Employing Your First Person: PAYE, CIS, CITB Levy and Costs

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‍‌‌‌‌‌‌​‌‌​‌‌​​​​​‌‌‌​‌‌​​‌​​‌‌‍# Employing Your First Person

You've been running jobs on your own, the work's coming in faster than you can do it, and you're turning things down. Time to take someone on. This guide covers what you're legally required to do, what it actually costs, and the difference between employing someone and using a subbie.

Rule of thumb: taking on your first employee roughly doubles your admin but can triple your output. Get the legal stuff right from day one and it pays for itself fast.

Employee vs Subbie: Get This Right First

This is where most small contractors trip up. HMRC don't care what you call the person. They care about the reality of the working relationship.

If you tell them when to start, when to finish, what to do and how to do it, they're probably your employee regardless of what you call them. If they can send a substitute, use their own tools, work for other people the same week and control how the job gets done, they're more likely a genuine subcontractor.

Getting this wrong costs serious money. If HMRC decides your "subbie" is actually an employee, you owe all the employer's NI, PAYE, holiday pay and pension contributions you should have been paying. Backdated.

What It Actually Costs

An employee earning £30,000 a year costs you more than £30,000. Here's the breakdown (2025-26 rates):

• Employer's National Insurance: 15% on earnings above £5,000 per year. On a £30k salary, that's roughly £3,750.
• Employment Allowance: £10,500 per year. This wipes out your employer's NI bill completely until your NI liability exceeds £10,500. Most small contractors pay zero employer's NI in their first year or two.
• Workplace pension (auto-enrolment): 3% employer minimum contribution from their first day of eligible work. On £30k, that's £900 a year.
• Employer's liability insurance: legally required. £5m minimum cover. Fines of £2,500 per day if you don't have it. Costs vary but expect £300-800 a year for one employee depending on trade and risk.

So for a £30k employee, your real cost is roughly £30,900 in year one (assuming Employment Allowance covers the NI), plus insurance.

Legal Requirements from Day One

Written statement of employment

You must give your new employee a written statement of their terms on or before their first day. Not their first week. Their first day. This covers pay, hours, holiday, notice period, job title, workplace and pension details.

Right to work checks

You must verify that every employee has the legal right to work in the UK before they start. Check their passport or other approved documents. Keep copies. The fine for employing someone without the right to work is up to £60,000 per worker (2025-26 rates).

PAYE registration

Register as an employer with HMRC. You'll get a PAYE reference number. Use this to run payroll, deduct tax and NI from their wages, and report everything to HMRC through Real Time Information (RTI).

Tip for new starters: use payroll software or pay an accountant to run your payroll. Getting PAYE wrong creates problems that snowball. A basic payroll service costs £15-30 a month and saves you hours of headaches.

Auto-Enrolment Pension

From your first employee, you're required to set up a workplace pension scheme. The minimum contributions are:

• Employer: 3% of qualifying earnings
• Employee: 5% of qualifying earnings (deducted from their pay)

NEST is the simplest option for small employers. It's free to set up and the charges are low. You must enrol eligible employees automatically. They can opt out, but you can't encourage them to.

CITB Levy

If you mainly do construction work, you'll need to register with CITB and pay the construction industry training levy. The rates (2025-26) are:

• 0.35% of total payments to direct employees (through PAYE)
• 1.25% of total payments to net-paid subcontractors (CIS)

The levy funds training grants. If your employee is an apprentice, you can claim CITB grants to offset the cost.

Apprenticeships

Taking on an apprentice is one of the smartest moves a small construction firm can make. CITB offers grants for construction apprentices:

• £2,750 per year in the first year
• Additional grants for completing milestones

If your wage bill is under £3 million, you don't pay the Apprenticeship Levy, and the government funds 95% of the training costs. You pay 5% plus the apprentice's wages.

Tip for new starters: an apprentice on a two-year programme costs less than you think after grants, and you get someone trained to do things your way. Talk to your local college or training provider about what's available.

CIS: If You're Taking On Subbies

If you decide to use a subcontractor instead of employing someone, you need to register as a contractor under CIS. You must:

• Verify the subbie with HMRC before you pay them
• Deduct CIS at 20% (or 30% if they're not registered) from labour payments
• File monthly CIS returns with HMRC

This is different from employing them. CIS deductions go to their tax bill. You don't pay employer's NI, pension or holiday pay for genuine subbies. But if the relationship looks like employment, HMRC will treat it as employment.

Statutory Sick Pay

Once you have an employee, you're responsible for Statutory Sick Pay if they're off sick for four or more consecutive days. The rate is £118.75 per week (2025-26 rates) for up to 28 weeks.

In construction, where injuries happen, this matters. Budget for it.

Sources

• HMRC, "Employer's National Insurance and Employment Allowance," 2025-26
• The Pensions Regulator, "Auto-enrolment duties for employers," 2025
• CITB, "Levy rates and grant schemes," 2025-26
• gov.uk, "Statutory Sick Pay rates," 2025-26
• gov.uk, "Right to work checks: an employer's guide," 2025
• gov.uk, "Written statement of employment particulars"

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