Your First Hire: cost, cash runway and employer setup

Model the whole role, not only the salary

A salary is only one part of the decision. The business also needs to consider employer National Insurance, pension obligations where applicable, holiday and statutory-pay exposure, equipment, software, recruitment cost, training, management time and the working-capital effect of paying before the role produces reliable receipts. The current amounts and obligations depend on the worker and circumstances, so use the live GOV.UK pages for a calculation rather than a static example from an article.

Use three cases. The base case assumes the role delivers the expected output on the expected timetable. The delayed-revenue case assumes a client starts later or a sales target takes longer. The downside case assumes a key customer pays late while payroll still runs on time. If the business can fund only the base case, the timing may be fragile even if the annual profit-and-loss forecast looks acceptable.

Set a cash trigger before recruitment begins. For example, decide what protected cash, confirmed work or forecast headroom has to exist before an offer is made. The trigger should consider the next several payrolls and tax dates, not merely the first month’s salary. That turns a vague feeling of growth into a decision that can be revisited with evidence.

Check status and set up the employer process early

The official first-employer route starts by checking whether the person is being taken on as an employee. Different employment statuses and contract types bring different responsibilities, so do not call someone a contractor solely because the cash model is easier. Seek advice where the arrangement is unclear.

HMRC says an employer normally needs to register before the first payday to obtain an employer PAYE reference. It also says registration cannot normally be made more than two months before payments begin. Build this into the hiring timeline rather than trying to solve it once the person has started. If an employee is paid before the reference arrives, HMRC gives a specific process involving running payroll, storing the full payment submission and sending it late.

Decide who owns payroll. A founder may use payroll software, an accountant or a payroll bureau, but responsibility should be clear: who collects starter information, verifies pay, runs the submission, confirms payment, files evidence and handles a correction? A tool or adviser is not a substitute for a repeatable owner-and-deadline process.

Treat pension and insurance duties as planned work

The Pensions Regulator says every UK employer with at least one person employed has certain automatic-enrolment duties. What has to happen depends on the employer and staff, so use its current tool and guidance to work out the timetable and tasks. Pension duties should appear in the employment project plan, not as an afterthought after the first payslip.

GOV.UK’s first-employer route also includes checking safety and accessibility responsibilities and obtaining Employers’ Liability insurance where it is required. The purpose is not to create a legal checklist in this guide; it is to make clear that ‘we can afford a salary’ does not prove the business is ready to employ someone.

Keep the evidence: contract and status assessment, payroll setup, pension steps, insurance records, pay approvals and employer submissions. A clear file reduces risk and makes future hires much faster.

A sensible first-hire decision sequence

First define the work that is genuinely blocking the business: delivery, sales, administration or specialist capability. Then decide whether an employee is the right answer or whether a contractor, agency worker, delayed start or changed process deserves consideration. Do not use this page to make a status call; assess the actual arrangement against official guidance.

Next build the cash case and choose a start date that the forecast can support. Finally, complete the employer setup and give the person a role with a clear first 30-, 60- and 90-day outcome. A new employee should not be relied on to rescue an unpriced, uncollected or unplanned cash problem; fix the underlying operating issue first.

What to do, in order

1. 1

   Define the business need and employment status question

   Write the outcome the role must deliver and confirm whether an employee is the right arrangement before drafting an offer.

2. 2

   Build a full cash-cost and downside model

   Include pay, employer costs, pension, setup, working capital and delayed-revenue scenarios in a rolling cash forecast.

3. 3

   Set a start-date trigger

   Make the offer conditional on protected cash, confirmed work or other measurable headroom rather than optimism.

4. 4

   Register and choose the payroll owner

   Register as an employer before the first payday, select the payroll process and document who runs, reviews and pays each cycle.

5. 5

   Complete pension, insurance and onboarding tasks

   Use the official first-employer sequence and keep the evidence in a secure hiring file.