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Hiring your first employee: A step-by-step guide for UK small businesses

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Why hiring your first employee matters

Hiring your first employee is a defining moment for any entrepreneur. It signals growth, success, and the opportunity to take your business to the next level. But with that growth comes responsibility — once you employ staff, you’re legally required to comply with UK employment law.

Getting this right at the start will:

  • Protect your business from costly disputes.
  • Help you attract and retain the right people.
  • Build a foundation for scaling your business.

At impact HR, we guide small business owners through each stage of hiring their first employee, making sure compliance and confidence go hand in hand.

Hiring Your First Employeeimpact hr ident

Legal responsibilities when hiring your first employee

Before you recruit, you must understand your obligations as an employer. These include:

Registering as an employer with HMRC

  • Set up as an employer with HMRC before you run payroll. This allows you to manage PAYE (Pay As You Earn), tax, and National Insurance.

Right to work checks

  • Every new hire must have the legal right to work in the UK. Conduct and record right-to-work checks to avoid penalties.

Written employment contract

  • Provide a written statement of employment terms on or before day one. This must outline pay, working hours, holiday entitlement, and notice periods.

Payroll and pensions

  • You must set up payroll to calculate deductions for tax, NI, and pensions. Auto-enrolment into a workplace pension scheme applies to most employees.

Insurance and policies

  • Employers’ liability insurance is legally required. You’ll also need policies covering health & safety, equality, and data protection.

Planning ahead: What your business needs

Hiring your first employee should be strategic, not just reactive. Think about:

  • Which tasks you need help with most.
  • Whether you need full-time, part-time, or temporary support.
  • What mix of skills and behaviours will benefit your business culture.

A clear job description will help you recruit effectively and prevent misunderstandings later.

  • Recruitment and onboarding process

    Advertising and selection

    • Write inclusive job adverts that describe the role, skills, and benefits clearly. Post on relevant job boards, LinkedIn, or work with an HR recruitment partner.

    Interviewing candidates

    • Prepare structured interview questions to assess skills and values. Document your process to ensure fairness and avoid discrimination.

    Making the offer

    • When you’ve found the right person, make a formal job offer in writing. Follow this up with an employment contract and any supporting documents.

    Onboarding and induction

    • Introduce your new employee to your company culture, policies, and systems. A strong induction builds engagement and loyalty from day one.

  • Costs to consider when hiring your first employee

    Hiring your first employee is more than just paying a salary. Employers need to budget for:

    • Salary and National Insurance contributions – The core cost of employing staff.
    • Pension contributions – Required under auto-enrolment.
    • Holiday pay and sick pay – Statutory entitlements you must provide.
    • Insurance – Employers’ liability insurance is compulsory.
    • HR systems and admin – Payroll software, contracts, and policies.
    • Training and development – To ensure your employee can perform effectively.

    Factoring these costs into your business plan avoids nasty surprises and ensures you can afford your new hire.

  • Common Mistakes to Avoid

    • Hiring without a contract in place.
    • Forgetting to register with HMRC.
    • Overlooking holiday or working time rules.
    • Ignoring health & safety requirements.
    • Rushing to hire without planning the role carefully.

    Avoiding these mistakes helps you stay compliant and build a solid employment relationship.

Hiring your first employee

Hiring your first employee can feel daunting, but it’s also the most exciting step in growing your business. By planning ahead, understanding your legal duties, and creating a smooth recruitment process, you’ll be set up for long-term success.

At impact HR, we specialise in supporting small businesses with contracts, compliance, and ongoing HR advice. We’ll help you hire your first employee with confidence.

Your Questions Answered

Everything you need to know about hiring your first employee

  • Do I need to register with HMRC before hiring?Reveal

    Yes, you must register as an employer before you pay your first employee.

  • What checks do I need to carry out when hiring my first employee?Reveal

    You must confirm right to work, keep copies of documents, and record the process.

  • When do I need to provide a contract of employment?Reveal

    On or before the employee’s first working day.

  • Do I need to set up a workplace pension for my first employee?Reveal

    Yes, auto-enrolment requires most employees to be offered a workplace pension.

  • What insurance is mandatory?Reveal

    Employers’ liability insurance is required by law.

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