A Step-by-Step Guide to Employing Someone for the First Time

⚖️ Disclaimer: The employment contract templates and payslip examples provided in this article are basic templates intended for informational purposes only. They are designed to give sole traders and small business owners a general idea of how to get started when employing staff for the first time. These templates do not constitute legal advice and may not cover all the specific requirements of your industry, business model, or the unique circumstances of your employees. Employment law can be complex and is subject to change. If you wish to ensure that your contracts are fully compliant with current legislation and tailored to your business needs, you should seek professional legal advice or consult a qualified HR advisor or solicitor. The author and publisher accept no liability for any actions taken based on the use of these templates without obtaining appropriate professional guidance. If you’re a freelancer in the UK and you hire someone on a zero-hour contract, you’re stepping into the role of an employer, even if you’re self-employed. That shift brings legal, tax, and reporting responsibilities, so let’s break it down clearly and practically.

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Turning from Sole Trader to Employer

Your Responsibilities as a Freelancer-Employer

Even as a sole trader or freelancer, hiring someone, including on a zero-hour contract, means:

1. Employment Status Matters

• You must determine if the person is a worker or an employee. Most zero-hour contracts classify the person as a worker, which entitles them to:
  • National Minimum Wage
  • Paid annual leave
  • Rest breaks
  • Protection from discrimination (GOV.UK guidance)

2. Written Contract

• You should provide a written agreement outlining:
  • The nature of the zero-hour arrangement
  • Pay rate
  • Rights and responsibilities
  • Whether they can refuse work or work elsewhere

3. Registering as an Employer

• You must register with HMRC as an employer, even if you’re a freelancer.
• You’ll need to operate PAYE (Pay As You Earn) to deduct tax and National Insurance from their wages.

4. Payroll and Reporting

• Submit Real Time Information (RTI) to HMRC every time you pay them.
• Provide a payslip and a P60 at the end of the tax year.
• You may also need to pay employer National Insurance contributions depending on their earnings.

💼 How the Worker Reports Their Income

If they’re classified as a worker under your zero-hour contract:

• PAYE deductions are made by the employer, so you (the employee) don’t need to file a Self Assessment unless you have freelance income.
• If they earn under the personal allowance (£12,570 for 2024/25), you may not owe tax, but the employer still has to report it via PAYE.
• If the employee has multiple jobs or has freelance income, they may need to file a Self Assessment Tax Return. If the employee is on the books, then it is the employer that needs to do the reporting.

⚖️ Implications for You (The employer)

• You’re legally responsible for ensuring compliance with employment law, even if you only hire occasionally.
• You must keep records of hours worked, payments made, and contracts issued.
• You’ll need to budget for employer costs like NI and possibly pension contributions if they qualify.

As a sole trader, you can legally employ staff to help you run and grow your business. Once you’ve secured a contract or have enough workload to justify building a team, you’ll need to follow a clear process to stay compliant with employment and tax law in the UK.

Steps You Must Take

Step 1: Register as an Employer with HMRC

Before paying any employees, you must register as an employer with HM Revenue & Customs (HMRC). This will give you access to PAYE (Pay As You Earn), the system used to deduct tax and National Insurance from your employees’ wages.

• Registration can be completed online via the HMRC website.
• You must do this before your first payday.

Step 2: Decide on Employment Terms

You need to determine what type of employment contract you’ll offer:

• Full-time or Part-time contracts – fixed working hours and benefits.
• Fixed-term contracts – used for short-term projects.
• Zero-hours contracts – offer flexibility, with no guaranteed hours, often used when workload varies.

Each type has legal obligations for holiday pay, sick pay, and statutory rights.

Step 3: Draft an Employment Contract

Every employee is entitled to a written statement of employment particulars within 2 months of starting work. This should include:

• Job title and description.
• Hours of work.
• Rate of pay and payment schedule.
• Holiday entitlement.
• Notice periods.
• Disciplinary and grievance procedures.
• Any special terms (e.g., zero-hours flexibility, confidentiality).

You can use templates from ACAS or instruct a solicitor for tailored contracts.

Step 4: Check the Right to Work in the UK

You are legally required to check that your employee has the right to work in the UK.

• Verify original identity documents (passport, visa, or immigration status).
• Keep copies of documents for your records.

Failure to do this can result in heavy fines.

Step 5: Set Up Payroll and Payslips

Once registered as an employer, you must run payroll:

• Use HMRC-recognised payroll software (e.g., Sage, Xero, QuickBooks, or free HMRC tools).
• Calculate employee pay, deductions for tax, and National Insurance.
• Provide payslips to employees each payday (paper or digital).

Payslips must show:

• Gross pay.
• Deductions (tax, National Insurance, pension).
• Net pay (take-home).

Step 6: Consider Workplace Pensions

If your employees are eligible, you must enrol them into a workplace pension under the auto-enrolment scheme. You’ll need to:

• Register with The Pensions Regulator.
• Deduct pension contributions from wages.
• Make employer contributions.

Step 7: Get Employers’ Liability Insurance

By law, most businesses employing staff must have Employers’ Liability Insurance. This protects you if an employee is injured or falls ill at work. The minimum cover required is £5 million.

Step 8: Health & Safety Obligations

You must provide a safe working environment. Depending on your industry, this could include:

• Risk assessments.
• Health & Safety policies.
• Providing training, equipment, and protective clothing.

Step 9: Keep Accurate Records

As an employer, you must keep:

• Payroll records for at least 3 years.
• Contracts of employment.
• Employee working hours and holiday records.
• Right-to-work checks.

Step 10: Paying Your Team When You Win a Contract

If you are awarded a contract and need to pay your team:

1. Agree on their roles and contracts (full-time, part-time, or zero-hours).
2. Run payroll weekly or monthly through HMRC-approved software.
3. Provide payslips and pay wages into their bank accounts.
4. Report to HMRC each time you pay staff (Real Time Information – RTI).
5. Deduct pension contributions if applicable.

This ensures compliance and makes your business professional when scaling to larger projects.

Zero-Hours Contracts – A Flexible Option

Zero-hour contracts can be useful when the workload is uncertain.

• Employees are entitled to holiday pay and rest breaks.
• They must not be penalised for turning down shifts.
• You should still issue a written contract outlining their rights.

While flexible, zero-hours contracts should not be used to avoid fair treatment or exploit workers.

✅ Sample Payslip Template

These templates are legally basic and should be customised for your industry. For high-value contracts or bigger teams, you may want a solicitor or HR consultant to polish them.

Employee Payslip
Company Name: [Your Business Name]
Employer: [Your Name / Sole Trader]
Employee Name: [Employee’s Full Name]
Employee Number: [Optional]
Pay Date: [DD/MM/YYYY]
Pay Period: [Monthly / Weekly]

Earnings

• Basic Pay: £[ ]
• Overtime: £[ ]
• Bonuses: £[ ]
• Other Pay: £[ ]

Deductions

• Income Tax (PAYE): £[ ]
• National Insurance: £[ ]
• Pension Contribution: £[ ]
• Other Deductions: £[ ]

Totals

• Gross Pay: £[ ]
• Total Deductions: £[ ]
• Net Pay (Take Home): £[ ]

Employer’s National Insurance: £[ ] (not shown on employee’s payslip but kept in employer’s records).

📄 Basic Employment Contract (Template)

Employment Contract

This Employment Contract is made on [date] between:

• Employer: [Your Name / Trading Name, Sole Trader], [Your Address].
• Employee: [Employee Full Name], [Employee Address].

1. Job Title & Duties

The Employee will be employed as [Job Title] and will carry out duties reasonably required by the Employer.

2. Start Date

Employment will commence on [date].

3. Place of Work

The employee’s normal place of work is [address / remote/varied sites].

4. Hours of Work

The Employee will work [X] hours per week. Overtime may be required.

5. Pay

The Employee will be paid £[amount] per [hour/week/month]. Pay will be made by bank transfer on [date] each [week/month].

6. Holidays

The Employee is entitled to [statutory minimum: 5.6 weeks including bank holidays] per holiday year.

7. Sickness

Statutory Sick Pay (SSP) will apply if eligible. The Employee must notify the Employer as soon as possible if unable to attend work.

8. Pension

If eligible, the Employee will be auto-enrolled into the workplace pension scheme.

9. Termination & Notice

Both parties must provide [e.g., 1 week] notice to terminate this contract after the probationary period of [X months].

10. Confidentiality

The Employee must not disclose confidential information relating to the Employer’s business.

Signed: ___________________ (Employer)
Signed: ___________________ (Employee)

📄 Zero-Hours Contract (Template)

Zero-Hours Employment Agreement

This agreement is between:

• Employer: [Your Name / Sole Trader Trading Name]
• Worker: [Full Name]

1. Nature of Agreement

The Employer is under no obligation to provide work, and the Worker is under no obligation to accept work offered.

2. Work & Pay

• The Worker will be paid £[ ] per hour for hours worked.
• Payment will be made weekly/monthly in arrears, by bank transfer.

3. Hours

Work will be offered as needed, and the Worker may accept or decline.

4. Holiday Entitlement

The Worker will accrue holiday at the statutory rate (currently 5.6 weeks per year pro rata).

5. Rights

The Worker will receive statutory employment rights, including National Minimum Wage, paid holiday, and protection against unlawful discrimination.

6. Termination

Either party may end this agreement with [X days/weeks] notice.

Signed: ___________________ (Employer)
Signed: ___________________ (Worker)

Conclusion

**“Employing staff as a Disabled Entrepreneur, Freelancer, or Sole Trader is entirely possible and can be a powerful way to grow your business. By registering as an employer, preparing written contracts, setting up payroll, issuing payslips, and meeting your legal obligations, you can build a reliable team to deliver contracts successfully. Whether you choose fixed-term contracts or flexible zero-hours agreements, staying compliant ensures professionalism, protects your business, and builds trust with your employees.

Finally, do not forget to arrange the appropriate insurance. The essentials include Employers’ Liability Insurance (a legal requirement if you employ staff) and Public Liability Insurance (to cover claims from clients, customers, or members of the public). In addition, depending on your type of business, you may also want to consider:

• Professional Indemnity Insurance: protects against claims of negligence or errors in your services.
• Business Interruption Insurance: covers loss of income if your operations are disrupted.
• Contents or Equipment Insurance: to safeguard valuable business assets.
• Cyber Liability Insurance: increasingly important if you handle customer data online.

Having the right coverage not only keeps you compliant but also safeguards your business reputation and long-term growth.”**

Resources

• Register as an employer – GOV.UK
• Real Time Information internet submissions: 2024 to 2025 technical specifications – GOV.UK
• PAYE5020 – Background: real time information (RTI): submission filing methods – HMRC internal manual – GOV.UK
• Templates | Acas
• HMRC Issue briefing – RTI
• Zero hours contracts: guidance for employers – GOV.UK
• Employment contracts: Overview – GOV.UK
• Small Business, Enterprise and Employment (SBEE) Act – GOV.UK
• Employment status: Overview – GOV.UK
• Overview of Setting up and Reporting Workers on Zero-Hour Contracts
• A comprehensive guide to zero-hour contracts | PeopleHR
• Zero-hours contracts: Understanding the law | CIPD
• Zero-hours contracts – Acas
• Sage Payroll | Sage UK
• Accounting Software | Xero UK
• File your Self Assessment tax return online – GOV.UK