First Time on Payroll? What New Employers Need to Know Before Your First Pay Day

Taking on your first employee is a milestone. It is also the moment your administrative burden changes shape: from the day someone starts work for you, you become responsible for operating PAYE correctly, every month, without exception.

The good news is that payroll is far more approachable than many new employers fear. The rules are well documented, the deadlines are predictable, and with a sensible checklist in place, most small businesses run payroll without difficulty. Here is what you need to know.

Register Before Anyone Starts Work

Before your first employee sets foot on site, you must register as an employer with HMRC. You can do this up to two months before their first pay day, but no later than the 15th of the month in which they begin working. Registration is done online and typically takes a couple of weeks for your employer PAYE reference to arrive — so do not leave it until the week before pay day.

If you already run a limited company, you will have registered as an employer when you incorporated, even if you had no employees at the time. Sole traders, by contrast, need to register separately.

The Deadlines Worth Diarising

Payroll runs on a fixed rhythm, and missing a deadline is one of the few ways a diligent employer can fall foul of HMRC. Put these dates in your calendar:

• The 19th of each month (postal payments) — the final day for paying PAYE by post.
• The 22nd of each month (electronic payments) — the final day for paying PAYE electronically. Most employers pay by Faster Payment or direct debit, and it is wise to set up a direct debit so payment is never late.
• On or before each pay day — you must submit a Full Payment Submission (FPS) to HMRC under Real Time Information (RTI). This is not a monthly summary; it must be filed every time you pay someone.

Quarterly payers — those whose monthly PAYE liability is under £1,500 — still follow the same deadlines but pay once every three months.

The Mistakes That Trigger Penalties

HMRC penalties are rarely vindictive; they follow predictable failures. The most common are:

• Late FPS submissions. Filing your RTI return after pay day, rather than on or before it, is one of the most frequent errors among new employers.
• Late or incorrect payments. Even a small shortfall can attract interest and surcharges if repeated.
• Wrong tax codes. Applying an out-of-date tax code means your employee pays the wrong tax and you face an unwelcome correction later. Check codes each time HMRC issues a P6 or P9 notice.
• Incorrect expenses or benefits reporting. Benefits in kind — a company car, private medical insurance — must be reported on P11D forms by 6 July following the tax year, or through a PAYE Settlement Agreement. Missing this creates problems for both you and your employee.
• Poor record retention. You must keep payroll records for at least three years after the tax year they relate to. Losing them makes any HMRC enquiry considerably harder.

Workplace Pensions: Your Automatic Enrolment Duty

If you employ at least one person, you almost certainly have automatic enrolment obligations. Every employee aged 22 or over earning more than £10,000 a year (the 2024/25 trigger) must be assessed and, where eligible, enrolled into a workplace pension scheme.

You must:

1. Choose a qualifying pension scheme — Nest, The People's Pension and Scottish Widows are common choices for small employers.
2. Assess each worker and write to them within six weeks of their start date.
3. Enrol eligible workers and make contributions — currently a minimum of 3% from the employer and 5% from the employee on qualifying earnings.
4. Complete a Declaration of Compliance with The Pensions Regulator within five months of your duties starting date.
5. Reassess staff every three years and handle opt-out requests correctly.

Automatic enrolment is not optional and the regulator does issue fixed penalties to small employers who ignore it. Build it into your payroll process from day one.

Payslips: What the Law Requires

Since 2019, all workers are entitled to a payslip on or before pay day, including casual and zero-hours staff. Each payslip must show gross pay, itemised deductions (tax, NI, pension, student loan repayments), net pay, and — where pay varies — the hours worked. If your employee is paid by the hour, showing a breakdown of hours is mandatory.

Payslips can be issued electronically, provided the employee can access and print them.

DIY Software or Outsourcing?

For employers with one or two staff, payroll software is often perfectly adequate. HMRC provides free basic tools, and commercial packages such as Xero Payroll, Sage or BrightPay handle RTI submissions and pension assessments automatically. Expect to spend a couple of hours each month maintaining it.

Outsourcing makes sense when:

• You would rather spend your time on the business than on compliance.
• You have several employees, variable hours, or overtime calculations.
• You are uncomfortable being the point of contact for HMRC queries.
• Pension auto-enrolment duties feel like one obligation too many.

A payroll bureau will handle registrations, submissions, payslips and pension liaison for a modest monthly fee. For many owner-managers, the peace of mind alone justifies the cost.

A Simple First-Year Checklist

Before your first pay day:

• Register as an employer and receive your PAYE reference.
• Choose payroll software or appoint a provider.
• Select a pension scheme and complete your Declaration of Compliance.
• Collect each employee's starter checklist (formerly P45 or starter declaration).
• Confirm pay frequency and agree a cut-off date for changes.

Every month thereafter:

• Run payroll and submit your FPS on or before pay day.
• Pay HMRC by the 22nd (electronic).
• Keep records, including payslips and starter forms, for at least three years.

Payroll rewards routine. Get the first few months right, and it becomes a background task rather than a monthly worry. If you would like help setting up payroll for the first time — or would prefer to hand it over entirely — Pomfrey Accountants supports small employers across the region with practical, jargon-free assistance.