Hiring your first employee as a UK small business involves several legal and administrative steps that must be completed correctly before the person starts work. Following the right process helps you avoid penalties and builds a solid foundation for your team.
This guide explains the key requirements for early-stage founders and e-commerce sellers, focusing on practical actions you can take. All figures, thresholds and rules change over time, so always check the latest information on GOV.UK, HMRC and Companies House before proceeding.
Deciding when you are ready to hire
Before advertising a role, confirm that your business cash flow can support the additional cost of employment beyond the salary. Factor in employer National Insurance contributions, pension contributions, holiday pay, sick pay and training time. Many founders begin by calculating the true monthly cost of an employee and comparing it against expected additional revenue or time saved.
Consider whether the work is genuinely ongoing or could be handled by a freelancer or contractor first. If the tasks require consistent hours, supervision and integration into daily operations, moving to an employee is often the right choice. Write a simple job description that lists the exact responsibilities, skills needed and hours expected. This document helps later when drafting the contract.
Legal requirements before recruitment
You must register as an employer with HMRC before paying anyone. This can be done online and gives you an employer reference. Check that you have the correct business structure in place; sole traders, limited companies and partnerships each have slightly different obligations.
Ensure your workplace meets basic health and safety standards. For home-based or small office setups common among e-commerce sellers, this may involve a simple risk assessment. You are also required to have employer liability insurance in place before the employee starts. The policy must meet the legal minimum cover.
Prepare to carry out right to work checks on any new hire. This involves seeing original documents or using an online service and keeping copies. Failure to complete these checks correctly can lead to fines.
Setting up payroll
Payroll must be run through HMRC’s Real Time Information system. You report earnings and deductions each time you pay the employee. Many small businesses use payroll software or an accountant for the first employee to reduce errors.
Steps include:
- Registering as an employer with HMRC
- Choosing payroll software compatible with RTI
- Setting up a PAYE scheme
- Recording gross pay, deductions and net pay for each pay period
You will need to issue payslips to the employee on or before payday. Keep clear records for at least three years. If you use an online platform, confirm its current terms for small employers before signing up.
Employment contracts and key documents
Every employee must receive a written statement of employment particulars by their first day of work. This is often called the employment contract. It must include the job title, start date, place of work, hours, pay rate, holiday entitlement, notice periods and details of any probationary period.
Additional policies such as disciplinary, grievance, sickness absence and data protection should be provided even if not all are in the main contract. For e-commerce businesses, you may need to cover use of company systems, customer data handling and remote working arrangements if relevant.
Use a template that meets current legal standards and adapt it to your business. Both you and the employee should sign and date the document. Keep a copy and give the original to the new hire.
National Insurance and auto-enrolment pension obligations
As an employer you must calculate and pay employer National Insurance on earnings above the relevant threshold. The employee also has National Insurance deducted from their pay. Rates and thresholds change regularly; always use the current HMRC tables or payroll software that updates automatically.
Auto-enrolment applies once an employee meets the age and earnings criteria. You must choose a qualifying pension scheme, enrol the worker and make employer contributions. The employee can opt out but you still need to have the process in place from the staging date.
Practical steps include:
- Check the employee’s age and earnings against current rules
- Select a pension provider suitable for small employers
- Register the scheme with The Pensions Regulator
- Include pension details in the employment contract
- Pay contributions by the due date each month
Record keeping is essential. Many first-time employers work with an accountant or payroll provider for the initial months to ensure compliance.
After the employee starts
Provide a clear induction covering your business processes, health and safety, systems and expectations. Schedule regular check-ins during the first few weeks, especially if the role involves customer service or handling online orders.
Monitor holiday entitlement, sickness reporting and performance against the agreed responsibilities. Keep accurate records of all discussions and agreements. Review the contract after any probationary period and make changes only by mutual written agreement.
Stay up to date with changes in employment law. GOV.UK provides free guidance that you should check at least once a year or when planning to recruit again.
Making the most of support available
Running payroll and meeting obligations for the first time can feel complex. Consider speaking with an accountant who specialises in small businesses or using reputable payroll software designed for new employers. Free resources on GOV.UK, ACAS and The Pensions Regulator explain each step in detail.
Organisations such as Loomworks in West Yorkshire can provide mentoring and a registered address for eligible early-stage founders, helping reduce overheads while you focus on building the team. Take time to understand your obligations fully so that hiring becomes a positive step for your e-commerce business rather than an administrative burden.
Frequently asked questions
Do I need to register as an employer before hiring someone in the UK?
Yes. You must register with HMRC as an employer before paying any employee. This creates your PAYE scheme and employer reference. Registration is free and done online. Complete this step even if the role is part-time or the first hire is on a short contract.
What must be included in the written statement of employment particulars?
The statement must cover job title, start date, pay, hours, holiday entitlement, place of work, notice periods and probation details. It must be given by the first day of employment. Additional policies on sickness, discipline and data protection are usually provided at the same time.
How does auto-enrolment work for a first employee?
Once the employee meets the qualifying age and earnings criteria you must enrol them into a qualifying pension scheme and pay employer contributions. You need to choose a provider, register with The Pensions Regulator and meet contribution deadlines. The employee can choose to opt out after enrolment.
Can I hire someone as a contractor instead of an employee?
You can if the relationship is genuinely self-employed. True contractors control their own work, send invoices and pay their own tax and National Insurance. If the arrangement looks like employment, HMRC may reclassify it. Use the CEST tool on GOV.UK to help decide.
What records do I need to keep as a new employer?
Keep payslips, payroll records, right to work documents, the signed contract, pension enrolment records and any disciplinary notes. Most records must be retained for at least three years. Good record keeping helps during HMRC or tribunal checks.
Related reading: Essential business insurance types for UK startups, How to do low-cost market research in the UK, Pricing strategies for UK ecommerce startups. Browse all starting a business guides or apply to Loomworks.