How to Register as an Employer and Run Payroll for Your First Employee (2026/27)

This guide is general information, not advice.

This guide is for a sole trader or limited company taking on a first employee, including a director paying themselves a salary through the company. It follows the order you will actually need things: checks before the job offer, insurance and HMRC registration before the first payday, then the monthly payroll cycle.

By the end you will have an employer PAYE reference, payroll software set up, your first Full Payment Submission sent and a clear list of the dates HMRC expects each month. For the wider RTI background, see the PAYE and RTI guide for new employers.

Before you start

• Your planned first payday, because the registration window is counted from it (step 3).
• Your Government Gateway details, or a business account to create, for PAYE Online (GOV.UK).
• Your new employee’s details. GOV.UK lists date of birth, gender, full address and start date, plus from their P45: full name, leaving date, pay and tax to date, student loan status, National Insurance number and tax code. If they have no recent P45 they fill in a starter checklist instead (GOV.UK; see how to fill in the starter checklist).
• Their right to work documents, checked before they start (step 1).
• A rate of pay at or above the minimum. Workers aged 21 and over must get at least the National Living Wage of £12.71 an hour in 2026/27; 18 to 20 year olds £10.85.

Step-by-step

1. Check the right to work before you hire. GOV.UK says you must check that job applicants are allowed to work in the UK before you hire them (GOV.UK). If you employ someone without the right to work and did not do the correct checks, you can face a civil penalty of up to £60,000 for each illegal worker; you will not have to pay it if you can show you made the correct checks (GOV.UK).

2. Get Employers’ Liability insurance. You need it as soon as you become an employer, from an authorised insurer, covering at least £5 million. The fine is £2,500 for every day you are not properly insured, and £1,000 if you do not display the certificate where staff can see it or show it to an inspector. You do not need it if you only employ a close family member (GOV.UK lists which) or someone based outside England, Scotland and Wales (GOV.UK).

3. Register as an employer with HMRC. Do it before the first payday; you cannot register more than 2 months before you start paying people. You must register even if the only employee is you, as sole director of a limited company. Most limited companies with 1 to 9 directors can use the online service; other businesses follow the “Other types of business” route on the same page (GOV.UK). As a general rule you usually have to run PAYE for someone who earns £129 a week (£559 a month, £6,708 a year) or more (GOV.UK); GOV.UK’s PAYE guide also lists employees who get expenses and benefits, a pension, have had another job or have received Jobseeker’s Allowance, Employment and Support Allowance or Incapacity Benefit. If none applies you still keep payroll records (GOV.UK).

4. Collect your two references. HMRC sends your employer PAYE reference in a letter (GOV.UK). Your 13-character Accounts Office reference is on that letter and in your HMRC online account once you are enrolled for PAYE Online (GOV.UK). Registering online enrols you for PAYE Online automatically; HMRC posts an activation code within 10 days and you must activate within 28 days of the date on that letter (GOV.UK). HMRC’s reply-times tool shows how long registration letters are currently taking. If payday comes first, run payroll, store the FPS and send it late once the reference arrives.

5. Choose payroll software. It must report PAYE online unless you are exempt, and HMRC publishes a list of HMRC-recognised payroll software without recommending any product (GOV.UK). Basic PAYE Tools is free from HMRC for businesses with fewer than 10 employees; you need to be registered and have a PAYE Online login first, and HMRC says it is not designed for agents or bookkeepers. Enter your PAYE reference and Accounts Office reference in the software (GOV.UK).

6. Set up your employee and pay them. Put their details in the software and work out their tax code with HMRC’s tool (GOV.UK). On or before payday the software records pay, calculates tax, employee and employer National Insurance, and you give a payslip (GOV.UK).

7. Send a Full Payment Submission (FPS) on or before payday. Include everyone you pay. The first FPS that includes your new employee is what registers them with HMRC (GOV.UK; FPS guidance).

8. Send an Employer Payment Summary (EPS) when needed. You send one by the 19th of the next tax month to claim a reduction, such as reclaiming statutory parental pay or claiming Employment Allowance once each tax year, and instead of an FPS in any tax month when you paid nobody (GOV.UK).

9. Pay HMRC. By the 22nd of the next tax month, or so that a posted cheque reaches HMRC by the 19th. If you usually pay less than £1,500 a month you may be able to pay quarterly (GOV.UK). Quote the Accounts Office reference with no spaces; early or late payments need 4 extra digits (GOV.UK).

10. Set up a workplace pension. Your duties start the day your first member of staff starts work. You must enrol staff aged between 22 and State Pension age who earn at least £10,000 a year and normally work in the UK, and pay at least 3% of their qualifying earnings (GOV.UK). Then complete your declaration of compliance with The Pensions Regulator within 5 months of your duties start date (TPR).

Deadlines and what happens next

• Each payday: FPS sent, payslip given.
• From the 10th of the next tax month: view what you owe online.
• By the 19th: EPS if you are claiming anything; posted cheques must arrive.
• By the 22nd: electronic payment reaches HMRC (GOV.UK).
• Late or missing FPS: HMRC can send a late filing notice and charge a penalty unless you have a valid reason. HMRC will close the PAYE scheme of a new employer who does not send a report or pay HMRC in 120 days (GOV.UK).
• Records: keep payroll records for 3 years from the end of the tax year they relate to; incomplete records can mean a penalty of up to £3,000 (GOV.UK).

Common mistakes

• Registering too early or too late. More than 2 months before the first payday is too early; after it means a late FPS.
• Using the PAYE reference to pay. Payments need the 13-character Accounts Office reference.
• Leaving low-paid staff off the FPS. GOV.UK says to include everyone you pay, whatever they earn.
• Treating the pension as optional until later. Duties start with your first employee, not after a grace period.
• Letting the PAYE Online activation code expire. It must be used within 28 days of the letter.

Worked example

One employee aged 21 or over on £2,500 a month, paid on 25 October 2026. For 2026/27 the employer (secondary) National Insurance rate is 15% above the secondary threshold of £5,000 a year, which HMRC’s employer table shows as £417 a month (HMRC rates and thresholds 2026/27).

• Earnings above the threshold: £2,500 − £417 = £2,083.
• Employer National Insurance: £2,083 × 15% = £312.45.

That payday falls in the tax month 6 October to 5 November 2026, so the FPS is due by 25 October, any EPS by 19 November and the payment by 22 November 2026. Over a full year this is close to (£30,000 − £5,000) × 15% = £3,750; your software uses the period thresholds, so its total may differ by a few pence. Employment Allowance (£10,500 for 2026/27 for eligible employers, per the same HMRC table) can reduce that bill, and you claim it on an EPS: see how to claim Employment Allowance. The employer cost calculator adds pension and the rest of the cost of employing someone.

Related reading

• How to set up a limited company 2026/27 - if you have not incorporated yet.
• Employer cost calculator - salary plus employer National Insurance and pension.
• How to claim Employment Allowance - cutting your employer National Insurance bill.