How to Hire Your First Employee as a Tradesperson UK (2026)

Taking on your first employee is one of the biggest steps you'll make in your trade business. It is also one of the most misunderstood. Many tradespeople think it is just a case of agreeing a wage and getting someone to start on Monday. In reality there are legal requirements — PAYE registration, right to work checks, employment contracts, employer's liability insurance — that must be in place before day one. Get them wrong and HMRC and the Employment Tribunal will find you. This guide walks through every step in the correct order.

Step 1: Employee or subcontractor?

Before you register for PAYE or draft a contract, you need to decide whether the person you are taking on is an employee or a self-employed subcontractor. This is not your choice to make freely — HMRC applies an employment status test based on the actual working relationship, and getting it wrong can cost you years of back taxes, NI and penalties.

A worker is likely to be an employee if: you control what they do, how they do it, and when they do it; they work exclusively or primarily for you; you supply their tools, equipment and materials; they cannot send a substitute if they are unavailable; and they are integrated into your day-to-day operation. If all of those things apply, HMRC will regard the person as an employee regardless of what a contract calls them.

A genuine self-employed subcontractor sets their own hours, works for multiple clients simultaneously, uses their own tools and equipment, invoices you for completed work, and can send a substitute in their place. They control their own methods and carry their own risk. If the arrangement you are considering looks materially different from this description, treat the worker as an employee.

Disguising employment as self-employment to avoid employer responsibilities is called false self-employment. HMRC targets the construction sector specifically via CIS compliance checks. If they determine an employment relationship existed, you can be held liable for unpaid income tax and employer's NI going back years, plus interest and penalties. The risk is real and the downside is severe.

Step 2: Register as an employer with HMRC

Once you have confirmed you need an employee, you must register as an employer with HMRC before your first employee's first payday. You cannot legally pay an employee without a PAYE reference number. Registration is done at gov.uk and takes around 15 minutes. HMRC will post your employer PAYE reference and accounts office reference within five working days.

You can register up to two months before you make your first payment, but you must register at least two weeks before the first payday to allow HMRC time to process. If your employee starts next Monday, do not wait — register today. Failing to register in time means you cannot submit payroll correctly and risks penalties.

Once registered, you need payroll software to submit Real Time Information (RTI) returns to HMRC. HMRC's free Basic PAYE Tools works for businesses with fewer than 10 employees. Xero, QuickBooks, and Sage all have payroll modules built in. If you use an accountant, most will handle payroll for £50–£100 per month per employee, which is usually worth paying at the start.

Step 3: Check the right to work

You are legally required to check that every employee has the right to work in the UK before they start work — not on their first day, before it. The check must be completed, the relevant documents must be copied, and you must keep those copies on file for the duration of employment and two years afterwards.

Acceptable documents for UK and Irish nationals include: a UK passport, an Irish passport, a UK birth certificate accompanied by a National Insurance number letter, or a certificate of registration or naturalisation. For nationals from outside the UK and Ireland, a Biometric Residence Permit, a share code from the Home Office online checking service, or a current passport with a valid visa showing the right to work are all acceptable.

If you fail to carry out a compliant right to work check and an employee is found to be working illegally, you face an unlimited civil penalty — currently up to £60,000 per illegal worker — and potentially a criminal conviction carrying up to five years in prison if you had reasonable cause to believe the worker did not have the right to work. Do the check. Copy the documents. Keep the copies. There is no valid reason not to.

Step 4: Write an employment contract

Since April 2020, you must provide a written statement of employment particulars on or before the employee's first day of work. This is a legal requirement, not a nice-to-have. The contract must include all of the following as a minimum:

• Names of employer and employee and the employer's address
• Job title and description of the work the employee is expected to do
• Start date and, if the employment is not permanent, the expected end date
• Pay rate and pay frequency — weekly or monthly, and whether pay is hourly or salaried
• Hours of work including the normal working week and any expectation of overtime
• Holiday entitlement — minimum 28 days per year including bank holidays for a full-time employee (5.6 weeks)
• Notice period — the statutory minimum is one week for the first two years, then one week per year of service up to 12 weeks
• Sick pay arrangements — including whether you pay anything above Statutory Sick Pay
• Pension details — confirming enrolment in the workplace pension scheme and contribution rates

ACAS provides free employment contract templates at acas.org.uk. Do not invent your own from scratch. Use a solicitor-reviewed template to make sure nothing is missing.

Step 5: Set up auto-enrolment for the workplace pension

Auto-enrolment is mandatory. If your employee is aged between 22 and state pension age and earns more than £10,000 per year, you must enrol them in a qualifying workplace pension scheme within three months of their start date. You cannot opt out of this on their behalf, and you cannot encourage them to opt out.

The minimum contribution rates are: you as the employer must contribute at least 3% of qualifying earnings; the employee must contribute at least 5% of qualifying earnings (the employee's contribution receives tax relief, so the actual take-home impact is lower). Total minimum contribution is 8%.

NEST (National Employment Savings Trust) is a government-backed pension provider designed specifically for small employers. There are no set-up fees, no annual charges to the employer, and it integrates with most payroll software. For most trade businesses taking on their first employee, NEST is the simplest and cheapest option.

Step 6: Pay at least the National Minimum Wage

You must pay at least the National Living Wage for workers aged 21 and over. From April 2024 this is £11.44 per hour. Rates for younger workers and apprentices are lower. These rates are reviewed annually in April — check the current rates at gov.uk before agreeing a wage, and check again every April.

Paying below the minimum wage is not just illegal — HMRC actively enforces it. Employers who pay below the minimum are named publicly on the HMRC website and face fines of up to 200% of unpaid wages. There is no grace period, no exemption for small businesses, and no negotiating your way out of it.

For most trade businesses, a qualified engineer will expect significantly more than the minimum wage. A qualified electrician or gas engineer typically expects £30,000–£40,000 per year depending on location and experience. The minimum wage is a floor, not a target rate.

Step 7: Understand the true cost of an employee

One of the most common mistakes first-time employers make is confusing the salary with the total cost. If you agree to pay someone £30,000 per year, that does not cost you £30,000. Here is what it actually costs:

• Gross salary: £30,000
• Employer's National Insurance (13.8% on earnings above £9,100): approximately £2,882
• Employer pension contribution (3% of qualifying earnings): approximately £623
• Employer's liability insurance (prorated): approximately £300–£500 per year

Total employer cost: approximately £33,800–£34,000 per year for a £30,000 salary. That is a 13% premium on the agreed wage before you account for any tools, PPE, uniform, van costs, or training you provide. Budget for the full cost, not just the salary figure, when assessing whether a hire is commercially viable.

There are also indirect costs to factor in: a new employee will not be fully productive from day one. Expect the first four to eight weeks to be less efficient as you onboard them. And when they are sick or on holiday, you still pay their wage but may not be generating revenue from their labour. These are not reasons not to hire — they are costs to account for in your planning.

Step 8: Get employer's liability insurance

Employer's liability (EL) insurance is a legal requirement from the moment you take on an employee. It must be in place before your employee's first day. EL insurance covers claims made by employees who are injured, become ill, or are killed as a result of working for you. Without it, you face fines of up to £2,500 per day for every day you have employees and no valid EL policy.

The legal minimum cover is £5 million. Most policies automatically provide £10 million. For a trade business in construction-related work, premiums are typically £200–£600 per year depending on the trade, the number of employees, and your claims history. Add EL cover to your existing public liability policy — most trade insurers offer it as an add-on.

You must display your EL certificate at your place of work, or make it available electronically to employees. Keep the certificate for 40 years — HMRC can require you to produce historic EL certificates if a former employee makes a claim for a work-related illness that only manifests years later.

Step 9: Run payroll correctly every month

Once your employee is on the payroll, you must submit a Full Payment Submission (FPS) to HMRC on or before every payday. The FPS tells HMRC how much each employee was paid, how much income tax and National Insurance was deducted, and how much employer's NI you owe. You then pay the combined total of income tax, employee NI, and employer NI to HMRC by the 19th of the following month (22nd if paying electronically).

Missing or late FPS submissions trigger automatic penalties. Missing or late HMRC payments attract interest. Neither is worth risking for the sake of a few hours of admin. If you are using payroll software, the FPS submission is usually a single click once payroll is processed. If you are not confident with payroll, use your accountant — £50 per month to have it handled correctly is well spent.

At the end of each tax year (5 April), you must also submit a final FPS or an Employer Payment Summary (EPS) to tell HMRC the year is complete, and provide each employee with a P60 by 31 May.

Step 10: Know your obligations around statutory sick pay

If your employee is sick for four or more consecutive days (including non-working days such as weekends), they qualify for Statutory Sick Pay (SSP). You are required to pay SSP; you cannot simply dock their wages for illness. The current SSP rate is £116.75 per week, payable for up to 28 weeks per period of illness.

SSP is paid by you as the employer. HMRC does not reimburse SSP for most employers. You can only reclaim SSP in very limited circumstances — currently only if your total SSP payments exceed 3% of your monthly NI liability, and even then only the excess. For a small trade business, assume SSP comes entirely out of your pocket.

You can offer contractual sick pay above SSP in your employment contract — for example, full pay for the first two weeks of illness, then SSP. You are not obliged to, but it is a useful recruitment tool for attracting better-quality candidates.

Step 11: Manage annual leave correctly

Full-time employees are entitled to a minimum of 28 days of paid holiday per year (5.6 weeks), which must include public holidays. You can count the eight UK bank holidays as part of this allowance — meaning the minimum additional holiday entitlement on top of bank holidays is 20 days — or you can provide 28 days on top of bank holidays. Most trade businesses use the former.

For part-time employees, the entitlement is calculated on a pro-rata basis. An employee working three days per week is entitled to 16.8 days of paid holiday (3/5 × 28). You cannot write a contract that reduces holiday entitlement below the statutory minimum — any such clause is automatically void.

Holiday pay must be at the employee's normal rate of pay, including any regular overtime. Paying holiday at basic rate only when the employee regularly works overtime is unlawful following the Supreme Court ruling in Harpur Trust v Brazel (2022). If in doubt, take advice from ACAS or an employment solicitor.

Step 12: What to do on Day 1

By the time your employee arrives on their first day, all of the above should already be in place. Day 1 is not the time to be sorting out paperwork. Here is the checklist for the first day:

• Complete the right to work check (if you have not done this already, do it before they start a single minute of work)
• Provide the signed employment contract and ask the employee to sign their copy. Keep both signed copies on file.
• Collect a P45 from their previous employer, or have them complete a starter checklist (previously P46) if they do not have one. This tells you which tax code to use.
• Add them to your payroll software with their correct tax code, National Insurance number, and start date.
• Walk through your health and safety policies — risk assessments relevant to their role, PPE requirements, what to do in an emergency, how to report a near miss or accident.
• Introduce them to how you run jobs — how jobs are booked, what information they receive before a job, how to communicate with customers, how you expect completed jobs to be reported back.

Plan to spend day one working alongside your new hire, not sending them out alone. The first week is your opportunity to set standards clearly, show them how you operate, and assess their actual capabilities before you give them independent responsibility.