How to Take On Your First Employee as a Tradesperson

Taking on your first employee is one of the biggest steps you'll make as a tradesperson. One day you're a one-man band, the next you're responsible for someone else's wages, tax, and wellbeing at work. It's exciting — but it comes with a stack of legal obligations that catch a lot of trade business owners off guard.

The good news is it's not as complicated as it looks once you know the steps. This guide breaks down exactly what you need to do before your new hire starts on day one — from registering with HMRC to sorting insurance and contracts.

Get this right from the start and you'll avoid fines, disputes, and the kind of headaches that turn an exciting business milestone into a nightmare.

First: Work Out the True Cost of an Employee

Before anything else, run the numbers. A lot of sole traders make the mistake of thinking an employee costs what they're paid. The reality is closer to 130% of their wage bill once you factor everything in.

From April 2026, the National Minimum Wage is £12.71 per hour for workers aged 21 and over — that's roughly £23,100 a year for a standard 35-hour week. On top of that you're paying:

• Employer's National Insurance — currently 15% of earnings above £5,000 per year
• Workplace pension contributions — minimum 3% of qualifying earnings under auto-enrolment
• Employers liability insurance — a legal requirement as soon as you become an employer
• Holiday pay — statutory minimum is 28 days including bank holidays
• Sick pay, equipment, training, and supervision time

The employment allowance does take some of the sting out — eligible businesses can deduct up to £10,500 from their employer NI bill each year. But the point stands: budget for the full cost, not just the wage.

One workshop manager we spoke to who runs a small vehicle repair business put it plainly: "I wish someone had told me that my first employee would cost me nearly £5,000 more a year than I expected. The wage was fine — it was all the stuff around it that added up."

Step 1: Register as an Employer with HMRC

This is your first legal obligation and it needs to happen before your new hire's first payday — not after. You can register up to four weeks before that date via GOV.UK. HMRC will set up a PAYE scheme for you and issue an employer reference number.

Once you're registered you're responsible for deducting income tax and National Insurance from your employee's wages and paying it to HMRC. You'll also need to submit a Full Payment Submission (FPS) to HMRC on or before every payday. Miss this and you're looking at automatic penalties.

If you've never dealt with payroll before, this is where good payroll software earns its cost. More on that in a moment.

Step 2: Check Their Right to Work in the UK

Before your new hire does a single day's work you must check they have the legal right to work in the UK. This means checking original documents, confirming they're genuine, taking a copy of both sides, and keeping it on file for at least two years after employment ends.

Getting this wrong isn't a minor admin slip — failure to carry out proper right to work checks can result in penalties of up to £60,000 per illegal worker. Do it before day one, every time, no exceptions.

Step 3: Get Employers Liability Insurance

This is a legal requirement the moment you take on staff, not an optional extra. Employers liability insurance protects your business if an employee is injured or becomes ill as a result of their work. You must have a minimum of £5 million in cover — most policies provide £10 million as standard.

If you already have public liability insurance through a provider like Simply Business, check whether your policy needs to be updated to include employers liability — many trade insurers offer both together as a combined policy, which is usually the most cost-effective route.

Operating without employers liability insurance while employing staff can result in fines of £2,500 per day. It's not worth the risk.

Step 4: Provide a Written Contract on Day One

By law, every employee must receive a written statement of employment particulars on or before their first day. This isn't optional and it doesn't have to be a complex legal document — but it does need to cover the basics:

• Job title and description
• Start date and working hours
• Rate of pay and pay frequency
• Holiday entitlement
• Notice period
• Probation period if applicable
• Sickness and absence policy

ACAS provides free plain English contract templates at acas.org.uk — worth using as a starting point. If you're unsure, a quick review by an employment solicitor on your first contract is money well spent.

New employment rights introduced in 2026 also mean employees are entitled to paternity leave and unpaid parental leave from day one of employment — factor this into your planning.

Step 5: Set Up Payroll

Running payroll manually is a headache waiting to happen. For most small trade businesses with one to five employees, dedicated payroll software is the simplest and most reliable solution.

For a single employee just starting out, HMRC's own Basic PAYE Tools is free and handles RTI submissions. For anything beyond that, Sage Payroll (from £20/month for up to 10 employees) or BrightPay are the most popular choices among small UK businesses. If you're already using Xero for your accounts, Xero Payroll keeps everything in one place.

Whatever you use, it needs to handle:

• PAYE calculations and RTI submissions to HMRC
• National Insurance deductions
• Workplace pension auto-enrolment
• Payslip generation
• Statutory pay calculations (sick pay, holiday pay)

If you're in construction and using subcontractors as well as employees, make sure your payroll software handles CIS deductions too — not all of them do.

Step 6: Enrol Them Into a Workplace Pension

If your employee is aged between 22 and State Pension age and earns more than £10,000 a year, you must automatically enrol them into a workplace pension scheme. You must contribute a minimum of 3% of their qualifying earnings — they contribute 5%.

You don't need to set up your own pension scheme. NEST (National Employment Savings Trust) is the government-backed option and is free to use as an employer. Most payroll software will handle the enrolment and contribution calculations automatically once it's set up.

Managing the Admin Once They're In

Taking on an employee doesn't just change your tax obligations — it changes how you run your whole operation. Suddenly you need to schedule two people's time, track two people's jobs, and make sure work is being done to the standard your customers expect.

This is where job management software becomes genuinely useful rather than just a nice-to-have. Tools like Tradify let you assign jobs to individual team members, track job progress in real time, and keep all your quotes, invoices, and schedules in one place — whether you're on site or in the van.

It also makes it much easier to spot problems early. If a job is running long or a customer hasn't been updated, you'll see it before it becomes a complaint.

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Quick Checklist: Before Your First Employee Starts

• ✅ Registered as an employer with HMRC
• ✅ Right to work check completed and documents copied
• ✅ Employers liability insurance in place
• ✅ Written contract issued on or before day one
• ✅ Payroll software set up and first pay run scheduled
• ✅ Workplace pension scheme arranged
• ✅ Job management software set up to handle scheduling for two

The Bottom Line

Taking on your first employee is a genuine milestone — it means your trade business has grown to the point where one pair of hands isn't enough. The legal side can feel daunting but it's a checklist, not a maze. Work through it in order, get the right insurance and payroll tools in place, and you'll be set up properly from day one.

The businesses that struggle are usually the ones who hire first and sort the paperwork later. Don't be that business.

If you're at the stage where you're thinking about taking on staff, you're probably also ready to systemise more of how your business runs. Our guide to running a paperless trade business and our roundup of the best job management software for UK tradespeople are good next reads.

Affiliate disclosure: Some links on this page are affiliate links. If you sign up through them we may earn a commission at no extra cost to you. We only recommend tools we'd genuinely point a tradesperson towards.