Hiring employees checklist for UK small businesses

Published Tuesday 21 April 2026

Table of contents

• Budget for your first hire
• Register as an employer with HMRC
• Plan your recruitment approach
• Understand your obligations as an employer
• FAQs on hiring employees in the UK

Key takeaways

• Budget for the full cost of hiring before you start recruiting, including employer National Insurance contributions (15% on earnings above £5,000), a minimum 3% pension contribution, recruitment fees, equipment, and training costs.
• Register as an employer with HMRC before your first payday, as the process can take up to five working days to receive your employer PAYE reference number.
• Verify every new employee's right to work in the UK and obtain their National Insurance number before they start, keeping copies of all documents to protect yourself from legal penalties.
• Obtain employers' liability insurance from your first day as an employer, with a minimum of £5 million cover, and display the certificate in your workplace to avoid fines of up to £2,500 per day.

Budget for your first hire

What you'll spend to hire includes everything from salary to National Insurance to equipment. Before you start looking for someone, understand the full cost. You'll need to account for:

• National Insurance: employer contributions based on employee earnings, which will increase to a rate of 15% on earnings above £5,000 starting in April 2025
• Pension: minimum 3% employer contribution under auto-enrolment
• Recruitment: advertising, agency fees, and interview time
• Workspace: office space, desk, and equipment
• Training: onboarding time and learning resources
• Benefits: potential bonuses, perks, and additional benefits, keeping in mind that the reporting of benefits in kind via payroll software will become mandatory in April 2026

Planning for these expenses helps you set a realistic budget. It ensures you can afford to bring someone on board without straining your cash flow. Small businesses can benefit from an employment allowance increase to £10,500 per year starting in April 2025.

Register as an employer with HMRC

You must register as an employer with HM Revenue and Customs (HMRC) when you start employing staff. It's a legal requirement that ensures you can process payroll and pay the correct taxes.

You need to register before your first payday. It can take up to five working days to get your employer PAYE reference number, so do this early.

You must register if your new employee is:

• paid above the PAYE threshold
• getting expenses and benefits
• receiving a pension
• working another job

You can register online through the government website. Once you register, you'll receive your employer PAYE reference number and your accounts office reference.

Plan your recruitment approach

Recruiting typically takes four to eight weeks from job posting to first day. The timeline depends on how complex the role is and your hiring method.

Key recruitment tasks include:

• Job preparation:writing descriptions and determining requirements
• Advertising: posting roles on job boards and social media
• Candidate communication: responding to enquiries and scheduling interviews
• Selection: interviewing, screening, and assessing applicants
• Follow-up: notifying unsuccessful candidates promptly

You might not have time to do all of this. Consider outsourcing some or all of these steps to someone in your team or a recruiter.

Once you've planned your timeline, focus on creating documentation that attracts the right candidates.

Create a clear job description

A job description outlines the role, required skills, and salary range to attract suitable candidates. Clear descriptions help candidates know what to expect and reduce time spent on unsuitable applicants.

Include these key elements:

• Role requirements: specific skills and experience needed
• Salary range: clear compensation figures
• Candidate tracking: strengths, weaknesses, and interview notes for each applicant
• Selection criteria: records to compare and choose the best candidate

Download this free Xero job description template.

Understand your obligations as an employer

Employer obligations are the legal and tax responsibilities you must meet when you hire staff, including PAYE, National Insurance, and workplace safety. These vary by employment type and contract terms.

Your key responsibilities include:

• Tax compliance: Pay As You Earn (PAYE), National Insurance and pension contributions, which require you to declare compliance within five months of your staging date to avoid fines
• Legal requirements: employment contracts, health and safety, and statutory rights
• Employee guidance: new staff need clear direction regardless of previous experience
• Contract-specific duties: obligations vary by employment type (full-time, part-time, contract)

There are many different employment agreements including full-time, part-time, fixed-term, freelance, consultant and contract.

Talk to your accountant or tax agent, or check the gov.uk website if you need more detail about your obligations as an employer.

Beyond administrative obligations, you need to collect essential information from each new hire.

Ensure each employee has a National Insurance number

A National Insurance number is a unique identifier every UK employee needs for tax and benefit purposes. Your employee must provide their NI number before starting work.

Why NI numbers matter:

• Tax accuracy: ensures tax payments are recorded correctly
• Benefit eligibility: qualifies employees for state pension and other benefits
• Legal compliance: the law requires this for all UK employees

HMRC automatically assigns a unique NI number to all UK citizens just before they turn 16. If for any reason your new employee doesn't have one (for example, if they are a new arrival in the country) they can apply for a NI number online.

Beyond tax documentation, you must also verify employment eligibility.

Verify right to work in the UK

You must check that every employee has the legal right to work in the UK before they start. This is a legal requirement that protects you from penalties.

Right to work checks involve:

• Document verification: check original documents like passports or visa documents
• Online checks: use the government's online service for some visa holders
• Record keeping: keep copies of documents and check dates for your records
• Timing: complete checks before employment starts to avoid penalties

Completing right to work checks protects you from civil penalties and criminal prosecution. Keep clear records of all checks you carry out.

Legal compliance also requires proper insurance coverage.

Obtain employers' liability insurance

Employers' liability insurance is mandatory from your first day as an employer and protects against employee injury or illness claims.

Legal requirements:

• Minimum cover: you must have at least £5 million from an authorised insurer
• Compliance: you must display the certificate in your workplace or you could be fined £1,000
• Penalties: if you don't maintain this insurance, you commit a criminal offence and can be fined £2,500 every day you aren't properly insured

You can buy employers' liability insurance from an insurer or from a specialist broker through the British Insurance Brokers' Association (BIBA) or the Association of British Insurers. Several factors determine the cost, including:

• the nature of your business
• the number of people you employ
• your previous insurance claims history

Read about employers' liability insurance on the UK government's website.

With insurance in place, you need to formalise the employment relationship.

Create employment contracts

You must provide written terms of employment to every employee. This is a legal requirement that protects both you and your employee by clarifying what each party should expect.

Your employment contract must include:

• Job details: job title, duties, and where the employee will work
• Pay and hours: salary or wages, payment frequency, and working hours
• Holiday entitlement: annual leave and bank holidays
• Notice periods: required notice from both employer and employee
• Probation: length and terms of any probationary period

FAQs on hiring employees in the UK

Here are answers to common questions about hiring your first employee.

How much does it cost to hire an employee in the UK?

The total cost depends on salary, National Insurance contributions (15% on earnings above £5,000 from April 2025), pension contributions (minimum 3% employer contribution), and additional costs like recruitment, equipment, and workspace.

Do I need to register as an employer before hiring my first employee?

Yes, you must register as an employer with HMRC before your first payday. Registration can take up to five working days, so start the process as soon as you decide to hire.

What documents do I need to check before hiring someone?

You must check documents that prove right to work in the UK, such as passports or visa documents. You also need the employee's National Insurance number for tax purposes.

Is employers' liability insurance mandatory?

Yes, employers' liability insurance is mandatory from your first day as an employer. You must have at least £5 million coverage and display the certificate in your workplace.

How long does the recruitment process typically take?

Recruiting typically takes four to eight weeks from posting the job to the employee's first day. The timeline depends on how complex the role is and your hiring method.