Thinking of Taking on Your First Employee? Here's What to Know

Before their first payday

Taking on your first employee is one of the most significant milestones in the growth of a small business - and one of the most admin-intensive. Before your new member of staff receives their first pay packet, you need to have several things in place. Registering as an employer with HMRC must happen before the first payday, not after. You will also need to have a payroll process in place, understand your National Insurance obligations as an employer, and have an employment contract ready. Getting these foundations right from day one is far easier than unpicking mistakes retrospectively.

Setting up payroll correctly

Once you are registered as an employer, you need to set up a PAYE scheme and run payroll each time you pay your employee - whether that is weekly, fortnightly, or monthly. Each payroll run requires a Real Time Information (RTI) submission to HMRC, reporting the payment before or on the day it is made. Missing RTI submissions, even accidentally, can result in penalties. Using payroll software that automates the submission process is strongly recommended over managing it manually.

Auto-enrolment pension obligations

If your employee is aged between 22 and State Pension age and earns above the earnings threshold (currently £10,000 per year), you are legally required to automatically enrol them in a workplace pension scheme and make employer contributions. You must also write to the employee within six weeks of their start date confirming their pension rights. Failing to comply with auto-enrolment duties can result in escalating fines from The Pensions Regulator. Setting up the right pension scheme before your first hire means this is handled from day one rather than becoming a compliance catch-up exercise.

The Scottish tax code issue

One detail that catches Scottish employers out more often than you might expect is the application of the correct tax code. Scottish employees should be assigned an S-prefix tax code - for example S1257L rather than 1257L - to ensure that the correct Scottish income tax rates are deducted from their pay. HMRC data has shown a meaningful proportion of Scottish employers incorrectly applying rest-of-UK tax codes, meaning their employees have the wrong rate deducted. This creates a problem for the employee at year end and a potential compliance issue for the employer. It is worth checking this is set up correctly from the start.

Getting help from the start

We manage payroll for businesses of all sizes across Edinburgh and Glasgow, from single-employee startups to growing teams. If you are about to take on your first member of staff and would like us to set up and run payroll from day one - ensuring PAYE, RTI submissions, auto-enrolment, and Scottish tax codes are all handled correctly - get in touch with our team. Getting the foundations right at the start saves significant time and cost later.