRC's free Check Employment Status for Tax (CEST) tool at gov.uk if you are unsure.

Step 2 — Register as an Employer with HMRC

You must register as an employer with HMRC before your new employee's first payday — and registration can take up to five working days. Do it as soon as you have agreed a start date.

Register online via your Government Gateway account at gov.uk/register-employer.
You will receive a PAYE reference number (e.g. 123/AB45678) and an Accounts Office reference. Keep these safe — you need them for every payment to HMRC.
If you are a sole trader, you will also need to be registered for Self Assessment; if you are a limited company, the company's UTR is separate from your employer PAYE reference.

Step 3 — Carry Out Right to Work Checks

You have a legal duty to check that every employee has the right to work in the UK before they start work. Employing someone without the right to work can result in a civil penalty of up to £60,000 per worker (from January 2024) and potentially a criminal conviction.

Acceptable documents include a UK or Irish passport, a Biometric Residence Permit, or a share code from the Home Office's online checking service. Always keep a dated copy of the document you checked.

Online checks: For most non-UK/Irish nationals, use the Home Office's View a Job Applicant's Right to Work service — the candidate provides a share code, you verify it online. This gives you a statutory excuse against a penalty.

Step 4 — Issue a Written Statement of Employment Particulars

Since April 2020, all employees (and workers) are entitled to a written statement of their main terms and conditions from day one. This is sometimes called a Section 1 statement or an employment contract. Failing to provide it means an employee can apply to an employment tribunal, which can award up to four weeks' pay.

The statement must include, at minimum:

The employer's and employee's names and addresses
The start date and whether any previous employment counts towards continuous employment
Job title and a brief description of duties
Place of work
Pay rate and pay interval (weekly, monthly, etc.)
Hours of work, including any arrangements for overtime
Holiday entitlement (statutory minimum is 5.6 weeks per year for full-time employees)
Notice periods
Whether the role is permanent or fixed-term
Sick pay arrangements
Pension scheme details

Step 5 — Set Up Payroll (PAYE)

As an employer you must operate Pay As You Earn (PAYE), deducting income tax and employee National Insurance contributions from your employee's gross pay before paying them. You must also pay employer's National Insurance on top.

Key 2026/27 PAYE and NI Figures

Item	Rate / Threshold (2026/27)
Employer NI rate	15% on earnings above the Secondary Threshold
Secondary Threshold (employer NI)	£5,000 per year (£96.15/week) — reduced from £9,100 from April 2025
Employee NI (Class 1, main rate)	8% on earnings between £12,570 and £50,270
Employment Allowance	Up to £10,500 per year — offsets your employer NI bill if eligible
National Living Wage (21 and over)	£12.21 per hour
National Minimum Wage (18–20)	£10.00 per hour
Apprentice rate	£7.55 per hour

Employment Allowance: Most small employers can claim up to £10,500 per tax year off their employer NI bill. You cannot claim it if you are the sole employee and also a director. Claim through your payroll software each April.

Payroll Software

You must use HMRC-recognised payroll software to submit Real Time Information (RTI) — a Full Payment Submission (FPS) — on or before every payday. HMRC's own Basic PAYE Tools is free for up to ten employees. Commercial options such as Xero Payroll, Sage 50 Payroll, and QuickBooks Payroll automate RTI submissions and pension contributions.

Each month (or quarter if you pay less than £1,500/month in PAYE/NI) you pay HMRC the total of income tax and National Insurance deducted from your employees, plus your own employer NI, by the 22nd of the following month (19th if paying by cheque).

Step 6 — Auto-Enrolment Workplace Pension

If your employee is aged 22 to State Pension age and earns more than £10,000 per year (£192/week), you must automatically enrol them into a qualifying workplace pension scheme. You cannot opt out of this obligation — it is a legal requirement under the Pensions Act 2008.

Contribution	Minimum Rate
Employer minimum contribution	3% of qualifying earnings
Employee minimum contribution	5% of qualifying earnings (includes tax relief)
Total minimum	8% of qualifying earnings

Qualifying earnings are calculated on the band between £6,240 and £50,270 per year (2026/27 thresholds). You must set up your scheme before your employee's start date and submit a Declaration of Compliance to The Pensions Regulator within five months.

Popular pension providers for small businesses include NEST (free, government-backed), The People's Pension, and Smart Pension. Your payroll software usually handles contribution deductions and submissions automatically once linked to your chosen provider.

Step 7 — Take Out Employers' Liability Insurance

Employers' liability (EL) insurance is compulsory by law under the Employers' Liability (Compulsory Insurance) Act 1969. You must hold at least £5 million of cover (most policies provide £10 million) from the moment your employee starts. The fine for not having it is up to £2,500 per day.

EL insurance covers claims by employees who are injured or become ill as a result of their work. You must display your certificate of insurance at each workplace, or make it available electronically. Keep copies for at least 40 years — claims can arise long after employment ends (e.g. industrial disease).

Step 8 — Comply with Health & Safety Law

Once you employ staff you take on additional health and safety responsibilities:

Carry out a written risk assessment of your workplace (required once you have five or more employees, but best practice from day one).
Display the Health and Safety Law poster (available free from HSE) in your workplace, or provide each employee with the equivalent pocket card.
Ensure adequate first aid provision — at minimum a suitably stocked first aid kit and an appointed person to manage first aid arrangements.
Report injuries, diseases, and dangerous occurrences under RIDDOR (Reporting of Injuries, Diseases and Dangerous Occurrences Regulations 2013).

Step 9 — Notify Other Relevant Bodies

Depending on your business, you may also need to:

Update your data protection (GDPR) records — employee personal data must be processed lawfully and a privacy notice provided to staff.
Check whether your business activity requires DBS checks (Disclosure and Barring Service) — mandatory for roles involving children or vulnerable adults.
Register with the Information Commissioner's Office (ICO) if you process personal data beyond your own household (annual fee from £40).

Your Pre-Employment Checklist

Task	Deadline
Register as employer with HMRC	Before first payday
Carry out right to work check	Before first day
Issue written statement of employment particulars	Day one
Set up payroll software and submit FPS	On or before first payday
Enrol eligible employee in workplace pension	Within 6 weeks of start date
Obtain employers' liability insurance	Before first day
Display H&S law poster	Before first day
Complete risk assessment	Before first day
Submit Declaration of Compliance (pension)	Within 5 months of start date

Cost tip: Do not forget to factor employer NI (15% on earnings above £5,000/year), pension contributions (minimum 3%), and paid holiday (5.6 weeks) into your budget when calculating the true cost of a hire. An employee earning £25,000 will cost you roughly £27,500–£28,500 in total employer costs before any other overheads.