How to add an employee to your UK business
If you need to add an employee to your UK business, you’ll need to do the following things.
Register as an employer with HMRC
You need to register for PAYE (Pay As You Earn) as an employer here. This will give you:
- A PAYE reference number
- An Accounts Office reference number
You’ll need to do this before the first payday.
Setup payroll
Payroll handles things like:
- Salary calculations
- Tax deductions
- National Insurance
- Payslips
- Submissions to HMRC (RTI))
You have three options here:
- Use HMRC’s Basic PAYE tools
- Use software like FreeAgent or Xero Payroll
- Hire an accountant
It’s probably worth hiring an accountant to save yourself the admin work.
Provide employment documents to the employee
Provide:
- An employment contract
- Job description
- Salary details
- Holiday entitlement
Enroll them into a pension scheme
Because of the pension auto-enrolment law in the UK, you will need to enrol the employee into a pension scheme and contribute money into it if they meet all of the following criteria:
- They work in the UK
- They’re 22 years old or older
- They’re below the State Pension age (currently 68)
- They earn more than £10k a year
In that case, the minimum total contributions would have to be:
- Employer: 3% of qualifiying earnings
- Employee: 5% of qualifying earnings
“Qualifying earnings” are a portion of the employee’s earnings that fall between the lower and upper thresholds for pension contributions. For the 2025/26 tax year, the lower and upper thresholds are:
- Lower threshold: £6,240
- Upper threshold: £50,270
This means that for an example salary of £12,000 a year, the qualifying earnings are:
- 12000 (employee salary) – 6240 (lower threshold) = £5,760
So the minimum pension contributions that woulld need to be made are:
- Employer contribution: 5760 * 0.03 = £172.80
- Employee contribution = 5760 * 0.05 = £288
- Total = £460.90
Optionally opt out the employee from a pension contribution scheme
If you’re a small business and both you as the employeer and the employee want to avoid pension contributions, the employee can choose to opt out of the pension scheme.
In that case, you’ll need to do the following:
- Initially, auto-enrol them with the help of your accountant
- The pension provider will contact them
- They tell the pension provide they want to opt out
- Any contributions are refunded to you the employer and to them as the employee