How to Hire Your First Employee: A Plain-English Guide for Small Businesses

Here's something interesting - the UK government offers £5,000 in National Insurance contribution exemptions for your first employee hire. They're making it easier on your wallet to bring someone new on board.

The reality hits different though. Small businesses often put off hiring because they worry about costs, which ended up holding back their growth and stops them from taking more work. Some get nervous about managing those mandatory 28 days of annual leave or setting up workplace pensions. The whole thing can look pretty daunting.

But there's a silver lining. You've got plenty of help available. This plain-English piece walks you through all the essentials - from legal requirements to government support schemes. Everything you should know about bringing your first employee on board is right here.

Want to push your business forward? Let's tackle this step by step.

Signs You're Ready to Hire Your First Employee

The right moment to hire your first employee is a vital milestone for any small business. You'll see several clear signs that tell you it's time to grow your team.

You know you need help when you start turning down work. Saying no to new business wastes all the money you spent finding those customers. This creates a negative ripple effect that slows down your business's growth.

Your workload gives you another clear signal. Working 60-hour weeks with no personal time isn't sustainable. When you skip breaks and eat lunch at your desk, something needs to change. Quality suffers and deadlines slip when you try to do everything yourself.

Your customers' feedback tells the real story. Take it as a warning sign when they complain about service quality or completion times. On top of that, unhappy customers rarely recommend your services and might damage your reputation with negative reviews.

The way your business grows shapes this decision too. You might be holding your company back if you spend more time working in your business than on it. Skilled employees help you scale operations and meet your customers' rising expectations.

Money matters need careful thought. Look beyond the obvious costs of salary and benefits. Here are some hidden expenses:

National Insurance contributions (12.4% for Social Security, split between employer and employee)

Federal unemployment tax (0.6% on first £5,559.12 of wages)

Recruitment and training costs

Equipment and supplies

A new hire becomes worth the investment when they help make or save money. You might want to start with a part-time employee until you're sure about keeping steady work coming in.

Note that hiring too early can strain your cash flow, while waiting too long means missing opportunities. Success comes from balancing your current workload, financial health, and growth plans.

Essential Steps Before Starting Your Search

You need to handle several important administrative and financial preparations before posting your first job listing. These steps will help your business comply with UK employment laws and protect both you and your future employee.

Start by registering as an employer with HM Revenue and Customs (HMRC). You should complete this registration up to four weeks before your first payday [1]. HMRC will give you two essential references after registration: an Accounts Office reference and a PAYE reference [1]. These numbers are essential for managing payroll and handling tax-related communications with HMRC.

Your business must have employers' liability insurance. The policy should provide coverage of at least £5 million through an authorised insurer [2]. This insurance protects your business if an employee gets ill or injured at work. You could face fines of £2,500 per day without this coverage [2]. On top of that, you'll need to pay a £1,000 penalty if you don't display your employers' liability certificate [2].

The true cost of employment goes well beyond the basic salary. Take an employee earning the average UK salary of £27,600 - their total first-year cost typically reaches £62,890 [3]. Here's what that includes:

National Insurance contributions averaging £4,250 annually [3]

Pension contributions of approximately £924 per year [3]

Training costs around £1,068 [3]

Equipment and workspace setup costs of £6,000 [3]

Employee benefits averaging £1,000 [3]

Holiday cover expenses of roughly £7,000 [3]

Setting the right salary means looking at similar positions in your industry and region. Note that low wages might attract candidates who lack experience, while high salaries could bring in overqualified applicants [4]. Make sure you comply with the National Living Wage for workers aged 23 and over, or the National Minimum Wage for younger employees [5].

These preparations will give your business a solid foundation for your first hire while ensuring legal compliance and protecting your interests.

Writing Your First Job Description

A well-laid-out job description works like your shop window to potential candidates. It attracts qualified applicants and saves time by filtering out irrelevant CVs [6]. Your first step should be outlining specific tasks and duties for the role. This includes both day-to-day responsibilities and long-term goals [7].

You need to decide if your first hire needs specific qualifications or can learn on the job [8]. While your first employee might handle various tasks, stay specific yet open-minded about requirements. You might want to hire for potential rather than experience, or prioritise attitude over qualifications [8].

Your job description should include these key elements:

Role overview and reporting structure

Essential duties and measurable deliverables

Required skills, experience, and qualifications

Location details and travel requirements

Salary range and benefits package

Company culture and values [9]

Research shows that almost half of all employees don't clearly understand workplace expectations [10]. You should focus on setting specific, measurable targets that show how you'll review success in the role [11].

Don't use vague requirements like "strong communication skills". Instead, be specific about what you need - such as "knowing how to communicate complex ideas clearly to both technical and non-technical audiences" [12]. Replace generic statements with measurable outcomes. To name just one example, write "develop strategies to increase participation by 20% within six months" instead of simply stating "manage social media accounts" [12].

Beyond listing duties, showcase opportunities for career development and explain how the role helps achieve company goals [13]. This approach helps attract candidates who arrange with your business objectives and shapes their long-term motivation [13].

Note that you should separate essential qualifications from preferred ones to avoid discouraging potentially suitable candidates [12]. Keep reviewing and updating the description as responsibilities or organisational goals change. This ensures it stays relevant and continues to attract top talent [12].

Clear communication of expectations and responsibilities creates clarity that benefits both your business and potential employees [14]. Time spent crafting a detailed job description guides you to better candidate matches and smoother onboarding processes.

Conclusion

Hiring your first employee is a most important milestone that can revolutionise your small business. The process might look complex, but breaking it down into manageable steps makes it achievable and less intimidating.

Timing is a vital factor - look for clear signs like turning down work or dealing with 60-hour weeks. Your essential preparations should be tackled step by step, from HMRC registration to insurance coverage. A well-crafted job description will help you attract the right talent.

The UK government's £5,000 National Insurance exemption makes the financial burden easier to handle. Success comes from careful planning and understanding the true costs beyond salary. The people team offers expert support and resources to guide you through this trip.

This knowledge lets you take the next step toward growing your business confidently. You can start small with a part-time position and scale up as your business just needs it. Your first hire could be the catalyst that takes your company to new heights of success.

FAQs

Q1. What are the key signs that indicate it's time to hire my first employee? You're likely ready to hire when you're consistently working long hours, turning down new business opportunities, and struggling to manage your workload. Other indicators include declining service quality, customer complaints, and spending more time working in your business rather than on its growth.

Q2. What essential steps should I take before starting my search for an employee? Before hiring, register as an employer with HMRC, secure employers' liability insurance, and calculate the true cost of employment beyond the basic salary. Research competitive salary rates in your industry and ensure compliance with National Living Wage or National Minimum Wage regulations.

Q3. How can I write an effective job description for my first hire? Create a detailed job description that outlines specific tasks, required skills, and measurable objectives. Include information about the role's responsibilities, qualifications needed, salary range, and company culture. Be clear about expectations and distinguish between essential and preferred qualifications to attract suitable candidates.

Q4. What's the best way to pay employees in a small business? Direct deposit is often the most convenient method for small businesses. It involves electronically transferring the employee's salary or wages directly into their bank account, eliminating the need for physical checks and cash handling.

Q5. Are there any financial incentives for hiring my first employee? Yes, the UK government offers £5,000 in National Insurance contribution exemptions when hiring your first employee. This incentive can help make your first hire more affordable and support your business growth.

References

[1] - https://www.litrg.org.uk/employers/setting-employer/registering-employer

[2] - https://www.gov.uk/employers-liability-insurance

[3] - https://www.british-business-bank.co.uk/business-guidance/guidance-articles/staffing/tips-on-hiring-new-employees

[4] - https://smallbusiness.co.uk/hiring-your-first-employee-as-a-small-business-2520636/

[5] - https://www.pkf-l.com/insights/the-employment-tax-cycle-hiring-employees-for-the-first-time/

[6] - https://www.enterprisenation.com/learn-something/hiring-your-first-employee-guide/

[7] - https://www.honesthr.co.uk/posts/hiring-your-first-employee-a-step-by-step-guide

[8] - https://kinore.com/guides/hiring-your-first-employee/

[9] - https://www.paymentsense.com/uk/blog/hiring-your-first-employee/

[10] - https://www.businessnewsdaily.com/9451-clear-employee-expectations.html

[11] - https://www.payescape.com/blog/expectations-for-new-employees

[12] - https://www.appointmentspersonnel.co.uk/how-to-write-a-brilliant-job-description

[13] - https://stripe.com/resources/more/how-to-hire-the-first-employees-for-your-startup-a-guide-for-founders

[14] - https://www.linkedin.com/advice/3/how-can-you-use-job-description-set-expectations-slznf