How to Run Payroll for Your First Employee

September 8, 2026

How to Run Payroll for Your First Employee

How to Run Payroll for Your First UK Employee

A Beginner’s Guide for UK Employers

Taking on your first employee is an exciting milestone for any business.

It often signals growth, increased demand, and the transition from being a sole trader, startup, or owner-managed business to becoming an employer. However, hiring your first employee also introduces new responsibilities, particularly when it comes to payroll.

Many first-time employers are surprised by how much is involved. Payroll is not simply about paying someone each month. Employers must deduct tax correctly, calculate National Insurance, meet HMRC reporting requirements, manage workplace pensions, and maintain accurate employee records.

The good news is that once you understand the process, payroll becomes much more manageable. This guide explains everything UK employers need to know when running payroll for their first employee.

Step 1: Register as an Employer with HMRC

Before paying your first employee, you must register as an employer with HMRC. This registration enables HMRC to create your PAYE scheme and issue the references needed to report payroll information.

You generally need to register before your first payday. Once registered, HMRC will provide:

PAYE Reference Number
Accounts Office Reference
Instructions for payroll reporting

Without these references, you cannot submit payroll information correctly.

Step 2: Gather Employee Information

Accurate employee data is the foundation of successful payroll. Before processing your employee’s first pay run, you’ll need to collect key information such as their personal details, National Insurance number, bank account details, and employment start date.

Taking time to gather and verify this information early can help prevent common payroll problems, including incorrect payslips, HMRC reporting errors, and payment delays. A simple mistake in employee records can create administrative headaches later, so it’s worth getting everything right from the beginning.

This typically includes:

Full name
Home address
Date of birth
National Insurance number
Bank account details
Start date
Salary or hourly pay rate
Tax code information (where available)

It’s important to collect this information before the first payroll run to avoid reporting issues later.

Step 3: Choose How You Will Run Payroll

Every employer must decide whether to manage payroll internally or outsource it to a specialist payroll provider. The right option will depend on your business size, payroll complexity, and the amount of time you can dedicate to payroll administration.

While payroll software can automate many calculations, employers remain responsible for ensuring payroll is accurate and compliant. Many first-time employers choose a managed payroll service because it provides payroll expertise, ongoing compliance support, and peace of mind during the early stages of growth.

There are generally two options available:

Run Payroll Yourself: Many small businesses use payroll software to process payroll internally.

The software calculates:

PAYE tax
National Insurance
Pension deductions
Statutory payments

However, employers remain responsible for entering accurate information and ensuring compliance.

Outsource Payroll: Many first-time employers choose a fully managed payroll provider. This can help reduce administrative burden and ensure payroll remains compliant as the business grows. This is particularly useful if payroll is not your area of expertise.

Step 4: Understand PAYE

PAYE (Pay As You Earn) is the system HMRC uses to collect Income Tax and National Insurance contributions from employees. As an employer, you’re responsible for calculating these deductions and submitting them to HMRC on behalf of your employees.

Understanding PAYE is essential because it affects every payroll run. Incorrect tax deductions can lead to employee queries, HMRC notices, and additional administration. Fortunately, payroll software and payroll providers can automate much of the process, making it easier for new employers to stay compliant.

As an employer, you are responsible for:

Calculating deductions
Paying employees
Reporting to HMRC
Paying deducted taxes to HMRC

Payroll software or a payroll provider will usually handle these calculations automatically.

Step 5: Calculate Gross Pay and Deductions

Each payroll run starts with calculating how much your employee has earned and determining any deductions that must be made before payment. This includes Income Tax, National Insurance contributions, pension deductions, and any other applicable adjustments.

Even for a straightforward salary, it’s important that these calculations are accurate. Employees expect to be paid correctly and on time, and payroll errors can quickly damage trust. Reliable payroll processes help ensure employees receive exactly what they’re entitled to.

Each pay period, you need to determine:

Gross Pay: This is the employee’s earnings before deductions. Gross pay may include:

Salary
Hourly pay
Overtime
Bonuses
Commission

Deductions: Common deductions include:

Income Tax
Employee National Insurance
Pension contributions
Student loans (where applicable)

After deductions are applied, you arrive at the employee’s net pay.

Step 6: Set Up Workplace Pensions

Many first-time employers are unaware that workplace pensions are a legal obligation. Under automatic enrolment legislation, employers must assess employees and enrol eligible workers into a pension scheme.

Although not every employee will qualify for automatic enrolment, every employer has pension responsibilities. Setting up a suitable pension scheme early helps ensure compliance and avoids complications as your workforce grows.

As an employer, you must:

Assess employee eligibility
Enrol eligible employees
Calculate pension contributions
Make employer contributions
Submit information to a pension provider

Even if your first employee is not eligible, you still have duties as an employer and should understand your obligations.

Step 7: Submit Payroll Information to HMRC

Once payroll has been calculated, employers must report payroll information to HMRC through Real Time Information (RTI). This system allows HMRC to receive payroll information each time employees are paid, helping ensure accurate tax collection throughout the year.

Submitting payroll information on time is critical. Late or inaccurate submissions can lead to compliance issues and, in some cases, financial penalties. Building RTI reporting into your payroll routine helps ensure your business remains compliant from day one.

The main submission is called a Full Payment Submission (FPS)

The FPS tells HMRC:

Employee pay
Tax deductions
National Insurance contributions
Starter details
Leaver details

This submission should normally be made on or before the employee’s payday.

Step 8: Pay Your Employee

After payroll has been approved and reported, the final step is making payment to your employee. Payday is one of the most visible aspects of payroll. Employees rely on being paid accurately and on time, and consistent payroll delivery helps build trust and confidence in your business as an employer.

Once calculations and submissions are complete, you can pay your employee via:

BACS
Faster Payments
Business bank transfers

It’s essential that employees receive payment on the agreed payday. Reliable payroll processes help build trust and establish a positive employee experience from day one.

Step 9: Provide Payslips

Payslips are more than just a legal requirement. They help employees understand exactly how their pay has been calculated and provide transparency around tax, National Insurance, pension contributions, and other deductions.

Modern payroll systems can generate electronic payslips automatically, making it easy to distribute payroll information securely and efficiently while reducing paperwork. Employees have the right to receive a payslip.

Payslips typically show:

Gross pay
Tax deductions
National Insurance deductions
Pension contributions
Net pay

Most payroll software automatically generates electronic payslips.

Step 10: Keep Payroll Records

Good record keeping is a key part of payroll compliance. HMRC requires employers to retain payroll information and supporting records so calculations and submissions can be verified if required.

Well-organised payroll records also make it easier to respond to employee queries, process future payroll runs, and manage year-end reporting. Developing strong record-keeping habits from your first employee will save time and reduce risk as your business grows.

HMRC requires employers to maintain below payroll records:

Employee details
Payroll reports
Payslips
Pension records
Tax information
RTI submissions

Keeping organised records helps ensure compliance and makes payroll audits much easier.

Common Payroll Mistakes New Employers Make

Many first-time employers encounter similar challenges.

Missing HMRC Deadlines: Late submissions can lead to penalties and additional administration.
Incorrect Employee Information: Wrong National Insurance numbers or tax details can cause payroll issues.
Pension Compliance Errors: Workplace pension duties are often overlooked by new employers.
Relying on Spreadsheets: Manual payroll processes increase the risk of error.
Leaving Payroll Until the Last Minute: Payroll should be planned and reviewed before payday.

Should You Outsource Payroll?

Many businesses start by managing payroll themselves. However, as employee numbers grow, payroll can become more time-consuming and complex.

Outsourcing payroll can provide:

Payroll expertise
HMRC compliance support
Pension administration
RTI submissions
Reduced administration
Greater peace of mind

For business owners focused on growth, outsourcing often allows more time to focus on running the business rather than managing payroll.

How PayCheck Helps First-Time Employers

At PayCheck, we help businesses navigate payroll confidently from their very first employee.

Our fully managed payroll services include:

✅ Payroll processing

✅ HMRC reporting

✅ Workplace pension administration

✅ Payslips and employee communications

✅ Starter and leaver management

✅ Payroll compliance support

✅ Dedicated payroll specialists

Whether you’re hiring your first employee or expanding your team, we help ensure payroll is accurate, compliant, and stress-free. Running payroll for your first employee may seem daunting, but with the right process and support, it becomes a straightforward part of running your business.

The key is to prepare early, understand your obligations, and ensure payroll is managed accurately and compliantly from day one. Whether you choose payroll software or a fully managed payroll service, investing time now will help avoid problems later and ensure your employees are paid correctly, every time.