7 legal checks small businesses should make before hiring their first employee
Most small businesses in the UK never take on staff. Government figures put a number on it: of the 5.69 million private-sector businesses recorded at the start of 2025, 75% had no employees at all beyond the owner, and only a quarter had crossed into becoming an employer. The moment a business does hire someone, a signed employment contract stops being optional paperwork and becomes one of several legal requirements that kick in from day one. Miss one of the others, and the cost isn’t hypothetical. It shows up as a fine or a penalty, usually during exactly the busy stretch a new hire was supposed to help with.
For an owner who has spent years invoicing, filing returns and answering to no one but a client, that shift can be easy to underestimate. Taking someone on isn’t just a bigger to-do list; it’s a set of statutory deadlines that start counting down from the moment an offer is accepted, several of them with fixed penalties attached rather than a warning letter first. The list below covers the checks that most commonly get missed, not because owners don’t care, but because none of them show up on a typical “how to hire” checklist a job board hands out.
The checklist before you extend an offer
- Register as an employer with HMRC. PAYE has to be set up before the first payday, and registration can be done up to two months in advance, but not before there’s a confirmed start date.
- Give a written statement of employment particulars. Job title, pay, hours, holiday and notice terms have to be handed over on the person’s first day of employment, with the remaining details following within two months.
- Run a right-to-work check before day one. Skipping this is the costliest mistake on the list: a first breach starts at £45,000 per illegal worker, rising to £60,000 for a repeat breach within three years.
- Take out employers’ liability insurance. Cover has to be at least £5 million, and going without it costs £2,500 for every day the business stays uninsured, not a one-off fine.
- Set up workplace pension auto-enrolment. Anyone aged 22 to state pension age earning £10,000 or more a year has to be automatically enrolled, with at least 3% of qualifying earnings paid in by the employer, and the duty starts from the employee’s first day, not once the business gets around to it.
- Put a basic health and safety policy in place. Even hiring one person requires a written risk assessment on file. It doesn’t need to be elaborate; a page covering the obvious hazards of the actual job is usually enough, but it does need to exist before the new hire starts, not after an inspector or an incident asks for it.
- Settle what’s actually in the employment contract. Pay, hours, probation length, confidentiality and termination terms should all be agreed in writing before the first day, not worked out informally after someone has already started. This is also the point where it’s worth deciding whether a standard template covers the role or whether the arrangement (a senior hire, equity, unusual hours) is unusual enough to need something drafted from scratch.
Why the stakes have gone up in 2026
Fewer small businesses are hiring right now than a year ago, which makes getting each hire right matter more, not less. SME hiring growth slowed to 2.0% by late 2025, down from 7.6% the year before, largely a result of the rise in employer National Insurance contributions that took effect in April 2025. With margins tighter and fewer roles being filled, a compliance mistake on one of a business’s first few hires carries more weight than it would have when hiring was cheaper and more frequent, with less room to absorb a £2,500-a-day insurance gap or a five-figure right-to-work penalty on a payroll that’s only just started.
The written statement requirement has also gotten stricter, not looser. Since 6 April 2026, statutory sick pay and ordinary parental leave have counted among the “day one” entitlements an employee must be told about, on top of the pay, hours and notice terms that were already required from day one. A business hiring its first employee in 2026 is working from a longer list of upfront obligations than one that hired in, say, 2022 — one more reason the checklist above is worth working through properly rather than assembling from memory.
A short list, worth getting right
None of these checks are complicated on their own — most take an afternoon, not a specialist. What trips businesses up is treating them as background admin to sort out after someone’s already started, rather than as the short list they actually are. For a business making the leap from working alone to running its first payroll, working through these before an offer goes out is what keeps that leap a genuine milestone instead of an unexpected compliance bill.