How to Pay Employees Legally in the UK: A Straightforward Guide for Small Businesses

Questioning how to pay your employees in the UK?

When you're growing a business, hiring your first employee is an exciting milestone but it comes with legal responsibilities that many business owners aren’t prepared for. If you’re wondering how to pay employees legally in the UK, you’re in the right place.

In this post, we’ll break it down step by step, so you can get compliant without the confusion.

Step 1: Register as an Employer with HMRC and Pay Employees Legally

Before you pay anyone, you’ll need to register as an employer with HM Revenue and Customs (HMRC). This can be done up to 2 months before your first payday and usually takes a few days.

🔗 Register as an employer with HMRC

Step 2: Set Up a Payroll System

You’ll need to run payroll each time you pay employees, even if it’s just one. This means:

• Calculating tax (PAYE), National Insurance, and student loan deductions

• Issuing payslips

• Submitting reports to HMRC on or before payday (Real Time Information - RTI)

There are two options:

• Use HMRC’s free software or a DIY Software (basic, limited, time consuming, sometimes confusing)

• Outsource payroll to a professional provider like WorldWage (compliant, stress-free, and from just £15/month)

Step 3: Collect Employee Information

To process pay correctly, you’ll need:

• Full name, address, date of birth

• National Insurance number

• Bank details

• A P45 from a previous job (or a new starter checklist)

This ensures you can allocate the correct tax code and avoid under/overpaying.

Step 4: Calculate Pay & Deductions

Employees are entitled to at least:

• The National Minimum Wage or National Living Wage

• Statutory sick pay, holiday pay, and pension contributions (if eligible)

Your payroll system will calculate:

• Income tax (PAYE)

• Employee & employer National Insurance

• Pension contributions (if they’ve been automatically enrolled)

Step 5: Report to HMRC

Every time you pay your staff, you must submit a Full Payment Submission (FPS) through your payroll software to HMRC showing gross pay, deductions, and net pay.

Missing submissions or paying incorrectly can lead to penalties.

Step 6: Pay HMRC

Each month or quarter, you’ll need to pay HMRC the tax and National Insurance you've withheld. You’ll receive a payment reference and deadline, typically the 22nd of each month (if paying electronically).

Step 7: Keep Records for at Least 3 Years

You must keep accurate records of:

• Gross pay

• Deductions

• Reports to HMRC

• Proof of employee eligibility to work

These can be digital or printed, but must be accessible in case of an audit.

The Easy Way? Outsource Payroll.

If all of this sounds like a lot it is. That’s why thousands of UK business owners choose to outsource payroll.

At WorldWage, we:✅ Handle all HMRC submissions✅ Set you up correctly from the start✅ Manage pension contributions✅ Offer fixed, affordable pricing starting at £15/month

We’re here to make payroll one less thing on your plate.

Final Thoughts

Whether you’re paying your first employee or already have a team, understanding how to pay employees legally in the UK is critical to staying compliant and avoiding penalties.

If you’re not sure where to start or if your current setup is right we’re always happy to offer a no-obligation chat.

📩 Contact us today and let us take payroll off your hands.