Hiring your first employee as a UK startup involves several legal, administrative and practical steps that must be completed before the new team member starts work. Following the correct process protects both the founder and the employee and helps avoid penalties from HMRC or employment tribunals.
This guide sets out the essential actions for early-stage e-commerce founders, from understanding legal duties through to payroll registration, drafting contracts and effective onboarding. Each stage includes specific, actionable steps that reflect the realities of operating with limited resources and time.
Understand your legal responsibilities as an employer
Before offering any role you must register as an employer with HMRC. This is required as soon as you pay someone above the secondary Class 1 National Insurance threshold, even if that payment is only for a single day. The registration process is free and can be completed online via GOV.UK; allow several weeks for confirmation.
You are also required to provide a written statement of employment particulars on or before the first day of work. This document must cover core terms such as pay, hours, holiday entitlement, notice periods, job title and place of work. Failure to issue this statement can lead to claims at an employment tribunal.
Check current rules on GOV.UK because thresholds and requirements change. Early-stage founders should also consider whether the role should be permanent, fixed-term or carried out via a contract for services. For genuine employees, employment law protections apply from day one of employment.
Write a clear employment contract and offer letter
A well-drafted contract reduces future disputes. Start with the statement of employment particulars and expand it into a full contract that includes any additional clauses relevant to an e-commerce business, such as rules on use of company systems, confidentiality of supplier data, or restrictions on working with competitors after leaving.
Use plain language. Specify the exact job title, main duties, salary or hourly rate, payment frequency, normal working hours, location (including any expectation to work from home or the incubator space), holiday allowance, probation period if applicable, and notice periods on both sides. Include a clause confirming that the contract can only be changed by written agreement.
Many free templates exist on GOV.UK and ACAS websites. Adapt them carefully rather than copying verbatim. It is wise to have the final version reviewed by a qualified employment solicitor or a trusted mentor before issuing it. Send the contract with a formal offer letter that states the proposed start date and asks the candidate to sign and return a copy.
Set up payroll and register with HMRC
Once you have decided to hire, register as an employer through the HMRC online service. You will receive an Accounts Office reference and a PAYE reference. Even if you use payroll software or an accountant, the legal responsibility for accurate reporting remains with you as the employer.
Choose a payroll method. Options include basic spreadsheet templates provided by HMRC, commercial payroll software that integrates with Xero or QuickBooks, or outsourcing to a specialist provider. The chosen system must allow you to submit Full Payment Submission (FPS) reports each pay period and an Employer Payment Summary (EPS) when required.
Calculate deductions correctly for income tax, National Insurance and any student loan repayments. Record keeping is essential: keep copies of the contract, Right to Work checks, payroll records and P60s for at least six years. Thresholds and rates change regularly, so always verify the latest figures on GOV.UK or through HMRC’s helpline before the first payroll run.
Complete pre-employment checks and right to work verification
Carry out a Right to Work check before the employee’s first day. This can be done by examining original documents such as a passport, biometric residence permit or share code generated from the GOV.UK online service. Record the date of the check, the document type and its expiry date if relevant.
Other recommended checks include taking up at least two references from previous employers and, where the role involves handling payments or stock, considering a basic DBS check. For e-commerce roles that require driving, verify a valid UK driving licence and obtain the candidate’s permission to run an online DVLA check.
Explain the checks to the candidate early so there are no surprises. Keep copies of all documentation securely and separate from general personnel files to comply with data protection rules.
Plan an effective onboarding process
Good onboarding helps the new hire become productive quickly and feel part of the team. Prepare a simple 30-day plan before the start date. On day one, provide the signed contract, any necessary equipment (laptop, phone, access badges if working from a shared workspace), login details for key systems such as the e-commerce platform, email and accounting software, and an introduction to the current processes.
Schedule a health and safety briefing covering manual handling of stock, display screen equipment use, and fire evacuation procedures. Even if the business operates from a small unit or shared incubator desk space, these obligations still apply.
Assign a buddy or mentor for the first two weeks. Set clear objectives for the probation period, such as learning product listings, order fulfilment procedures, customer service standards and basic reporting. Hold weekly check-in meetings to review progress, answer questions and gather feedback. Document these discussions briefly in case future reference is needed.
Manage ongoing employer obligations and founder wellbeing
After the hire, maintain accurate records of holidays taken, sickness absence and any training provided. Issue payslips on or before each pay day showing gross pay, deductions and net pay. Submit all required HMRC reports on time to avoid automatic penalties.
As an early-stage founder it is easy to become overwhelmed once staff costs are added to the monthly outgoings. Set aside specific time each week for people management and administration. Consider joining a founder peer group or seeking mentoring support to discuss challenges such as performance conversations or workload distribution.
Loomworks in Liversedge offers selected early-stage founders free desks, a registered address and operator mentoring with no fees or equity taken; this type of environment can provide useful peer support during the transition to becoming an employer.
Review and improve your hiring process
After three months, evaluate how the recruitment and onboarding went. Note what worked well and what took more time than expected. Update templates, checklists and the onboarding plan so the next hire is smoother. Ask the new team member for honest feedback on the process; their perspective often highlights small improvements that save time later.
Keep up to date with employment law changes by subscribing to the free ACAS and GOV.UK email alerts. Revisit contracts and policies annually or when the business reaches new milestones such as taking on a second or third employee. Building these habits early creates a solid foundation for scaling the e-commerce operation beyond the founder-only stage.
Frequently asked questions
Do I need to register with HMRC before hiring my first employee?
Yes. You must register as an employer with HMRC before the first payday if the employee’s earnings exceed the relevant National Insurance threshold. Registration is free and done online. Late registration can result in penalties, so complete this step as soon as you have a confirmed start date.
What must be included in the written statement of employment particulars?
The statement must cover pay, hours of work, holiday entitlement, notice periods, job title, place of work and start date. It must be given on or before the first day of employment. Additional terms can be included in a fuller contract.
Can I hire someone as a freelancer instead of an employee?
Only if the working relationship genuinely meets the HMRC and legal tests for self-employment. If the person works set hours under your direct control using your systems, they are likely to be classed as an employee. Misclassification can lead to back payments of tax and National Insurance.
How do I run payroll for just one employee?
You can use free HMRC basic PAYE tools, commercial software such as Xero or BrightPay, or engage an accountant. The chosen system must support FPS and EPS submissions. Keep detailed records for at least six years.
What are the main costs beyond salary when hiring in the UK?
Employers pay Class 1 National Insurance contributions, must fund statutory sick pay and maternity or paternity pay where eligible, provide holiday pay, and cover workplace pension contributions once auto-enrolment thresholds are met. Thresholds change, so check current GOV.UK guidance.
Related reading: Where to find reliable freelancers for your e-commerce business, How to write freelance contracts that protect your UK startup, How to create SOPs for your growing e-commerce operation. Browse all operations & team guides or apply to Loomworks.