Your first employee: what to do when your contracting business grows

If you’re thinking of expanding the contract work you undertake into a larger business, taking on your first employee is a big move. Becoming an employer for the first time will inevitably mean dealing with some red tape, but the process should be trouble-free if you follow these ten steps.

This guide was initially written by citrusHR, which provides a service designed to simplify the process of employing people – see footer for details. It was updated in October 2025 by the ITContracting team.

1. Check the employee’s identity

You must verify your new staff member’s identity to make sure they have the legal right to work in the UK.

You will need to view and make a copy of their original passport or birth certificate. If they’re not a British or Irish citizen, check any visa or work permit in line with the Home Office right to work rules.

Keep a dated copy for your records. The civil penalty for employing someone without the right to work can now reach up to £45,000 per worker (rising to £60,000 for repeat breaches), so it’s essential to carry out this step carefully and retain proof.

For further guidance, see the official GOV.UK guide for employers.

2. Issue a contract

Every employee must receive a written statement of employment particulars by the time they start work.

Ideally, issue a full employment contract before their first day. It should contain details of their pay, working hours, duties, notice periods, and other key terms. This protects both parties and helps avoid disputes later.

3. Employer’s insurance

You must hold employer’s liability insurance with an authorised UK insurer. This protects your business if an employee becomes ill or injured because of their work.

Check that your existing business policy includes employer’s liability and provides at least £5 million of cover. Fines for not having valid cover can reach £2,500 per day.

4. Registering with HMRC

You’ll need to register as an employer with HMRC before you pay your employee for the first time. The process is online and usually takes around two weeks.

If you’re already running a company – and run payroll even just for a sole director – you are already registered as an employer.

Once registered, you’ll receive an Employer PAYE Reference Number (ERN). You must then operate PAYE each time you pay staff, deducting and reporting Income Tax and National Insurance through your payroll software.

For practical help, see our payroll setup guide for small companies.

5. Ensuring a safe workplace

Even if you’re based in a small office or working from home, you still have responsibilities under the Health and Safety Executive (HSE) regulations.

Make sure your employee has an ergonomic workspace, suitable lighting, and safe electrical equipment. If you employ five or more people, you must also have a written health and safety policy.

You can download some checklists from the HSE’s small business safety toolkit.

6. First aid

Every workplace must have a suitably stocked first aid kit and someone responsible for basic first aid arrangements.

For low-risk office environments, you don’t usually need a qualified first aider, but you should still record any accidents and review your provisions regularly.

See HSE guidance on first aid at work for full details.

7. Storing employee data

You must keep employee information confidential and comply with the UK GDPR and the Data Protection Act 2018.

Employee data (such as addresses, National Insurance numbers, and payroll records) should be stored securely, preferably in encrypted digital form, and retained for at least seven years for audit purposes.

You may need to register with the Information Commissioner’s Office (ICO) if your business processes personal data.

8. Equal opportunities

The Equality Act 2010 protects employees and applicants from discrimination based on protected characteristics such as age, gender, race, religion, or disability.

This applies throughout employment – from recruitment to promotion and day-to-day management. Writing a short equal opportunities policy and communicating it to staff helps demonstrate compliance.

9. Holiday

Full-time employees are entitled to at least 5.6 weeks (28 days) of paid annual leave each year, which can include UK bank holidays.

Part-time employees receive a pro-rated amount. Holiday pay must reflect normal earnings, including overtime or commission if regularly worked.

See GOV.UK holiday entitlement guidance for detailed examples.

10. Working hours

Under the Working Time Regulations 1998, employees shouldn’t work more than 48 hours a week on average unless they’ve signed an opt-out agreement.

They must also have at least 11 hours’ rest between working days and a 20-minute break if working more than six hours.

Keeping accurate working time records helps prevent disputes and ensures compliance with health and safety law.

Further thoughts

When you’re getting ready to bring someone on board for the first time, it’s not just about ticking boxes. You’re setting the tone for how your business will run and what kind of place it’ll be to work.

If you get the simple things right early on — contracts, pay, insurance, treating people fairly — it goes a long way towards building trust and keeping things running smoothly later.

Many small business owners use platforms like Jooble to find freelance HR consultants who can help set up contracts, payroll systems, and compliance frameworks without incurring long-term costs.

If you’re thinking about setting up your own business as a sole trader (rather than a limited company), browse some of the top self employment careers and have a new start!

About the author

David Lester is Chairman and Founder of citrusHR, the UK’s most comprehensive HR software and support system. Designed specifically for small businesses, citrusHR simplifies creating employment contracts, making job offers, managing employee records, and tracking staff working hours and locations.