Taking on Staff in 2026: The Payroll Foundations to Put in Place First

Taking on a first employee is a positive step, but it changes the administrative shape of a business. Payroll is not simply a monthly calculation; it is a set of registrations, reports and records that begin before the first day of work. The purpose of this checklist is to reduce avoidable pressure later by putting the foundations in place early. It is written for a director or sole trader who is about to become an employer in the 2026/27 tax year and wants a calm, practical sequence rather than a last-minute scramble.

Before day one: confirm employment status

A genuine self-employed contractor is not an employee. Labels do not decide status; the working arrangements do. Consider the degree of control, the right to substitute, financial risk and whether the person is integrated into the business. If the answer is unclear, take advice before payroll begins. Correcting a misclassification later is rarely quick or inexpensive.

Register as an employer with HMRC

Register for PAYE before the first payday. Registration is not instant in every case, and a delay can affect the first reports. Have the business details, bank information and anticipated pay dates to hand. Keep access to the Government Gateway secure and separate from personal logins. If you are unsure whether registration is required, check the current HMRC guidance rather than relying on a verbal assumption.

Complete right to work and insurance checks

Carry out right to work checks before employment starts and keep evidence in line with current requirements. Check whether employers' liability insurance is needed and arrange it before the employee begins work. These are day-one matters, not paperwork for a quieter month.

Set up payroll records and payslips

Decide who will run payroll: you, a bookkeeper or a payroll bureau. Whichever route you choose, keep an employer record for each employee, including pay, deductions, tax code and pension status. Employees must receive an itemised payslip. A spreadsheet can be a useful working document, but it is not a substitute for a payroll system that produces compliant reports and records.

Assess auto-enrolment duties

Workplace pension duties apply even to a first employee. Assess the worker's age and earnings, identify eligible jobholders and choose a scheme before the first payday. Postponement can be used in some circumstances, but it must be operated correctly and communicated. Do not wait for a pension provider's reminder to start the assessment process.

Check the National Living Wage and Employment Allowance

Confirm the current National Living Wage and National Minimum Wage bands for 2026 rather than carrying forward an old rate. Age and apprentice status matter. Also check whether the business can claim the Employment Allowance and how to claim it through payroll. Eligibility can change, particularly for companies with more than one employee or connected businesses.

The month-one diary

The first month is where small omissions become visible. Put these items in the diary:

• First payday: send the Full Payment Submission on or before payday.
• Pension: complete the assessment, deduct contributions and upload the correct data.
• Payslips: issue them on or before payday.
• Holiday: record holiday accrued and any holiday taken.
• Employment Allowance: submit an Employer Payment Summary if claiming it.
• Records: file payroll reports, pension correspondence and right to work evidence.
• Review: check the first payslip against the contract and the payroll report.

Holiday pay basics

Statutory holiday is 5.6 weeks a year, capped at 28 days for a standard five-day week, with part-time and irregular-hours workers entitled to a pro-rata equivalent. Bank holidays can count towards the entitlement if the contract allows. Holiday pay should be paid when holiday is taken, not rolled up into hourly pay without advice. For irregular hours, use the current statutory calculation method and keep clear records.

Shortcuts that create avoidable bills

Several common shortcuts cause problems out of proportion to the time they save. Paying someone cash without payroll, treating an employee as self-employed, running a director-only payroll when others work in the business, filing the first report late, ignoring pension duties and failing to issue payslips are all avoidable risks. Late or incorrect RTI reports can attract penalties, and pension non-compliance can lead to backdated contributions and regulatory action.

Keep records and review quarterly

Keep PAYE records for the required period, retain pension records and store right to work evidence securely. A quarterly payroll review is a sensible habit: check tax codes, pay changes, holiday balances, pension status and whether any new employees or leavers need to be reported. The first employee is a good prompt to build a repeatable process, because the second and third will arrive with less room for improvisation.

The adviser-led view

Payroll is manageable when it is treated as a process rather than an emergency. Register early, diarise the first payday, use the correct pension and reporting steps, and ask for advice before using a shortcut. That approach will not remove every administrative task, but it will reduce the chance of a small oversight becoming a disproportionate bill.