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 – it means more jobs, more revenue, and potentially a lot more stress if you get the process wrong. HMRC, employment law, and payroll obligations all kick in the moment you hire. Here’s exactly what you need to do, in the right order.
The True Cost of an Employee
Before you hire, run the real numbers. The salary you advertise is not what an employee actually costs you. A rough rule of thumb: an employee costs around 130% of their gross wage once you account for everything on top.
On top of gross salary, you pay
- Employer National Insurance – 13.8% of earnings above the secondary threshold
- Workplace pension contributions – minimum 3% of qualifying earnings (you pay this, not just the employee)
- Employers liability insurance – a legal requirement the moment you take on staff
- Holiday pay – 5.6 weeks per year statutory minimum, even for part-time workers
- Sick pay – Statutory Sick Pay (SSP) of £116.75/week for up to 28 weeks
- Recruitment and training costs – time and money getting them up to speed
If you’re paying someone £30,000 gross, budget for it costing you closer to £38,000–£40,000 all in. Plan for this before you commit.
6 Steps to Take On Your First Employee Legally
Register as an employer with HMRC
You must register with HMRC as an employer before your new employee’s first payday – ideally several weeks in advance. Do it at gov.uk/register-employer. Once registered, HMRC will send you a PAYE reference number, which you’ll need to run payroll. This is free and straightforward to do online, but there’s no shortcut – you cannot legally pay an employee until you’re registered.
Check their right to work in the UK
Before the employee starts – not after – you must check that they have the legal right to work in the UK. Failure to do this correctly carries a civil penalty of up to £60,000 per illegal worker, and in the most serious cases a criminal conviction. For most UK or Irish citizens, this simply means checking their passport or birth certificate and keeping a copy on file. Full guidance is on gov.uk/check-job-applicant-right-to-work. Do it before day one. Document it.
Get employers liability insurance
Employers liability insurance is a legal requirement for any business that employs staff. A minimum of £5 million of cover is required by law. The fine for not having it is £2,500 for every day you trade without valid cover. Add it to your existing public liability policy – it’s typically £60–£150/year and can be sorted in minutes through a broker like Simply Business. Do this before your employee’s first day on site.
Provide a written employment contract
You are legally required to provide a written statement of employment particulars on or before the employee’s first day. This must include: job title and description; start date and hours of work; pay rate and how it will be paid; holiday entitlement; notice period; sick pay arrangements; and your disciplinary and grievance procedure. You can find free contract templates at ACAS (acas.org.uk) or use an employment law platform. Don’t skip this – without a written contract, any dispute about terms becomes much harder to resolve.
Set up payroll
You must run PAYE payroll each time you pay your employee and submit a Full Payment Submission (FPS) to HMRC on or before each payday. Options:
- HMRC Basic PAYE Tools – free software from HMRC, suitable if you have fewer than 10 employees
- Sage Payroll – paid, more comprehensive, widely used by tradespeople and small businesses
- BrightPay – paid, easy to use, popular with small employers
- Xero – if you already use Xero for accounting, payroll integrates directly
- Accountant – many small business accountants run payroll as an add-on service for a modest monthly fee
Payroll calculates income tax, employee National Insurance, and employer National Insurance for each pay run. Keep payslip records for at least 3 years.
Enrol them in a workplace pension
Auto-enrolment means that most employees must be automatically enrolled into a workplace pension scheme if they are aged 22–66 and earn over £10,000 per year. You must contribute a minimum of 3% of their qualifying earnings; the employee contributes 5%. NEST (the National Employment Savings Trust) is the government-backed scheme and is free to use – widely used by small employers. You must complete your auto-enrolment duties within 3 months of their start date and write to them confirming their enrolment. Failure to comply results in fines from The Pensions Regulator.
Quick Checklist Before Day One
- Registered as employer with HMRC ✓
- Right to work checked and documented ✓
- Employers liability insurance in place ✓
- Written employment contract provided ✓
- Payroll software set up ✓
- Workplace pension scheme ready ✓
Managing Your Team Once They Start
Once you’ve got someone working for you, keeping track of their jobs, hours, and what they’re doing becomes essential. Job management software like Tradify lets you assign jobs to team members, track time on each job, monitor progress from your phone, and invoice the moment work is complete. For a growing trade business moving from one-man-band to a small team, it’s one of the most practical investments you can make.
Try Tradify Free for 14 Days →Frequently Asked Questions
Six things, in order: (1) Register as an employer with HMRC before their first payday; (2) Check their right to work in the UK and document it before they start; (3) Take out employers liability insurance (legally required, £2,500/day fine if you don’t); (4) Provide a written employment contract on or before day one; (5) Set up payroll software and register for PAYE; (6) Enrol them in a workplace pension scheme within 3 months of their start date. Do all six before their first day on site.
Budget for around 130% of their gross salary when you account for all employer costs. On top of their wage, you pay: Employer National Insurance at 13.8% of earnings above the secondary threshold; workplace pension contributions of at least 3% of qualifying earnings; employers liability insurance; holiday pay (5.6 weeks statutory minimum); and Statutory Sick Pay of £116.75/week when they’re unwell. So if you’re advertising a £30,000 salary, budget for it costing you £38,000–£40,000 all in before you commit to hiring.
Yes – you must register with HMRC as an employer before your new employee’s first payday. You do this at gov.uk/register-employer. HMRC will give you a PAYE reference number which you need to run payroll. Ideally register several weeks before the employee starts so everything is in place. You cannot legally pay an employee through PAYE without being registered. The registration is free and straightforward online.
For a first employee, HMRC Basic PAYE Tools is free and adequate – it handles payroll calculations and submits the required Full Payment Submission to HMRC. If you want something more user-friendly, Sage Payroll and BrightPay are both well-regarded paid options popular with small employers. If you already use Xero for accounting, its payroll feature integrates cleanly. Alternatively, many accountants will run your payroll for a modest monthly add-on fee – worth considering if you’re not confident managing it yourself.
Yes – if your employee is aged 22–66 and earns over £10,000 per year, auto-enrolment rules require you to enrol them in a workplace pension scheme within 3 months of their start date. You must contribute a minimum of 3% of their qualifying earnings. NEST (National Employment Savings Trust) is the free government-backed scheme used by many small employers – straightforward to set up at nestpensions.org.uk. You must also write to the employee to confirm their enrolment. Failure to comply results in fines from The Pensions Regulator.
This guide provides general information and is not legal or employment advice. Always check GOV.UK or speak to an employment law professional for advice specific to your situation. 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.