Hiring Your First Employee UK 2026: A £30,000 Salary Costs the Employer £35,000-£36,500 Including NIC and Pension

Before You Hire — Are They Actually an Employee?

Before you go any further, make sure the person you want to take on is genuinely an employee and not a self-employed subcontractor. Getting this wrong is one of the most expensive mistakes a tradesman can make — HMRC can pursue you for years of unpaid PAYE, NIC, and penalties.

Read our full breakdown: Subcontractor vs Employee — What's the Difference for UK Tradesmen?

The True Cost of an Employee

Most tradesmen focus on the salary figure and underestimate the full employer cost. Here is a worked example based on a £30,000 salary:

Budget for roughly 15–22% on top of the gross salary to cover all employer obligations. That gap can catch out a small trade business fast if cash flow is tight.

Step 1: Register as an Employer with HMRC

You must register as an employer with HMRC before your employee's first pay day. Do not leave this until the last minute — it can take up to two weeks to receive your references.

• Register online at gov.uk/register-employer
• You will receive an employer PAYE reference (format: 123/AB456) and a PAYE accounts office reference (format: 123PA00045678).
• You need both references to run payroll and pay HMRC.
• Allow at least two weeks before the first pay day — apply as soon as you know you are hiring.

Step 2: Right to Work Checks

Right to work checks are a legal requirement for every employee, regardless of nationality. Failure to carry them out correctly can result in a civil penalty of up to £60,000 per illegal worker.

• Check original documents before or on the employee's start date — not after.
• Acceptable documents include a valid UK or Irish passport, biometric residence permit, or share code via the online right to work checking service.
• Make a clear copy of the document and write the date you checked it. Keep this on file.
• Repeat checks are required for employees with time-limited permission to work.

Step 3: Written Employment Contract

You are legally required to provide a written statement of employment particulars on or before the employee's first day of work. This is not optional.

As a minimum the statement must include:

• Job title and a brief description of the role
• Employment start date
• Pay rate and how often they will be paid
• Working hours and days
• Holiday entitlement
• Notice periods (both employer and employee)
• Place of work
• Whether the role is permanent or fixed-term

A template employment contract can be downloaded from ACAS or purchased cheaply from a legal template provider. Do not copy one from the internet without checking it is up to date with current UK employment law.

Step 4: Set Up Payroll (RTI)

Since April 2013, all UK employers must report payroll information to HMRC in Real Time — this is known as RTI (Real Time Information). You cannot simply total everything up at year end any more.

• Every time you pay your employee you must submit a Full Payment Submission (FPS) to HMRC on or before pay day.
• If you have nothing to report in a pay period, submit an Employer Payment Summary (EPS) so HMRC knows you are still active.
• You need HMRC-recognised payroll software. Common options for small trade businesses: Xero, Sage Payroll, FreeAgent, or Moneysoft (the cheapest option, popular with sole traders taking on their first employee).
• HMRC also offers free Basic PAYE Tools for employers with fewer than 10 employees.

Step 5: Auto-Enrolment Pension

Auto-enrolment is mandatory. If your employee is aged 22 to 66 and earns over £10,000 per year, you must automatically enrol them into a workplace pension.

• Minimum employer contribution: 3% of qualifying earnings.
• Minimum employee contribution: 5% of qualifying earnings (the employee can opt out but you cannot opt them out on their behalf).
• NEST (National Employment Savings Trust) is the free government-backed pension scheme — straightforward to set up and widely used by small employers.
• You must declare compliance to The Pensions Regulator within five months of your staging date (the date auto-enrolment duties begin for you).
• Fines for non-compliance start at £400 fixed penalty and escalate to daily penalties.

Step 6: Employer's Liability Insurance

Employer's liability insurance is a legal requirement the moment you take on an employee. You must have a minimum of £5 million cover from an authorised insurer.

• The fine for not having this insurance is £2,500 for every day you are without it.
• You must display your certificate of insurance — either physically at your workplace or electronically where employees can access it.
• Most trade-specific business insurance packages include employer's liability — check your existing policy before buying separately.

Ongoing Obligations

Hiring someone is not a one-off task. Once they are on the payroll you have recurring obligations:

• Monthly payroll runs with RTI submissions to HMRC on or before each pay day.
• P60 — issued to every employee by 19 May each year, summarising their pay and tax for the year.
• P11D — filed if you provide any benefits in kind (company van, fuel card, etc.) by 6 July each year.
• Holiday pay accrual — statutory minimum is 28 days (including bank holidays) for a full-time employee. Part-time employees get a pro-rata entitlement.
• Statutory Sick Pay (SSP) — £116.75 per week (2026 rate) payable from day four of absence, for up to 28 weeks. You pay this; you cannot reclaim it from HMRC under current rules.
• Keep right to work document copies on file for the duration of employment and for two years after they leave.

Frequently Asked Questions