From Sole Trader to Employer: Your Complete Guide to Hiring Your First Employee

Congratulations! Your business has grown to the point where you need to hire your first employee. It’s an exciting milestone that shows your hard work is paying off. But if you’re feeling a bit overwhelmed by the legal requirements and paperwork involved, you’re not alone.

Hiring your first employee is a big step that comes with new responsibilities, legal obligations, and – let’s be honest – quite a bit of paperwork. But don’t let that put you off. With the right preparation, you can make this transition smoothly and set both you and your new employee up for success.

Here’s everything you need to know about making your first hire with confidence.

Before You Even Start Looking

1. Register as an Employer with HMRC

Before you can hire anyone, you need to register for PAYE (Pay As You Earn) with HMRC. This is required even if your employee won’t earn enough to pay tax initially. You’ll need to do this before your first payday.

What you’ll need:

• Your business details

• National Insurance number

• Bank account details

• Estimated annual payroll

Timeline: You can register up to 4 weeks before you start paying employees, but don’t leave it until the last minute.

2. Get Employer’s Liability Insurance

This is a legal requirement if you have employees. Employer’s liability insurance protects you if an employee is injured or becomes ill due to their work. You need at least £5 million of cover, and you must display the certificate where employees can see it.

Cost: Usually around £100-£300 per year for small businesses

When: Must be in place before your employee starts work

3. Understand Your Legal Obligations

• As an employer, you’ll have new responsibilities including:

• Providing a safe workplace

• Paying at least the minimum wage

• Following working time regulations

• Preventing discrimination and harassment

• Protecting employee data under GDPR

• Providing statutory benefits (holiday pay, sick pay, etc.)

Essential Documents You’ll Need

The Employment Contract

This is your most important document. A proper employment contract should include:

Basic Details:

• Employee’s name and address

• Job title and description

• Start date and location of work

• Salary and payment frequency

Working Arrangements:

• Working hours and days

• Holiday entitlement

• Sick pay arrangements

• Notice periods

Policies and Procedures:

• Disciplinary and grievance procedures

• Confidentiality clauses

• Data protection obligations

Pro Tip: Don’t use a basic template from the internet. Employment law is complex, and a poorly written contract can cause serious problems later.

Other Essential Paperwork

Starter Checklist: HMRC form for new employees to determine their tax code

Right to Work Check: Legal requirement to verify your employee can work in the UK

Privacy Notice: GDPR requirement explaining how you’ll use their personal data

Health and Safety Information: Basic workplace safety guidelines

Company Handbook: Policies on expenses, dress code, social media, etc.

Setting Up Payroll

You have three options for running payroll:

1. Do It Yourself

HMRC provides free payroll software, but you’ll need to:

• Calculate tax and National Insurance

• Submit Real Time Information (RTI) to HMRC

• Issue payslips

• Handle year-end reporting

2. Use Payroll Software

Services like Sage, QuickBooks, or Xero can automate much of the process. Costs typically range from £10-£30 per month.

3. Outsource to a Professional

Your accountant or a payroll service can handle everything for you. More expensive but removes the administrative burden.

Workplace Policies You Need

Health and Safety

Even with one employee, you need basic health and safety measures:

• Risk assessments for the workplace

• First aid arrangements

• Fire safety procedures

• Display the health and safety law poster

Data Protection

• Under GDPR, you must:

• Have a privacy notice for employees

• Secure storage for personal data

• Procedures for data breaches

• Training on data protection

Equal Opportunities

Create policies covering:

• Recruitment and selection

• Preventing discrimination and harassment

• Reasonable adjustments for disabilities

• Grievance procedures

Creating a Positive Employee Experience

The First Day

Make your new employee feel welcome:

• Prepare their workspace in advance

• Have all paperwork ready

• Plan their first week’s activities

• Introduce them to any other team members or key contacts

Ongoing Support

• Regular check-ins during their first few months

• Clear training and development plans

• Open communication channels

• Fair and consistent management

Building Company Culture

Even with one employee, you’re creating your company culture:

• Define your values and communicate them

• Lead by example

• Create opportunities for feedback

• Recognize good performance

Common First-Time Employer Mistakes

1. Rushing the Hiring Process

Take time to:

• Write a proper job description

• Interview thoroughly

• Check references

• Verify right to work

2. Inadequate Onboarding

Don’t just throw them in at the deep end. Plan their first few weeks carefully.

3. Avoiding Difficult Conversations

Address performance or behavior issues early. Small problems become big problems if ignored.

4. Not Keeping Records

Keep detailed records of:

• Recruitment decisions

• Performance discussions

• Training provided

• Any disciplinary actions

5. Forgetting About Probationary Periods

Use probationary periods (typically 3-6 months) to assess suitability without the full complexity of dismissal procedures.

Our HR Hub makes employment law simple and accessible for microbusinesses. Contact us today to secure your access and special launch pricing.