Hiring your first employee as a tradesperson in the UK

When does taking someone on make sense?

Most tradespeople reach a point where turning down work or rushing jobs feels wrong. You are at capacity, you are leaving money on the table, and you know you could do better work with an extra pair of hands. That is the moment to think seriously about hiring.

But hiring a full-time employee is a significant commitment — both financially and legally. It is not just about wages. You take on responsibilities for PAYE tax, National Insurance, workplace pensions, holiday pay, sick pay, and employment law. Getting it right from the start matters. Getting it wrong is expensive.

Employee or subcontractor?

Before anything else, be clear about the employment status of the person you are taking on. This is not just an admin question — HMRC actively investigates businesses that incorrectly treat employees as self-employed subcontractors to avoid PAYE and employers National Insurance.

A genuine self-employed subcontractor controls how and when they do the work, uses their own tools, works for multiple clients, and carries their own risks. An employee works to your direction, uses your tools, works primarily for you, and has set hours. If the reality looks like employment, HMRC will treat it as employment regardless of what the contract says. See our guide to subcontracting vs employing staff in the trades for more detail.

Legal requirements before you hire

Before your first employee starts, you must:

• Register as an employer with HMRC — do this at gov.uk/register-employer at least 4 weeks before your employee's first payday. You will receive a PAYE reference number.
• Set up PAYE — use payroll software to calculate income tax and National Insurance. Many tradespeople use free HMRC Basic PAYE Tools or simple payroll software like Moneysoft or Sage Payroll Essentials.
• Get employers liability insurance — legally required from day one of employment. Minimum cover is £5 million; most policies offer £10 million. Cost: £150 to £400 a year for a single employee in a trade business.
• Check the employee has the right to work in the UK — check original documents (passport, share code, etc.) and keep copies.
• Write a statement of particulars (employment contract) — legally required from day one. This must cover pay, hours, holiday entitlement, notice periods, and other key terms.
• Enrol in workplace pension — you must auto-enrol employees aged 22 to state pension age earning over £10,000/year in a workplace pension. You contribute at least 3% of qualifying earnings; the employee contributes at least 5%.

The real cost of an employee

The cost of hiring is significantly more than the wage. For an employee earning £28,000 a year in 2026:

• Gross salary: £28,000
• Employers National Insurance (15% above the secondary threshold of ~£5,000): approximately £3,450
• Employers pension contribution (3% of qualifying earnings): approximately £690
• Holiday pay (28 days statutory minimum including bank holidays): built into salary
• Employers liability insurance: £150 to £400
• Total employer cost: approximately £32,500 to £33,000 a year

That does not include the cost of sick pay (Statutory Sick Pay of £116.75/week for up to 28 weeks in 2026), any tools or PPE you provide, or training costs.

Employment contract basics

Every employee is entitled to a written statement of employment particulars from day one. You can find free templates on the Acas website at acas.org.uk. At minimum it must cover: job title, start date, pay rate and pay period, hours of work, holiday entitlement, notice periods, and any probationary period. A 3-month probationary period is standard for trade employees. During this period you can dismiss without a full disciplinary process, but you must still act reasonably and fairly.

Managing payroll as a small trade business

Running payroll is a monthly task. You must calculate gross pay, deduct income tax and employee National Insurance, add employer National Insurance, run the payroll, pay the employee and HMRC, and submit a Full Payment Submission (FPS) to HMRC via Real Time Information (RTI) on or before each payday. Missing an FPS can trigger penalties.

Use InvoiceAdept to manage your business income and expenses alongside your payroll software. Having clean records of your income makes it straightforward to account for wage costs as a deductible expense against your Self Assessment tax return.