Start with registration, not with the first payday

Before anyone can be paid legally, you need to be registered with HM Revenue & Customs as an employer. This is separate from registering as a sole trader or incorporating a limited company, and it is a surprisingly common assumption that one automatically covers the other. It doesn't.

You can register as an employer up to two months before your first payday, and that window is usually the right one to aim for. Once registered, you'll receive two references: a PAYE reference, which you'll use on payslips and correspondence, and an Accounts Office reference, which is what you'll quote when paying HMRC. The second of these typically arrives by post, so allow a fortnight for everything to land.

There's one exception worth knowing. If every person you employ earns less than the lower earnings limit — currently £123 a week — you aren't strictly required to register. Some employers register voluntarily anyway so that their staff keep building a National Insurance record for state pension purposes. Either way, decide before you promise a start date, not after.

Gather the details your employee needs to give you

Payroll runs on information, and missing information is the single biggest cause of a messy first run. Ask for the following before the first payday, ideally during onboarding:

• Full name, home address and date of birth
• National Insurance number
• Bank details for the salary payment
• A P45 from their previous employer, if they have one
• A completed starter checklist, if they don't have a P45
• Details of any student loan, including which plan applies
• Whether they have another job or receive a pension elsewhere

The P45 is the neat option — it tells you the tax code to use straight away. Without one, the starter checklist does the same job by asking a few questions about their circumstances. Student loans are the detail people most often forget, and the plan type genuinely matters: get it wrong and you'll be correcting deductions later. Store all of this securely, because it's personal data and you're responsible for it.

Choose payroll software and understand RTI

Under Real Time Information, or RTI, employers must send details of pay and deductions to HMRC every time they pay someone. The submission is called a Full Payment Submission, and it must reach HMRC on or before the payday itself — not at the end of the month, not at the end of the quarter.

You'll want HMRC-recognised payroll software rather than a homemade spreadsheet. Good software handles the tax tables, National Insurance calculations, statutory payments and automatic enrolment assessment for you, and it produces the payslips. It will also let you submit an Employer Payment Summary when you need to reclaim statutory payments or claim the Employment Allowance — currently worth up to £10,500 a year, but only if you claim it through your payroll each tax year.

Get tax codes and National Insurance right from day one

Most new employees with a single job and the full personal allowance will be on a code ending in L, such as 1257L. Codes beginning BR or D0 mean all pay is taxed at basic or higher rate, which is typical for a second job. A 0T code is used when you have no information at all about someone's allowances.

Don't guess a code if you're unsure — use the starter checklist answers, or ask HMRC. Correcting a wrong code later is possible, but it means refunds or extra deductions for your employee, and an awkward conversation you'd rather avoid.

On the National Insurance side, most employees sit in category letter A. You'll pay employer contributions once earnings rise above the secondary threshold, and this is a real cost to budget for: it isn't deducted from your employee's pay.

Don't overlook pensions and payslips

Automatic enrolment duties begin on the first day of your employee's contract, not three months in. You'll need to assess them against the earnings trigger and qualifying earnings band, enrol them if they qualify, and contribute at least 3% of qualifying earnings as the employer — the employee pays the rest, bringing the total to 8%.

You can postpone enrolment by up to three months, but you must write to the employee to tell them. Either way, you'll need to complete a declaration of compliance with the Pensions Regulator within five months of your duties start date.

Payslips are a legal requirement for every employee, including casual staff, and must be issued on or before payday. They need to show gross pay, all deductions, net pay, and — where pay varies with hours worked — the number of hours paid.

Build a routine you can repeat every month

Once the first run is done, the rest get easier. The rhythm to settle into is simple: run payroll and send your submission on or before payday, then pay HMRC what you owe by the 22nd of the following month if you're paying electronically, or the 19th if you pay by post. If your average monthly bill is under £1,500, you can usually pay quarterly instead.

Keep your payroll records for at least three years after the end of the tax year they relate to. And do yourself a favour: set the employer National Insurance and pension contributions aside as you go, rather than finding them in the same current account you've already spent. A separate pot, topped up with every payroll run, turns a nasty surprise into a non-event.