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What Do I Need to Do When My Limited Company Hires Its First Employee?

Hiring your first employee through a limited company: PAYE registration, RTI, right to work checks, auto-enrolment, Employment Allowance and employer NI.

Updated 31 October 20268 min read

Quick answer

Before the first payday you register as an employer with HMRC, check the new hire's right to work before they start, and run payroll so HMRC gets a Full Payment Submission on or before each payday. You also take on automatic enrolment duties and pay employer National Insurance at 15% above £5,000 a year. The Employment Allowance can cover up to £10,500 of that, but not if the director is the only employee liable for it.

What are the steps to hire your first employee?

Six things need to be in place before the first payday:

  1. Register as an employer with HMRC.
  2. Check the person's right to work in the UK.
  3. Set up payroll software that sends reports to HMRC.
  4. Work out their pension position under automatic enrolment.
  5. Work out the employer National Insurance you will owe, and whether you can claim the Employment Allowance.
  6. Pay HMRC on time.

This guide is general information for UK limited companies and does not replace advice on your own contracts or tax position.

How do I register as an employer?

You must register with HMRC before the first payday to get your employer PAYE reference number. You cannot register more than two months before you start paying people. Most limited companies with one to nine directors can register online after an eligibility check. HMRC then sends the PAYE reference by letter. If you pay someone before it arrives, you run payroll, store the full payment submission, and send a late full payment submission to HMRC once you have the reference. The steps are on HMRC's register as an employer page.

What is RTI and what do I report?

RTI is Real Time Information. Each time you pay someone, your payroll software sends HMRC a Full Payment Submission (FPS). HMRC says to send it on or before the employees' payday, even if you pay HMRC quarterly. It covers employer details, employee details, pay and deductions, and National Insurance information, with extra details for new starters and leavers.

In the next tax month, which starts on the 6th, you send an Employer Payment Summary (EPS) by the 19th if you are claiming reductions such as statutory pay. You pay HMRC the balance by the 22nd, or by the 19th if you pay by post. The detail is on HMRC's reporting to HMRC page.

Do I need to check right to work?

Yes. You must check that the person is allowed to work in the UK before they start. There are three routes:

  • Online check. The person gives you a share code and you check their status online. British and Irish citizens cannot get a share code.
  • Original documents. You check them in person with the applicant present, confirm they are valid and genuine, and make and keep copies. Biometric residence cards and permits are no longer accepted.
  • An identity service provider that offers Identity Document Validation Technology.

If someone cannot show documents or an online status, you must ask the Home Office. Keep copies for the length of employment and for two years after the employee leaves, and record the date of the check. Employing an illegal worker without a correct check can lead to a civil penalty. See HMRC's guide to checking a job applicant's right to work.

What are my auto-enrolment duties?

Your duties start when you employ your first member of staff who is not a director and has an employment contract. From then on you assess your staff and put eligible workers into a workplace pension. For 2026/27 that means staff aged 22 to State Pension age earning over £10,000 a year (£833 a month). The minimum contribution is 8% of qualifying earnings, of which you pay at least 3%, on earnings between £6,240 and £50,270 a year. You declare your compliance to The Pensions Regulator within five months of your duties start date. Our full guide covers it: auto-enrolment for a one-director limited company.

How much employer National Insurance will I pay?

From the 2026-27 rates on GOV.UK, employers pay Class 1 National Insurance at 15% on an employee's pay above the secondary threshold, which is £96 a week, £417 a month or £5,000 a year. The employer rate does not change for 2027-28 in the Budget 2026 rates annex, which also lists the secondary threshold at £96 a week.

Here is an illustration with a salary of £30,000 for a standard employee:

Item Working Amount
Pay above the threshold £30,000 minus £5,000 £25,000
Employer NI at 15% £25,000 at 15% £3,750

Employer pension contributions and the employee's own tax and National Insurance are separate costs. Some categories, such as employees under 21 and apprentices under 25, have a 0% employer rate up to the upper secondary threshold. Check the category for your hire in the GOV.UK rates table.

Can I claim the Employment Allowance?

The Employment Allowance lets eligible employers reduce their annual employer Class 1 National Insurance bill by up to £10,500 in 2026-27. The Budget 2026 rates annex lists the same £10,500 for 2027-28. HMRC applies it at each payroll run until the £10,500 is used or the tax year ends.

The rules that matter to a small company:

  • The sole-director rule. If the company has only one director, that director must not be the only employee liable for secondary Class 1 National Insurance. A company where the director is the only person on the payroll therefore cannot claim.
  • Check once you hire. Whether the new employee changes this depends on whether their pay is above the secondary threshold, so check the rule against your actual payroll.
  • Excluded workers. You cannot count domestic employees such as a nanny or gardener unless they are a carer or support worker, or anyone whose pay falls within the IR35 off-payroll rules.
  • One claim per group. If you belong to a group of connected companies, only one company can claim, and you claim against one payroll only.

To claim, enter "Yes" in the Employment Allowance indicator field the next time your software sends an EPS. HMRC covers the rules on eligibility and how to claim. In our example, the £3,750 of employer NI would be fully covered if you are eligible.

What changes in the Budget 2026 for employers?

Not the headline numbers. The rates annex shows employer NI at 15% and the Employment Allowance at £10,500 for 2027-28. From 6 April 2027, company cars, vans, fuel and medical benefits must be payrolled, with most other benefits from 6 April 2028. From April 2029, taxpayers must set up a Direct Debit for VAT and PAYE liabilities, subject to exceptions. See our Autumn Budget 2026 guide.

Frequently asked questions

When must I register as an employer?

Before your first payday, and no more than two months before you start paying people.

What if I pay my first employee before I get my PAYE reference?

Run payroll, store the full payment submission, then send a late full payment submission to HMRC once you have the reference.

Do I need payroll software?

You need a way to send HMRC a Full Payment Submission on or before each payday. HMRC also offers its Basic PAYE Tools, which it names as the route for claiming the Employment Allowance if your software has no EPS field.

Can a limited company with a sole director claim the Employment Allowance?

Not if the director is the only employee liable for secondary Class 1 National Insurance. HMRC says that in a one-director company the director must not be the only such employee.

How long do I keep right to work records?

For the length of employment and for two years after the employee stops working for you.

When do auto-enrolment duties start?

When you employ your first member of staff who is not a director and has an employment contract.

How much employer National Insurance is there on a first hire?

15% of pay above £5,000 a year for most employees in 2026-27, less the Employment Allowance if you can claim it.

When do I pay HMRC for PAYE?

Pay the balance by the 22nd of the next tax month, or the 19th if you pay by post. From April 2029, taxpayers must set up a Direct Debit for PAYE liabilities, subject to exceptions.

Finn, the AI accountant in AccountsOS, can keep your books and deadlines in one place, so the cost of a first hire shows up in your numbers.

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