Hiring your first employee: what the law requires

Decide what kind of working relationship you are creating

Before you recruit, be clear whether you need an employee, a worker or a self-employed contractor, because that decision fixes the rights the person will have and the obligations you take on. Someone is probably an employee if they are required to work regularly, do a minimum number of hours, have a manager who decides how and when the work is done, cannot send someone else in their place, get paid holiday and sick pay, and use your premises and equipment. Employees have the full range of employment rights. A person who works occasionally and can accept or turn down work as it is offered is more likely to be a worker, with rights to the minimum wage, paid holiday, rest breaks and protection from discrimination, but not to protection against unfair dismissal or statutory redundancy pay.

What the paperwork calls the arrangement does not settle it. Tribunals look at how the relationship works in practice, and HMRC makes its own assessment for tax. Taking someone on as self-employed when they work like an employee exposes the business to claims for holiday pay and other rights, and to unpaid tax, National Insurance and penalties. If you are not sure, take advice before the offer goes out, because the terms you agree at the start are much harder to change later.

Before they start: right to work, payroll and insurance

Right to work checks

You must check that a job applicant is allowed to work for you in the UK before you employ them. You can check online using a share code the applicant gives you, check their original documents with them present, or use an identity service provider. British and Irish citizens cannot get a share code, so for them you check original documents such as a passport, or use an identity service provider. Keep copies of the documents for as long as the person works for you and for two years afterwards, and record the date you made the check. If their permission to work is time-limited, check again before it runs out.

If you employ someone who does not have the right to work, you can face a civil penalty of up to £60,000 for each illegal worker unless you can show you carried out the correct checks. Check every applicant in the same way, whatever their nationality or background, because you must not discriminate against anyone because of where they are from.

Registering as an employer

Register with HMRC as an employer before the first payday so that you have your employer PAYE reference. You cannot register more than two months before you start paying people. Tell HMRC about your new employee on or before their first payday, and report pay, tax and National Insurance through payroll each time you pay them. For 2026/27, employer's National Insurance is 15% of earnings above £5,000 a year. Eligible employers can reduce their bill with the Employment Allowance, which is worth up to £10,500 in 2026/27. A company whose sole director is its only employee liable for employer's National Insurance cannot claim it, so taking on an employee whose pay is above that threshold can make the company eligible.

Employers' liability insurance

You must have employers' liability insurance from an authorised insurer as soon as you become an employer, with cover of at least £5 million. It pays compensation if an employee is injured or becomes ill because of their work. You can be fined £2,500 for every day you are not properly insured. You must also display the certificate where employees can see it, which can be on your website or intranet, and show it to inspectors when asked, or face a fine of £1,000. There are limited exemptions, including some businesses that employ only close family members.

Pay and the workplace pension

Pay at least the National Minimum Wage for the worker's age. From 1 April 2026 the National Living Wage for workers aged 21 and over is £12.71 an hour. The rate for workers aged 18 to 20 is £10.85, and the rate for workers under 18, and for apprentices under 19 or in the first year of their apprenticeship, is £8.00. The rates change every April. Every worker is entitled to an itemised payslip at or before the time they are paid, showing gross pay, deductions and net pay, and the hours worked where pay varies with the time worked.

Your pension duties start on the day your first member of staff starts work. You must put staff into a workplace pension scheme and pay employer contributions if they are aged between 22 and State Pension age, earn at least £10,000 a year and normally work in the UK. The minimum total contribution is 8%, of which you must pay at least 3%. In most automatic enrolment schemes contributions are calculated on earnings between £6,240 and £50,270 a year. If someone becomes eligible later because of a change in their age or pay, you must enrol them and write to them within six weeks. You also have a legal duty to complete a declaration of compliance with The Pensions Regulator within five months of your duties start date.

The written statement on day one

Every employee and worker must receive a written statement of employment particulars. The principal statement must be given on or before the first day of work. It must include at least: the employer's name; the employee's name, job title or a description of the work, and start date; how much and how often they will be paid; hours and days of work, whether they can vary, and any Sunday, night or overtime working; holiday entitlement, including whether it covers public holidays; where they will work; how long the job is expected to last if it is not permanent; the length and conditions of any probation period; any other benefits; and any training they must complete. On the first day you must also give them information about sick pay and procedures, other paid leave and notice periods, either in the statement or in another document they can easily get to.

Within two months you must give a wider written statement covering pensions, any collective agreements, any other right to training and your disciplinary and grievance procedures. If anything in the statement changes, confirm the change in writing within one month. The government's timeline for the Employment Rights Act 2025 says that from 30 October 2026 employers will also have to give workers a written statement that they have the right to join a trade union, at the same time as the statement of particulars. The Act allows the content and form of that statement to be set by regulations.

If an employee brings a successful claim, such as unfair dismissal or discrimination, and the tribunal finds that you had not given them a complete written statement, it can increase their award.

What a well-drafted contract adds

The written statement is the legal minimum. A contract of employment can include all the required particulars and add the terms that protect the business. For a first employee, these are the terms most worth including.

A probation clause sets how long probation lasts, how performance will be reviewed and any shorter notice period during it, bearing in mind that statutory minimum notice of one week applies once someone has worked for you for a month. A notice clause sets how much notice each side must give after probation. A payment in lieu of notice clause lets you end the employment immediately by paying for the notice period instead of having it worked, and that payment is taxed as earnings. A garden leave clause lets you keep someone away from work on full pay during their notice so that they are not dealing with clients or colleagues before they leave.

Confidentiality and intellectual property clauses make clear that business information stays confidential and that work the employee creates in the course of their job belongs to the business. Where someone will build relationships with your clients or learn information a competitor would value, restrictive covenants can limit what they do after leaving, provided they go no further than is reasonable to protect the business. If you may ever need to deduct money from pay, for example to recover an overpayment, the contract needs a written term allowing it that the employee has been given before any deduction is made. Set out your sick pay arrangements, including whether you pay more than statutory sick pay and what evidence of sickness you need.

If you may need to change duties, hours or place of work, say so in the contract from the start, because changing terms later is harder. The government's timeline says that from January 2027, dismissing an employee for refusing to agree to certain changes, including cuts to pay or hours, will be automatically unfair in most cases, unless the employer meets a narrow exemption for financial difficulties.

Rights your employee has from the start

Many employment rights apply from the first day. Workers are entitled to 5.6 weeks' paid holiday a year, which is 28 days for someone working five days a week and can include bank holidays. Since 6 April 2026 employers must keep records showing that they have complied with the rules on holiday and holiday pay, and keep them for six years. Workers are also entitled to rest breaks and cannot be required to work more than 48 hours a week on average unless they opt out.

Statutory sick pay has been payable from the first day of sickness since 6 April 2026, at £123.25 a week or 80% of average weekly earnings if that is lower. Paternity leave and unpaid parental leave became day-one rights on the same date, and employees can make a statutory request for flexible working from their first day. Protection from discrimination applies from recruitment onwards, and employers must take reasonable steps to prevent sexual harassment of their employees. Dismissing someone for an automatically unfair reason, such as whistleblowing or raising a health and safety concern, can lead to a claim whatever their length of service.

Put the basic policies in place early: a disciplinary and grievance procedure, which the wider written statement must cover in any case, clear rules on sickness reporting and booking holiday, and a policy on preventing harassment. Once you have five or more employees you must also have a written health and safety policy.

Probation and the six-month qualifying period

There is no statutory probation period. Probation is a contractual arrangement that gives you a structured way to assess a new employee, usually with a review at the end and a shorter notice period while it lasts. At present most employees need two years' continuous service before they can bring an ordinary unfair dismissal claim, so an employer that ends a new employee's contract in the first months faces a limited risk of a claim, provided the reason is not discriminatory or automatically unfair.

That changes on 1 January 2027. Where the effective date of termination is on or after that date, the qualifying period is six months, and the cap on the compensatory award for unfair dismissal is removed. Employees who already have six months' service on 1 January 2027 are protected straight away. For example, say an employee starts on 1 October 2026. They will have six months' service at the end of March 2027, and from then on they can bring an ordinary unfair dismissal claim if they are dismissed.

In practice, set a probation period that ends well before six months, hold a proper review before it ends, and keep a written record of the standards you set, the feedback you gave and the support you offered. If you conclude that someone is not suitable, deal with it before they reach six months' service. Bear in mind that if you end the employment without notice, the one week of statutory minimum notice is added to the termination date when working out whether they have enough service to claim.

Common mistakes, and the order to do things in

Problems with a first hire tend to come from a few avoidable gaps: someone treated as self-employed who is in reality an employee, no written statement on the first day, a right to work check carried out after the person started or with no copies kept, employers' liability insurance that was never arranged, pension duties missed, and a contract copied from another business with notice periods, covenants or pay terms that do not fit. To avoid them, work through the steps in this order.

1. Decide whether the role is for an employee, worker or contractor, and write a short description of the job.
2. Register with HMRC as an employer and arrange employers' liability insurance.
3. Make a written offer that is conditional on a satisfactory right to work check.
4. Carry out and record the right to work check before the start date.
5. Prepare the contract and written statement so that they are ready for the first day.
6. Set up payroll and the workplace pension from the start date.
7. Put your disciplinary, grievance, sickness, holiday and harassment policies in place and diary a probation review well before six months.

We prepare contracts, written statements and staff handbooks for businesses taking on their first employees, and advise on status questions before an offer is made. We agree the scope of the work and the cost with you in writing before we start.

Frequently asked questions

What do I need to do before my first employee starts?

Check their right to work in the UK, register with HMRC as an employer before the first payday, and arrange employers' liability insurance with at least £5 million of cover. Decide whether they will be an employee or a worker, prepare the written statement of employment particulars for their first day, and set up payroll and a workplace pension, because your pension duties start on the day your first member of staff starts work.

Do I need a written contract for my first employee?

You must give an employee a written statement of the main terms on or before their first day and a wider written statement within two months, which is the legal minimum. A full employment contract also covers probation, notice, pay in lieu of notice, confidentiality, intellectual property and, where appropriate, restrictions after the employee leaves, so it gives the business much more protection than the statement alone.

When do I need to register as an employer with HMRC?

You must register before your first payday so that you have an employer PAYE reference, but you cannot register more than two months before you start paying people. You also need to tell HMRC about your new employee on or before their first payday. Most limited companies with between one and nine directors can register online.

Do I have to put my first employee into a pension?

Yes, if they are aged between 22 and State Pension age, earn at least £10,000 a year and normally work in the UK. Your pension duties start on the day your first member of staff starts work. The minimum total contribution is 8%, of which you must pay at least 3%, and you must complete a declaration of compliance with The Pensions Regulator within five months of your duties start date.

How much employers' liability insurance do I need?

You need cover of at least £5 million from an authorised insurer as soon as you become an employer. You can be fined £2,500 for every day you are not properly insured, and £1,000 if you do not display the certificate where employees can see it or show it to an inspector when asked. There are limited exemptions, including some businesses that employ only close family members.

Can I dismiss someone during their probation period?

Yes, but the risk depends on when the employment ends. At present most employees need two years' service to claim ordinary unfair dismissal, and where the effective date of termination is on or after 1 January 2027 they need six months. At any stage a dismissal can lead to a claim if the reason is discriminatory or automatically unfair, such as pregnancy or whistleblowing, so follow a fair process and keep records.

What rights does a new employee have from their first day?

From the first day, employees are protected against discrimination and against dismissal for automatically unfair reasons such as whistleblowing. They are entitled to the National Minimum Wage, paid holiday, rest breaks and, since 6 April 2026, statutory sick pay from the first day of sickness. They can request flexible working and take paternity leave or unpaid parental leave without a qualifying period, and statutory minimum notice applies after one month.

Sources & further reading

• GOV.UK — Checking a job applicant's right to work
• GOV.UK — Register as an employer
• GOV.UK — Employers' liability insurance
• GOV.UK — Set up and manage a workplace pension scheme
• GOV.UK — Written statement of employment particulars
• HMRC — Rates and thresholds for employers 2026 to 2027
• GOV.UK — Employment status: employee
• The Pensions Regulator — Declare your compliance

This article is general information, not legal advice. The law changes and depends on your circumstances — always take advice on your specific situation before acting. Last reviewed 17 September 2026. AD Solicitors is a trading name of AD Solicitors Limited, a recognised body regulated by the SRA (no. 8011228).