Your first employee: payroll, RTI and pensions without the panic

Hiring your first employee is one of the genuinely big moments in a small business — and it arrives bundled with a stack of three-letter obligations: PAYE, RTI, FPS, NMW, AE. The good news is that first-employee payroll is a checklist, not a judgement call. Work through it once, and what remains is a monthly rhythm that software (or your bookkeeper) carries for you.

Here is the checklist, in the order it actually happens.

Before they start

• Check their right to work in the UK. A legal requirement for every hire, done before day one, with a record kept of the check.
• Give a written statement of employment particulars. Employees (and workers) are entitled to this from their first day: pay, hours, holiday, notice, place of work. A proper contract covering the same ground is better still.
• Take out employers' liability insurance. Legally required as soon as you employ someone, with cover of at least £5 million from an authorised insurer. There are daily fines for being without it.
• Check the pay rate against the National Minimum Wage. The rates change every April and vary by age — check the current figures on GOV.UK before you agree wages, not after.

Register as an employer

Register with HMRC as an employer before the first payday, and allow time for your PAYE reference numbers to arrive — do not leave it to the week wages are due. Registration is free and done online.

At the same time, choose how payroll will actually be run: payroll software you operate yourself (HMRC also provides free Basic PAYE Tools for small employers), or payroll run for you as part of a bookkeeping arrangement. What you cannot do is scribble net pay on an envelope; the reporting obligations below assume software.

RTI: telling HMRC in real time

PAYE runs on Real Time Information (RTI), which means you report to HMRC every time you pay someone — not annually, not quarterly.

• The Full Payment Submission (FPS) goes to HMRC on or before each payday, showing each employee's pay, tax and National Insurance.
• The Employer Payment Summary (EPS) is the companion filing used when there is something extra to say — no one was paid this month, or you are recovering statutory payments such as parental pay.

Late or missing FPS filings attract penalties, so the single most useful habit is a fixed payday and a payroll routine anchored a few days before it.

What a payslip is made of

Every employee has a legal right to an itemised payslip on or before payday. From gross pay, the usual deductions are: Income Tax via their tax code, employee National Insurance, pension contributions, and student loan repayments where they apply. What arrives in their bank is net pay.

Your costs as employer do not stop at gross pay. On top sit employer National Insurance (above a threshold — check the current rates and thresholds on GOV.UK) and your employer pension contributions. Many small employers can reduce their employer NI bill through the Employment Allowance — eligibility rules apply, so check whether you qualify. When budgeting for a hire, budget for gross pay plus these on-costs, not the salary alone.

Each month you pay HMRC the tax and National Insurance you have deducted, normally by the 22nd if paying electronically. Small employers whose bills are below HMRC's limit can arrange to pay quarterly instead.

Auto-enrolment: pensions from day one

Workplace pension duties start on your first employee's first day — the law calls it your duties start date — and they apply even if you employ exactly one person.

• Assess your staff. Broadly, anyone aged 22 to State Pension age earning over £10,000 a year must be automatically enrolled into a qualifying workplace pension (check the current earnings trigger). Others may have the right to opt in.
• Contribute. Minimum contributions are currently 8% of qualifying earnings in total, of which the employer must pay at least 3% — again, verify the current figures before you set anything up.
• Declare. You must complete a declaration of compliance with The Pensions Regulator within five months of your duties start date — even if it turned out nobody needed enrolling.
• Respect the rules of the game. Employees can opt out after enrolment, but you must never encourage or induce them to; re-enrolment duties come back around roughly every three years.

The first-payroll mistakes worth dodging

• Registering too late. No PAYE reference means no FPS, and payday will not wait. Register the moment the hire is certain.
• Budgeting the salary, not the cost. Employer National Insurance and pension contributions sit on top of gross pay; price the whole package before you make the offer.
• Using last year's minimum wage rates. They change every April; an unnoticed increase turns into arrears you must make good.
• Forgetting the declaration of compliance. Pension duties are not finished when the scheme is set up — the declaration has its own deadline and its own penalties.
• Paying cash "just this once". Every payment goes through payroll and onto an FPS, however small, however informal the arrangement feels.

The monthly rhythm, once it settles

Run payroll a few days before payday; send the FPS; give payslips; pay HMRC by the 22nd; pay the pension contributions across; file the payslip data into your books. An hour a month, or less when it is done alongside your bookkeeping — which is exactly how we run it, with every payroll journal entering the ledger under the same discipline as everything else: AI drafts. AgentLedger validates. People approve.

If you are about to hire and would rather the setup was done properly first time, Ask for Details and we will walk you through what your first payroll would involve.