Becoming a UK employer triggers a stack of compliance obligations that did not exist when the business was a single founder operating alone. PAYE registration. Real-Time Information (RTI) submissions to HMRC every payday. National Minimum Wage and National Living Wage compliance, with annual rises that need monitoring. Auto-enrolment pensions and the contributions that come with them. Statutory Sick Pay and Maternity Pay obligations. End-of-year forms (P60, P11D). And for owner-directors, the optimal salary calculation that interacts with corporation tax and dividend planning.
This guide covers the major areas. Each piece links to a detailed companion spoke.
NMW miscalculations are the most common employer compliance failure
The National Minimum Wage looks simple but is fact-specific in calculation. Hours that count, rates that apply, deductions that count against minimum wage, the apprentice rate, the accommodation offset — all have specific rules. HMRC publishes lists of named-and-shamed employers caught underpaying. Most of the failures are technical rather than deliberate.
Setting up a PAYE scheme
A new employer must register for PAYE before the first payday. Steps:
- 1Register the business as an employer with HMRC (online via the business tax account).
- 2Receive the employer reference number and Accounts Office reference.
- 3Choose payroll software (FreeAgent, Xero Payroll, BrightPay, Sage Payroll, or via an outsourced provider).
- 4Set up the payroll cycle (monthly is standard for salaried staff; weekly common for hourly).
- 5Onboard each employee with their P45 from their previous employer (or starter checklist if no P45).
- 6Run the first payroll, generate payslips, and submit the FPS (Full Payment Submission) to HMRC on or before payday.
- 7Pay the employees and remit the deducted tax/NI to HMRC by the 22nd of the following month (electronic) or 19th (postal).
National Minimum Wage and Living Wage
The minimum wage rates change annually on 1 April. From April 2026 (illustrative — check HMRC for current rates):
| Category | Hourly rate |
|---|---|
| National Living Wage (21+) | £12.21+ |
| 18-20 year old rate | £10.00+ |
| 16-17 year old rate | £7.55+ |
| Apprentice rate (under 19, or first year over 19) | £7.55+ |
The calculation includes only "working time" — sleep-in shifts, travel between jobs, voluntary overtime that is not contractually obligated all have specific rules. Underpayment can be unintentional and easily caught in HMRC review. Rectification involves back-pay plus penalties.
Auto-enrolment pensions
All UK employers must auto-enrol eligible workers into a workplace pension. The current rules:
- Eligible jobholder: aged 22 to State Pension age, earning above £10,000/year, working in UK.
- Minimum contribution rates (April 2026): 8% total of qualifying earnings, with employer paying at least 3% and employee paying the rest (typically 5% employee).
- Re-enrolment every 3 years even for opted-out employees.
- Declaration of compliance to The Pensions Regulator within 5 months of staging.
NEST (the government scheme), People's Pension, Smart Pension, and several others are common providers. Choosing depends on workforce size, ethical preferences, and integration with payroll.
The Payroll & Pensions Series
Each piece below covers one specific payroll or pension topic in detail.
Statutory Sick Pay and Maternity Pay
Employers are required to pay specific statutory entitlements:
- Statutory Sick Pay (SSP): £116.75 per week (2026 rate; check current) for up to 28 weeks for eligible employees.
- Statutory Maternity Pay (SMP): 90% of average weekly earnings for the first 6 weeks, then £184.03 (or 90% if lower) for up to 33 weeks. Employer recovers most of this from HMRC.
- Statutory Paternity Pay (SPP): 2 weeks at the standard rate.
- Shared Parental Pay, Adoption Pay, and other categories with their own rules.
Employer recovery of SMP varies depending on the size of the employer. Small employers (Class 1 NI under £45,000 in the previous year) recover 103% of SMP/SPP/etc. (an overhead). Larger employers recover 92%.
In-house vs outsourced payroll
Up to ~10 employees: in-house with payroll software (FreeAgent Payroll, Xero Payroll, BrightPay) is cost-effective. ~10 to 50 employees: in-house still viable but the time cost climbs; outsourced becomes attractive. Above 50 employees or where compliance complexity rises (multiple sites, variable hours, NMW-sensitive workforce), outsourced almost always wins. Cost: £4-8 per payslip outsourced versus the time cost in-house.
P45, P60, and P11D explained
- P45: issued when an employee leaves. Three-part form showing year-to-date pay and tax. The new employer needs Parts 2 and 3 to set up the new starter correctly.
- P60: issued at the end of each tax year (by 31 May) showing total pay and tax for the year. Each employee receives one for each employment held during the year.
- P11D: reports benefits in kind provided to employees (company cars, private medical insurance, beneficial loans). Filed annually by 6 July following the end of the tax year. Triggers Class 1A NI on the employer (currently 13.8%).
Director's payroll: the optimal salary
For owner-managed limited companies, the director's salary is the highest-impact ongoing tax decision. Standard 2026 pattern:
- 1Pay £12,570 salary (the personal allowance) — uses the allowance and triggers minimal personal tax.
- 2Pay Employer NI on the salary above £5,000 (about £1,135 on the £7,570 portion above the secondary threshold).
- 3Top up extraction via dividends from post-tax profits, taxed at lower dividend rates.
- 4Optionally make pension contributions through the company (corporation tax deductible, tax-free for the recipient).
Payroll setup or compliance review?
A Harrow payroll specialist will set up the right scheme, handle auto-enrolment, manage statutory pay, and optimise director pay. Free initial assessment.