Hiring your first employee through a limited company – a practical guide

Hiring your first employee can feel like a strange and daunting task for any small company owner, particularly as it means handing over a great deal of responsibility to another person.

As a limited company owner, you will have a new level of responsibility to ensure your staff members are paid properly, are treated correctly, and that you abide by the prevailing employment-related rules and regulations.

Here is a list of some of the main steps you should follow when hiring a member of staff for the very first time.

Check the prospective employee is allowed to work in the UK

Before confirming employment, it is imperative that employers ensure a new worker has the right to work in the country. Use this online Government tool to help establish an employee’s right to work in the UK.

The penalties for employing someone illegally are very severe – up to £45,000 per worker for a first breach and £60,000 per worker for repeat breaches.

Interview considerations

Before you take on your first employee, it’s essential to know that you’re hiring the right person. This is where the interview process is so crucial. What questions should you ask to find out the most about your prospective employee?

Even a simple interview question, “Describe yourself in three words,” can be surprisingly revealing.

Does the applicant have a criminal record?

Depending on the type of work your business conducts, you may need to carry out further eligibility checks, such as a DBS check to find out if an applicant has a criminal record.

There are restrictions on who can apply for a criminal record check – find out more here.

Employment contracts

Once an employee agrees to start a job, a contract exists between the employee and the employer. Importantly, a written contract is not necessary for a contract to exist.

However, employees and workers are entitled to a written statement of employment particulars from day one. The principal statement must be provided on or before the person’s first day of work, although some additional information can be provided separately within two months.

You can download a written statement template here.

We strongly advise you to seek professional advice when drafting formal employment contracts, as employment law can be a complex and intricate area if you get things wrong.

Register your company as an employer

As soon as you take on any staff, you must register as an employer with HMRC before the first payroll is run.

If you are running a limited company, this is often a task your accountant will carry out early on – so that the company’s directors themselves can be paid their salaries… even before you take on any employees.

When you take on a new employee, ask for their P45 from their previous employer where available. Their first payment and relevant starter information must be reported to HMRC through Real Time Information (RTI) on or before payday.

Make sure your business is adequately insured

Many types of business insurance are optional, but if you take on staff, you will normally need Employers’ Liability Insurance.

Make sure employees are paid correctly

As an employer, you must ensure that you are aware of the current National Minimum Wage rates.

You must provide all employees with payslips each time they are paid, detailing their net and gross pay, and any income tax payments, National Insurance, and any other deductions, including pension contributions.

Be aware of your pension obligations

Most employers are now obliged to enrol eligible workers in a pension scheme – this is known as auto enrolment. Read this dedicated article to find out if your company is covered by these rules.

Holiday, sick pay or maternity/paternity leave entitlements

There are a wide range of rules employers must comply with in relation to allowing workers time off. Depending on the employee and their circumstances, these can include statutory paid holiday, Statutory Sick Pay and maternity, paternity and adoption pay and leave.

Find out more on the Government site here.

Rules and regulations you should be aware of

Some of the main regulations employers need to be aware of include:

• You must avoid workplace discrimination of any kind.
• Consider any flexible working requests from employees.
• Don’t force employees to work longer hours than permitted under their employment arrangements and the applicable working time rules.
• You must provide a safe and secure working environment.
• You must make ‘reasonable adjustments’ to your workplace if you have staff members with disabilities.

When you’re preparing to hire your first employee, it’s crucial to not only understand your legal obligations but also consider expert support where needed. From setting up payroll to drafting contracts, every step matters.

Many small business owners in cities like London turn to platforms like Jooble to find freelance HR consultants who can guide them through the process and ensure everything is compliant from day one.

Have a plan for if things go wrong

Occasionally, employer/employee relationships do not work out, and you may decide to let a member of staff go. However, you must follow the appropriate dismissal procedure and employment law when ending someone’s employment.

Redundancy is a separate situation with its own rules and procedures, so it should not be treated as another way of dismissing an employee.