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.
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.