Hiring Your First Employee in the UK: A Practical Guide for International Employers

Hiring your first employee in the UK is straightforward once you understand what is required, but for international companies unfamiliar with the UK system, the setup steps, costs, and legal obligations are not always obvious from the outside.

The UK operates a mature, well-documented employment framework. Most of the rules are clear, enforcement is real, and the administrative setup, PAYE registration, right to work checks, and pension auto-enrolment, needs to happen before the employee starts work, not after. The mistakes international companies make are typically not about misunderstanding the law. They are about underestimating the setup timeline, miscalculating employer costs, or choosing the wrong employment model for the stage they are at.

This guide covers the practical steps to making your first hire in the UK: what you need to set up, what UK law requires, and where Employer of Record (EOR) fits in if you do not yet have a UK legal entity.

Key facts at a glance

Do you need a UK legal entity to hire your first employee?

You do not need a UK legal entity, a limited company registered at Companies House, to hire your first employee in the UK. However, you do need either a registered employer capable of running PAYE (Pay As You Earn) payroll through HMRC, or a structure that handles this on your behalf.

International companies typically solve this in one of two ways: they incorporate a UK limited company and register as an employer with HMRC, or they use an Employer of Record that employs the person legally on their behalf. A third option, hiring through a contractor structure, is possible but carries significant risk under the UK's IR35 rules, particularly if the working relationship resembles employment.

The right model depends on how committed you are to the UK. If you are making an exploratory first hire or testing whether the market works for your business, EOR gives you a compliant employment structure within days and avoids the overhead of entity setup. If you are building a team of ten or more, or require direct control over employment terms and HR structure, incorporating a UK limited company makes more sense in the medium term.

The main hiring models in the UK

UK limited company. You incorporate a legal entity at Companies House, register as an employer with HMRC, set up PAYE, and run payroll directly. This gives you full control over employment contracts, HR policies, and costs, and is the right structure for long-term UK presence. Incorporation is relatively fast, often within 24 hours online, but PAYE registration, right to work checks, and auto-enrolment setup add time before you can run your first payroll.

Employer of Record (EOR). A UK-registered organisation employs the worker on your behalf. You direct the day-to-day work; they handle the employment contract, PAYE, National Insurance, pension auto-enrolment, and statutory obligations. This allows you to hire in the UK within days without a UK entity. See our Employer of Record in the United Kingdom page for how this works.

Contractor engagement. Engaging someone as a self-employed contractor avoids the employer relationship, but the UK's IR35 legislation makes this high-risk if the arrangement resembles employment. IR35 (also called the off-payroll working rules) applies in most medium and large private sector organisations, and in the public sector. If HMRC determines the relationship is actually employment, the liability for unpaid income tax and National Insurance falls on you as the engaging organisation, not the contractor. Do not assume a contractor relationship is safe without a proper IR35 status assessment.

How to register as an employer with HMRC

If you are setting up a UK limited company to hire directly, employer registration involves two main steps:

Register at Companies House. Incorporating a UK limited company is done online through Companies House and typically takes 24 hours. Once registered, you receive a company registration number (CRN) and the company becomes a legal entity capable of employing staff.

Register for PAYE with HMRC. Before your first payday, you must register as an employer on the HMRC Government Gateway. This gives you an employer PAYE reference number and an Accounts Office reference, both required to submit payroll and pay tax to HMRC. Registration takes up to five working days and cannot be done more than two months before your first payday.

Once registered, your ongoing payroll obligation is the Full Payment Submission (FPS), a digital report submitted to HMRC on or before every payday, detailing each payment made and every deduction taken. Payroll records must be kept for at least three years.

Before any employee starts work, you must also complete a right to work check, covered in the section on hiring a foreign national below.

Employment contracts in the UK: what you need to know

UK employment law requires that employees receive a written statement of employment particulars on or before their first day of work. This is a legal requirement under the Employment Rights Act 1996 as amended, and it must include:

• Names of the employer and employee
• Start date and any period of continuous employment
• Job title and brief job description
• Place of work
• Rate and method of pay
• Pay frequency (weekly, monthly, etc.)
• Working hours and days
• Holiday entitlement
• Notice periods on both sides

Additional terms, including sick pay arrangements, pension, disciplinary and grievance procedures, must be provided promptly but can follow in a broader written statement.

One important practical point: UK employment law applies to employees working in the UK regardless of the governing law specified in the contract. If someone is based in the UK and working there, UK statutory rights apply even if the contract nominates a different legal jurisdiction. Do not assume a home-country contract is sufficient.

If a collective agreement applies to your sector or workplace, through a recognised trade union, its terms may apply on top of statutory minimums. This is less common in knowledge sectors and professional services but worth confirming.

Probation periods and fixed-term contracts in the UK

Probation periods are not regulated by a specific UK statute in the same way as in some European countries, but they must be clearly agreed in writing and be reasonable in length. Standard practice is three to six months. During probation, it is easier to dismiss with shorter notice, but dismissal must still be conducted fairly, even in the first two years of employment.

Fixed-term contracts are a common option for a first UK hire, but extended or repeated use can create expectations of permanence. An employee whose fixed-term contract expires may be able to claim unfair dismissal if they have sufficient continuous employment. After four years of consecutive fixed-term contracts with the same employer, UK employment law generally treats the employee as permanent: the fixed-term status cannot be renewed indefinitely.

Payroll and PAYE: key rates for 2026

The UK operates a Pay As You Earn (PAYE) system, under which the employer withholds income tax and National Insurance from the employee's gross pay each month and remits it to HMRC.

2026/27 income tax bands (England, Wales, and Northern Ireland):

Scotland applies different income tax rates through the Scottish PAYE system.

National Living Wage and National Minimum Wage (from April 2026):

The National Living Wage applies to all workers aged 21 and over. It is the statutory floor: employment contracts must not pay below it. The voluntary Real Living Wage is currently £13.45 across the UK and £14.80 in London, and is adopted by many employers who want to demonstrate a commitment to fair pay.

Employer National Insurance contributions in 2026

In addition to withholding employee tax and National Insurance from payslips, UK employers pay their own secondary Class 1 National Insurance contributions. These are a significant on-cost on top of gross salary and must be factored into total employment cost budgeting before making an offer.

For 2026/27:

• Employer NI rate: 15%
• Secondary threshold: £5,000 per year (£416.67 per month)
• Employer NI is charged at 15% on earnings above £5,000 per year, meaning contributions start on a low earnings base, increasing the total cost of employment materially

Employment Allowance. Eligible employers can offset up to £10,500 per year from their employer NI liability through the Employment Allowance. The £100,000 eligibility cap was removed, meaning most businesses with an employer NI bill can claim it.

For practical cost modelling: employer NI on a £50,000 gross salary equates to roughly £6,750 per year (15% of the £45,000 above the threshold). Add the mandatory employer pension contribution of 3% of qualifying earnings and you are looking at approximately 18% to 20% on-costs above gross salary for a typical professional hire. For a wider country-by-country comparison, see our guide on hiring your first European employee.

Statutory employment rights you must provide

UK law sets minimum standards that apply to all employment contracts regardless of what is agreed in writing.

Annual leave. The statutory minimum is 28 days' paid holiday per year for full-time employees (5.6 weeks), which includes the 8 UK bank holidays. Employers may count bank holidays toward the 28-day total. Most competitive employers offer 25 days plus bank holidays. For the full 2026 calendar, see our guide to UK bank holidays in 2026.

Statutory Sick Pay (SSP). From April 2026, SSP is payable at £123.25 per week for up to 28 weeks. Two significant changes took effect in April 2026: the three-day waiting period has been removed (SSP is now payable from the first full day of sickness absence), and the Lower Earnings Limit has been removed (SSP applies to all eligible employees regardless of earnings level). These changes substantially increase employer exposure for short-term illness compared to previous rules.

Statutory Maternity Pay (SMP). Up to 39 weeks of SMP. The first 6 weeks are paid at 90% of the employee's average weekly earnings. Weeks 7 to 39 are paid at the lower of £194.32 per week (2026/27 rate) or 90% of average weekly earnings. Employers can reclaim most SMP payments from HMRC through PAYE.

Paternity leave and pay. From April 2026, paternity leave is a day one right: no minimum service period required. Two weeks of statutory paternity pay is available to those with 26 weeks' continuous service, at £194.32 per week or 90% of average weekly earnings, whichever is lower.

Notice periods. The statutory minimum notice from the employer starts at one week after one month of continuous employment, rising by one week for each complete year of service up to a maximum of 12 weeks. Contractual notice can exceed but cannot fall below the statutory minimum.

Unfair dismissal protection. After two years of continuous employment, employees gain full unfair dismissal protection. Dismissal must follow a fair procedure and be for a fair reason. See the note on Employment Rights Act reforms above: the threshold position may change.

Auto-enrolment: workplace pension obligations

All UK employers must automatically enrol eligible employees into a qualifying workplace pension scheme. An employee is eligible if they are aged 22 to state pension age, earning above £10,000 per year, and ordinarily working in the UK.

Minimum contributions for 2026:

• Employer minimum: 3% of qualifying earnings
• Employee minimum: 5% of qualifying earnings (including tax relief)
• Combined minimum: 8%

Qualifying earnings are calculated on a band between £6,240 and £50,270 per year. You must set up a workplace pension scheme before your first eligible employee's enrolment date, and notify The Pensions Regulator of your compliance. Common providers for first-time employers include NEST, People's Pension, and Smart Pension.

Hiring a foreign national in the UK

Post-Brexit, all non-UK and non-Irish nationals require a valid right to work in the UK. This includes EU and EEA citizens who were not resident in the UK before 31 December 2020 and do not hold settled or pre-settled status under the EU Settlement Scheme.

Right to work checks are mandatory and must be completed before the employee starts work. There are two main routes:

• Manual document check: inspect original physical documents such as a passport, a birth certificate with proof of right to work, or a biometric residence permit
• Online Home Office check: using the employee's share code to verify immigration status digitally (the more common route for non-UK nationals)

Skilled Worker visa. The main route for professional and technical roles where the candidate requires immigration permission. Key requirements in 2026:

• Your organisation must hold a Home Office Sponsor Licence before issuing a Certificate of Sponsorship
• The role must be at RQF Level 3 or above
• Salary must be at least £41,700 per year or the going rate for the occupation code, whichever is higher
• The employee must meet English language requirements at CEFR B2 level

Obtaining a sponsor licence takes around 8 weeks on a standard application. Priority processing is available for a fee. Factor this into your hiring timeline: you cannot issue a Certificate of Sponsorship without it, and candidates cannot apply for their visa without a Certificate of Sponsorship.

How long does it take to hire your first employee in the UK?

Via EOR. A first UK hire through an Employer of Record can typically be completed within one to two weeks, assuming the employment offer is agreed and the employee has the right to work in the UK. The EOR handles contract issuance, PAYE, right to work checks, and pension auto-enrolment without you needing a UK entity.

Via your own UK limited company. Incorporation takes 24 hours online. PAYE registration with HMRC takes up to 5 working days. Pension scheme setup adds a few days more. Allow 2 to 3 weeks from decision to first payroll for a hire who is already entitled to work in the UK.

If immigration support is also needed. Add approximately 8 weeks for sponsor licence processing (standard), plus 3 to 8 weeks for the Skilled Worker visa application depending on the country of application. The total timeline from decision to hire can be 3 to 4 months if a sponsor licence does not already exist. Start the licence application before the candidate hands in their notice.

Conclusion

The UK is one of the more accessible markets for international companies making a first hire. Company formation is fast, the employment framework is well-established, and the talent market is large. What catches companies out is the cost side: employer National Insurance at 15% with a low £5,000 secondary threshold, mandatory pension auto-enrolment, and statutory sick pay now payable from the first day of absence, all of which add up to a materially higher employment cost than the gross salary figure alone suggests.

The practical first decision is the same in any market: which hiring model fits your situation? If you are making a first exploratory hire without a UK entity, EOR provides a compliant, fast structure without the overhead of incorporation and PAYE registration. If you are committing to the UK with a growing team, setting up a UK limited company gives you the control and cost structure that makes sense over the medium term.

Either way, the groundwork matters: right to work checks before day one, PAYE registration before the first payday, pension auto-enrolment within the required window, and a properly drafted written statement of employment particulars. These are not optional steps: they are the legal foundation of any UK employment relationship.

Sources

• GOV.UK, National Living Wage increases to £12.71 per hour: NLW and NMW rates from April 2026
• GOV.UK, Rates and thresholds for employers 2026 to 2027: employer NI rate and secondary threshold
• GOV.UK, Statutory Maternity Pay tables 2026: SMP rates and dates
• GOV.UK, Skilled Worker visa: salary threshold and sponsorship requirements
• Business.gov.uk, Setting up as an employer for the first time: PAYE registration and employer obligations
• Baker McKenzie, United Kingdom: April 2026 increases to statutory payments and new rights: SSP and statutory pay changes April 2026
• Employer's Calculator, Employer NI rates 2026/27: employer NI rate and Employment Allowance detail
• Acas, Statutory sick pay: SSP eligibility and employer obligations