Setting up payroll for your first UK employees

Setting up payroll for your first UK employees requires registering as an employer with HMRC, preparing for Real Time Information submissions and meeting workplace pension obligations. The process can feel daunting but follows a clear sequence that keeps you legally compliant without unnecessary cost or complexity.

This guide walks through the essential steps, software choices suitable for small teams and the practical decisions you will face as an early-stage founder or e-commerce seller. Each stage includes specific actions and the reasoning behind them so you can move forward confidently.

Deciding when you need to register as an employer

You must register with HMRC before the first time you pay an employee above the current National Insurance threshold or if you operate a pension scheme that requires contributions. Registration is free and creates your PAYE reference. The process usually takes a few days but can be longer during busy periods, so begin at least four weeks before the intended first pay date.

Even if you plan to use a freelancer or contractor initially, switching to employment changes your responsibilities. Early registration avoids late filing penalties and gives time to set up systems. Check the current rules on GOV.UK because thresholds and requirements change.

Step-by-step HMRC employer registration

Visit the GOV.UK website and search for ‘register as an employer’. You will need your Government Gateway login or to create one.
Provide basic company details including your company number from Companies House, registered office address and the date you expect to make the first payment to an employee.
Answer questions about the type of workers you will employ, whether you will operate a pension scheme and if you will pay statutory sick pay or maternity pay.
Once submitted, HMRC issues a PAYE reference number and an Accounts Office reference. Keep these safe; you will use them for every RTI submission.
Confirm receipt of the confirmation letter. If anything appears incorrect, contact HMRC promptly using the details provided.

Complete this before hiring so you can issue payslips from the first pay run. The reasoning is simple: HMRC links all tax and National Insurance records to this reference, making accurate reporting impossible without it.

Understanding and preparing for Real Time Information (RTI)

RTI requires you to send payroll information to HMRC on or before the date you pay employees. This replaces the old end-of-year P35 and P14 forms. For most small teams the Full Payment Submission (FPS) is the main report; an Employer Payment Summary (EPS) is used if you claim certain reliefs or have zero payments in a month.

Practical steps include:

Decide on a consistent pay date, for example the last working day of each month.
Collect employee information before the first payment: full name, date of birth, National Insurance number, address, P45 or starter checklist details.
Calculate gross pay, deductions and net pay for each employee.
Submit the FPS by the payment date even if the bank transfer happens later.

Submitting on time prevents automatic penalties. Many founders choose software that generates the FPS automatically rather than completing the forms manually on the HMRC website.

Meeting pension auto-enrolment duties

Auto-enrolment requires most employers to assess staff, enrol eligible workers into a qualifying pension scheme and make minimum contributions. The duty starts on the employer’s staging date, which depends on the number of employees and is staggered over several years. New employers receive a staging date after registration.

Key actions include:

Check your staging date on the GOV.UK pension regulator tool using your PAYE reference.
Choose a qualifying pension provider. Many small businesses use NEST, People’s Pension or a master trust that handles administration.
Write to employees explaining their options and the date they will be enrolled if they take no action.
Enrol eligible staff and deduct contributions from the first pay after the staging date or re-enrolment date.
Submit pension data each month alongside payroll.

Because contribution rates and earnings bands change, always verify the latest figures on GOV.UK before the first pay run. The reasoning behind auto-enrolment is to help employees save for retirement while spreading the cost across employer and employee contributions.

Choosing payroll software for small teams

Manual spreadsheets and HMRC’s Basic PAYE Tools work for one or two employees but become error-prone as the team grows. Dedicated software reduces mistakes, stores employee records securely and submits RTI directly.

Practical options for early-stage teams include:

Free or low-cost tools such as HMRC-approved apps that integrate with accounting packages.
Platforms designed for small businesses that also handle pension uploads, statutory pay calculations and payslip generation.
Services that offer both payroll and HR features if you anticipate rapid hiring.

When choosing, consider the number of employees, whether you need automatic pension file uploads, ease of use on mobile and the cost structure. Most platforms charge per employee per month or offer a flat monthly fee. Test the free trial with sample data to ensure the RTI submission process works smoothly before going live. Always confirm the platform’s current pricing and terms because they change.

Running your first payroll and staying compliant

With registration complete, RTI prepared and a pension scheme selected, the first payroll follows a repeatable monthly process. Gather approved timesheets or salary agreements, enter hours or fixed amounts into the software, review the preview payslips for accuracy and submit the FPS.

After payment, keep records of every submission, payslip and pension contribution for at least six years. Provide each employee with a payslip on or before payday showing gross pay, deductions and net amount. If an employee leaves, issue a P45 promptly.

Review the process after the first two months. Many founders discover they need clearer policies on overtime, holiday pay or expense claims. Document these in a simple employee handbook to reduce future questions. Regular compliance checks prevent small errors from becoming expensive problems.

Making use of available support

Free guidance is available from GOV.UK, the HMRC employer helpline and the Pensions Regulator. Many accounting platforms also provide webinars and setup checklists. Taking time to understand the core rules before hiring reduces stress and avoids common mistakes such as late RTI submissions or incorrect pension enrolment.

Founders based at Loomworks in Liversedge can discuss operational challenges with the operator team, who often connect early-stage teams with practical advice on hiring and compliance. Building these foundations early supports sustainable growth without unnecessary administrative burden.

Frequently asked questions

Do I need to register with HMRC before hiring my first employee?

Yes. You must register as an employer before the first payment that exceeds the National Insurance threshold or if you will operate a pension scheme. Registration creates your PAYE reference and should be completed at least four weeks before the planned first payday. Check current requirements on GOV.UK.

What is RTI and when do I submit it?

Real Time Information means sending payroll data to HMRC on or before each pay date using a Full Payment Submission. Even if you pay only one employee you must submit every pay period. Late submissions can attract penalties, so consistent timing and reliable software help maintain compliance.

How does auto-enrolment work for a small team?

You assess staff against eligibility criteria on your staging date, enrol qualifying employees into a pension scheme and deduct contributions. You must also write to all staff explaining the process. Contribution rates and bands change, so verify the latest details on GOV.UK before enrolment.

Can I use free software for payroll and RTI?

HMRC provides Basic PAYE Tools at no cost, and several commercial platforms offer free tiers or trials for very small teams. Most founders move to paid software once they have more than two or three employees because it saves time on pension reporting and reduces errors.

What records must I keep after setting up payroll?

Keep copies of RTI submissions, payslips, pension contribution records, employee starter information and any statutory pay calculations for at least six years. Good record-keeping simplifies year-end reporting and protects you if HMRC or an employee asks for clarification.