What employers need to do when they hire their first employee — PAYE registration, payslips, RTI, auto-enrolment and the monthly obligations that most first-time employers are not told about.
A business with one employee must register as an employer with HMRC before the first salary payment, deduct income tax and National Insurance from each payment under PAYE, issue a payslip on or before every pay date, submit a Full Payment Submission (RTI) to HMRC on or before every payday, and assess the employee for auto-enrolment pension duties. These obligations apply from the first employee regardless of how small the salary or how informal the arrangement.
Setting up payroll for a first employee: the checklist
01
Register as an employer with HMRC
Done through HMRC's online services before the first payment. You receive a PAYE reference and Accounts Office reference. Do not make the first payment before registering.
02
Collect starter information
Before the first payday, collect the employee's P45 from their previous employment or complete a starter declaration form. This determines their starting tax code and NI position.
03
Set up payroll
Either use payroll software (you run it monthly) or instruct a payroll bureau (they run it for you). The payroll must calculate PAYE, NI and pension correctly from the first run.
04
File RTI on or before the first payday
A Full Payment Submission goes to HMRC on or before the date of the first salary payment. Not after. HMRC receives the employee's data before the money leaves your account.
05
Issue a payslip
The employee is legally entitled to a payslip on or before their pay date. It must show gross pay, itemised deductions and net pay.
06
Assess for auto-enrolment
If the employee is aged 22–State Pension Age and earns above £10,000 per year, auto-enrolment applies. They must be enrolled in a qualifying pension scheme within six weeks of their start date.
07
Pay PAYE to HMRC monthly
The combined PAYE liability (income tax + employee NI + employer NI) is due to HMRC by the 19th of the following month, 22nd electronically.
What happens if you don't set up payroll correctly
HMRC does not wait to be told about a new employee. They receive RTI data, cross-reference it with self-assessment returns, benefits claims and other tax records, and identify gaps. Common consequences of not running payroll correctly from day one:
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Estimated PAYE charges raised by HMRC based on assumptions
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Penalties for late PAYE registration
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Late RTI penalties from the first missed submission — £100 per month
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Interest on underpaid tax and NI
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Auto-enrolment fines from The Pensions Regulator
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Employee entitled to reclaim any overpaid tax through self-assessment — but the employer is still liable for employer NI
Payroll for one employee: cost and options
Most employers with a single employee have three realistic options.
Option
Monthly cost
Monthly time required
Risk level
Payroll software
£10–£20
1–2 hrs to run correctly
Medium — depends on operator discipline
Accountant-handled
Varies, often bundled
Minimal if accountant is managing
Medium — depends on whether accountant files monthly
Managed payroll bureau
From £79
Under 10 mins to send data
Low — bureau owns the process
For a business with one employee, the difference between a bureau (£79/month) and self-managed software (£15/month + 1.5 hours) is often less than the value of an hour of the owner's time.
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Hiring your first employee and not sure where to start? A free payroll check covers exactly what you need to set up.
Yes. As soon as you employ one person and pay them above the Lower Earnings Limit (£129 per week / £6,396 per year), you must register as an employer with HMRC, run PAYE payroll and file RTI submissions monthly. The obligations are the same whether you have one employee or one hundred.
Managed payroll for a single employee typically costs £45–£60 per month with a bureau. Payroll software subscription costs less but requires the employer to run the process monthly. For a single employee with variable pay, starters/leavers or pension duties, a bureau is often more cost-effective when the employer's time is valued.
Failure to register as an employer before paying an employee can result in HMRC raising estimated PAYE charges, interest on underpaid tax and NI, and penalties for late registration and late RTI submissions. HMRC can also require repayment of any income tax and NI that should have been deducted.
Yes. PAYE registration can be done at any point during the tax year. The employer registers with HMRC, receives the PAYE reference, and processes payroll from the first payment date. Year-to-date figures start from zero for the employee at the point the employer registers.
Auto-enrolment pension duties apply once an employee reaches 22 years of age, earns above £10,000 per year and is employed in the UK. The employer must assess the employee, enrol them in a qualifying pension scheme if eligible, contribute at least 3% of qualifying earnings and re-enrol every three years.
Yes. All employees are legally entitled to a payslip on or before their pay date. The payslip must show gross pay, all deductions and net pay. Fixed-amount deductions must be itemised. A managed payroll bureau produces payslips as a standard part of the monthly process.