Most founders set up payroll in a hurry, the week before someone's first payday. That's when small mistakes creep in, like a missed pension duty or payroll costs posted to the wrong accounts, and they get harder to unpick later. This checklist covers the full set-up in the order it needs to happen.
1. Register as an employer with HMRC
You must register for PAYE before your first payday, but no more than two months before you start paying people. HMRC sends your employer PAYE reference and Accounts Office reference by post, so allow time for the letter to arrive. If you have a director who will be paid a salary, you'll usually need to register even before your first non-director hire.
2. Choose HMRC-recognised payroll software
Your software needs to send Real Time Information (RTI) to HMRC. A Full Payment Submission (FPS) is due on or before each payday. Pick software that also handles pension auto-enrolment and exports a payroll journal to your accounting system. That one feature saves hours every month.
3. Collect new starter information
- Right to work checks before the person starts.
- P45 from their last job, or the HMRC starter checklist if they don't have one, so you can set the right tax code.
- Personal details: National Insurance number, address, date of birth and bank details.
- A written statement of employment particulars on or before day one.
4. Understand what you'll pay HMRC
| Item (2026/27) | Amount |
|---|---|
| Employer National Insurance rate | 15% |
| Employer threshold (secondary threshold) | £5,000 a year |
| Employment Allowance | Up to £10,500 a year off your employer NI bill |
| Standard Personal Allowance | £12,570 a year |
Pay PAYE and National Insurance by the 22nd of the month after each tax month if you pay electronically. Tax months run from the 6th to the 5th. Claim Employment Allowance through your payroll software. You can't claim it if a director is your only employee paid above the secondary threshold, and connected companies share a single allowance.
5. Set up pension auto-enrolment from day one
Your auto-enrolment duties start on the day your first employee starts work. You need to:
- Choose a qualifying workplace pension scheme.
- Assess each worker. Anyone aged 22 to State Pension age earning over £10,000 a year must be enrolled automatically, and others can ask to join.
- Pay at least the minimum contributions, which are 8% in total with at least 3% from the employer, on qualifying earnings between £6,240 and £50,270 a year.
- Write to staff about their enrolment and their right to opt out.
- Complete your declaration of compliance with The Pensions Regulator within five months of your duties start date.
6. Connect payroll to your accounts
Post a payroll journal every month and reconcile your wages, PAYE and pension control accounts to zero. This is the step most startups skip, and it's the first thing investors' accountants check later.
7. Plan for hires outside the UK
If someone will work from another country, don't just add them to UK payroll. Depending on the country and numbers, you'll need a local entity, an employer of record (EOR) or a contractor arrangement. Each route has different tax and employment law consequences.
Frequently asked questions
How early can I register as an employer in the UK?
No more than two months before you start paying people, and you must register before your first payday.
When does auto-enrolment start for a new employer?
Your duties start on the day your first member of staff starts work, and you must complete your declaration of compliance within five months of that date.
This guide is general information, not tax or legal advice. Rules and thresholds change, so check the latest HMRC and Pensions Regulator guidance, or talk to us about your situation.