How Do I Handle Payroll and Taxes for My First Employee?

How Do I Handle Payroll and Taxes for My First Employee?

Payroll is not just an admin task. It is one of the first formal signs that your startup is becoming an employer.

This article is general guidance only and is not tax or legal advice. Always check official guidance or speak to a qualified adviser before making payroll decisions.

Understand whether you need to register as an employer

When you take on an employee in the UK, you may need to register with HMRC and operate Pay As You Earn, known as PAYE.

PAYE is the system used to collect Income Tax and National Insurance from employment income.

Do not leave this until payday. Set it up before the person starts or before you first pay them.

Decide who will run payroll

You have three main options:

1. Run payroll yourself using payroll software

2. Use an accountant or payroll bureau

3. Use an HR or payroll platform

For most first-time founders, outsourcing payroll is often sensible. Mistakes can create stress, penalties and unnecessary distraction.

Budget beyond salary

The employee receives salary, but the company carries additional employer costs.

You may need to budget for:

1. Employer National Insurance

2. Pension contributions

3. Payroll software or provider fees

4. Holiday pay

5. Sick pay obligations where applicable

6. Benefits and equipment

Your hiring budget should include the total cost, not just salary.

Set up pension duties

In the UK, employers have workplace pension duties for eligible staff. Other countries will have different rules.

This can apply from the first member of staff. Do not assume pensions are only a later-stage issue.

Check what applies to your business and set up the process early.

Keep records properly

Good payroll records protect the business.

You should keep accurate records of pay, deductions, tax reporting, pension contributions, leave and employment details.

This becomes much easier if you build good habits from hire number one.

Final thought

Payroll is not the place to improvise.

Before your first employee starts, understand PAYE, employer costs, pension duties and who will manage the process.

A clean payroll setup gives the employee confidence and protects the founder from avoidable problems.

How Spinwell Startups can help

Spinwell Startups helps founders think about employment readiness before the offer is made.

As a specialist recruitment company for startups, we help make sure the hiring plan considers payroll, contracts, onboarding and local compliance requirements. For international recruitment, we can also help identify when country-specific tax, payroll or legal advice is needed.