Taking on Your First Employee: A Payroll Guide for UK Employers

Payroll is more than simply working out how much to pay somebody each month. You may need to register as an employer, collect the correct information from your new starter, deduct tax and National Insurance, report their pay to HMRC and deal with workplace pension duties.

Getting everything set up properly from the start can make running payroll considerably easier later.

Registering as an employer with HMRC

If you are taking on your first employee, one of the first things to consider is whether you need to register as an employer with HMRC.

Where registration is required, you should normally register before the first payday so that HMRC can issue your employer PAYE reference. You cannot normally register more than two months before you start paying employees.

PAYE - Pay As You Earn - is the system used to collect Income Tax and National Insurance through payroll.

It is worth dealing with the registration early rather than leaving it until your employee is about to be paid. Your PAYE reference and Accounts Office reference are needed for various payroll and HMRC processes.

Get the right information from your employee

Before running the first payroll, you will need information about your new employee.

This will usually include their:

• full name
• address
• date of birth
• National Insurance number
• start date
• agreed salary or hourly rate
• working hours
• bank details for payment

You should also ask for their P45 from their previous employment.

If they do not have a P45, they can normally complete HMRC’s starter checklist instead. This helps establish the appropriate starter declaration and tax code to use.

It is important to get this right. Using incorrect starter information can result in too much or too little tax being deducted from the employee’s wages.

Check the National Minimum Wage

The amount you have agreed to pay must comply with National Minimum Wage rules where they apply.

From 1 April 2026, the main hourly rates are:

The apprentice rate does not apply to every apprentice. For example, an apprentice aged 19 or over who has completed the first year of their apprenticeship is generally entitled to the minimum wage rate for their age instead.

Minimum wage calculations can also become more complicated than simply comparing someone’s salary with their contracted hours, particularly where working time, deductions or accommodation are involved.

Running payroll

Once everything is set up, payroll needs to calculate the employee’s gross pay and any relevant deductions.

Depending on the employee’s circumstances, these can include:

• Income Tax
• employee National Insurance
• workplace pension contributions
• student or postgraduate loan deductions
• other authorised deductions

The employer may also have its own costs on top of the employee’s gross pay, including employer National Insurance and employer pension contributions.

For 2026/27, the standard employer Class 1 National Insurance rate is 15% above the relevant Secondary Threshold, which for most employees is £5,000 a year. Different rules and thresholds can apply to certain employees, including some employees under 21 and qualifying apprentices.

Eligible employers may also be able to reduce their employer National Insurance liability using the Employment Allowance, which is £10,500 for 2026/27. Eligibility should be checked rather than assuming the allowance automatically applies.

Reporting payroll to HMRC

Running the calculations is only part of the payroll process.

Employers generally report pay and deductions to HMRC through a Full Payment Submission (FPS).

The FPS should normally be submitted on or before the employee’s payday. Your new employee’s details are included on the FPS the first time you pay them.

This is an important deadline. Filing late can potentially result in penalties, although there are limited exceptions to the normal reporting deadline.

There are also circumstances where an Employer Payment Summary (EPS) is required instead of, or in addition to, an FPS. For example, an EPS may be needed where no employees were paid during a tax month or where certain reductions need to be reported to HMRC.

Paying PAYE to HMRC

The tax and National Insurance calculated through payroll does not simply remain in the business.

Amounts due to HMRC generally need to be paid by the 22nd of the following tax month when paying electronically. Employers authorised to pay quarterly generally have until the 22nd following the end of the relevant quarter. Different deadlines apply to payments made by post.

For example, payroll deductions relating to a tax month ending on 5 October would normally need to reach HMRC electronically by 22 October.

Keeping the money owed to HMRC separate in your mind from the business’s available cash can help avoid an unpleasant surprise when the payment falls due.

Don’t forget workplace pensions

Taking on an employee can also trigger workplace pension responsibilities.

Your automatic enrolment duties begin when your first member of staff starts work. You need to assess employees based on their age and earnings, even where you ultimately determine that they do not need to be automatically enrolled.

At present, employees generally need to be automatically enrolled where they are:

• aged from 22 up to State Pension age; and
• earning more than £10,000 a year, £833 a month or £192 a week.

Employers also have duties to communicate with staff and complete a declaration of compliance. For a new employer, the declaration normally needs to be completed within five months of the duties start date.

Pension duties then continue. Employers need to monitor employees’ age and earnings, maintain the required contributions and deal correctly with employees who join or leave the scheme.

What happens after the first payroll?

Once the employee is properly set up, payroll becomes a recurring process.

Each pay period you will generally need to:

1. confirm any changes to pay, hours, bonuses, sickness or other relevant information;
2. process the payroll;
3. calculate the appropriate deductions;
4. provide the employee with a payslip;
5. submit the required information to HMRC;
6. deal with workplace pension contributions where applicable; and
7. make the appropriate payment to HMRC by the relevant deadline.

You will also need to deal with changes as they arise, such as new tax codes, pay rises, statutory payments, employees leaving and new employees joining.

This is why it is worth having a clear payroll process rather than treating payroll as something to work out again each payday.

Do I need an accountant to run payroll?

There is nothing to stop a business running its own payroll using suitable payroll software.

For some employers, particularly those with a very small and straightforward payroll, that can work perfectly well.

However, payroll comes with recurring deadlines and rules which can change from one tax year to the next. Mistakes can also affect employees directly - whether through incorrect wages, tax deductions or pension contributions.

Outsourcing payroll can therefore be useful where you would rather spend your time running the business than keeping on top of PAYE administration.

Baldwin’s Accountancy Services provides payroll services for businesses, including payroll calculations, payslips, HMRC submissions and ongoing payroll support.

If you are preparing to take on your first employee, getting the payroll set up correctly before the first payday can save a considerable amount of work later.