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10 - Employing Your First Person

Hiring your first employee is the biggest step most beauty business owners take. It means you've outgrown what one person can do, and that's brilliant. But it also means entering a world of payroll, pensions, contracts and employer responsibilities that nobody warned you about. Get it right and you'll grow your business. Get it wrong and HMRC, the Pensions Regulator, or an employment tribunal will teach you the expensive way. This guide walks you through everything you need to do before, during and after your first hire.

Quick rule of thumb: The real cost of an employee is roughly 115-130% of their gross salary once you add employer's NI, pension, holiday pay and insurance. If you can't afford that number, you can't afford to hire yet.

Legal steps before hiring

Before you even write a job advert, you need these in place:

1. Employer's liability insurance - £5 million minimum cover. This is a legal requirement from day one. If you don't have it, you can be fined up to £2,500 per day (2025-26). Your existing beauty insurance almost certainly doesn't include this. You need a separate employer's liability policy.

2. Register as an employer with HMRC - Do this at least 2 weeks before your first employee's payday. You'll get a PAYE reference number. You can register online through the Government Gateway.

3. Set up payroll - Either use payroll software (Xero, FreeAgent, BrightPay) or pay an accountant to run it. You'll need to report to HMRC every time you pay someone, in real time.

4. Auto-enrolment pension - You must set up a workplace pension scheme before your first employee starts. The minimum employer contribution is 3% of qualifying earnings (2025-26). The employee contributes 5%. You need to choose a pension provider (NEST is free to set up and designed for small employers).

5. Written contract - Required on or before day one. Not day two. Not "when we get round to it." Day one.

Tip for new starters: Don't skip employer's liability insurance because "it's just one person" or "they're only part-time." The legal requirement applies from your very first employee, even if they work one hour a week.

Employment costs

Here's what an employee actually costs you. This example uses a part-time stylist earning £15,000/year gross.

The Employment Allowance (2025-26) lets eligible employers reduce their employer's NI bill by up to £10,500 per year. For most small beauty businesses hiring their first person, this wipes out employer's NI completely. You claim it through your payroll software.

Contracts

Every employee must receive a written statement of terms on or before their first day. This must include:

• Job title and description
• Start date
• Pay rate, frequency, and method
• Working hours and days
• Holiday entitlement (minimum 28 days pro rata, including bank holidays)
• Notice period (minimum 1 week after 1 month's service)
• Place of work
• Sick pay arrangements
• Pension details
• Disciplinary and grievance procedures (can reference a separate document)
• Probation period and conditions

You don't need a solicitor for a basic contract. ACAS has free template contracts on their website. But if you're including restrictive covenants (non-compete clauses, client protection clauses), get legal advice. Badly written restrictive covenants are unenforceable.

Tip for new starters: Day-one unfair dismissal protections are expanding under the Employment Rights Act 2025. This means getting your contract, probation terms and performance management right from the start is more important than ever.

Apprenticeships in beauty

Hiring an apprentice can be a brilliant first hire. They're keen, you shape their skills, and the funding can be very generous.

Funding (2025-26):

• If you're a non-levy employer (payroll under £3m), you pay just 5% of the training cost. The government covers 95%.
• For apprentices aged 16-18 (or 19-24 with an Education, Health and Care Plan), training is fully funded. You pay 0%.
• You also get a £1,000 incentive payment for hiring a young apprentice.

The apprentice minimum wage is lower than the adult rate, but they still count as an employee. You still need employer's liability insurance, a contract, auto-enrolment, and PAYE. Don't assume apprentices are "cheap labour" with no obligations.

Find approved training providers through the government's apprenticeship service at gov.uk.

Payroll basics

Once you're registered as an employer, you need to run payroll properly every pay period. Here's what that means:

• Calculate tax and NI deductions using your payroll software
• Report to HMRC using a Full Payment Submission (FPS) on or before each payday
• Pay the employee their net pay
• Pay HMRC the tax and NI you've deducted, plus employer's NI, by the 22nd of the following month (if paying electronically) or the 19th (by post)
• Issue payslips every pay period - this is a legal requirement

Most small beauty businesses pay monthly. If you're paying weekly, you still report every week. Missing HMRC deadlines means automatic penalties.

At the end of each tax year (5 April), you submit a final FPS. Your payroll software handles this.

Managing people

Hiring someone is the easy bit. Managing them is the ongoing challenge.

The ACAS Code of Practice is the baseline for how you handle disciplinary issues, grievances and performance problems. Employment tribunals look at whether you followed the ACAS Code. If you didn't, any compensation awarded can be increased by up to 25%.

Key principles:

• Put everything in writing. Verbal warnings aren't worth the paper they're not written on.
• Follow a fair process. Investigation, meeting, decision, right of appeal.
• Keep records. Dates, conversations, outcomes.
• Don't dismiss anyone without following proper procedure. Even during probation, follow a fair process.

ACAS has a free helpline (0300 123 1100) and free online training. Use both.

Chair renter vs employee

This is where a lot of beauty business owners get into trouble. You bring someone into your salon, call them a chair renter, and treat them like an employee. HMRC doesn't care what you call them. They look at the reality.

Signs someone is actually an employee, not a chair renter:

• You set their hours or rota
• You tell them what to charge
• You provide their tools and products
• They can't send a substitute
• You control how they do the work, not just what work they do
• They don't invoice you - you just pay them
• They don't have their own insurance
• They don't have their own clients - they take whoever walks in

If HMRC decides your "chair renter" is actually an employee, you'll owe all the employer's NI, PAYE, pension contributions and holiday pay you should have been paying, potentially going back years. Plus penalties and interest.

Tip for new starters: If you want a genuine chair rental arrangement, the renter needs to be properly self-employed. They set their own prices, bring their own clients, have their own insurance, can work elsewhere, and pay you a fixed rent. If that doesn't describe your arrangement, you probably have an employee.

What to do next

1. Work out whether you can afford the true cost of an employee (salary + 15-30%)
2. Get employer's liability insurance before you do anything else
3. Register as an employer with HMRC (allow 2 weeks)
4. Set up a pension scheme (NEST is the simplest option)
5. Write a contract using the ACAS templates as a starting point
6. Set up payroll software or appoint an accountant to run it
7. If hiring an apprentice, find an approved training provider through gov.uk

Who to Contact

• HMRC Employer Helpline - 0300 200 3200 (Free)
• ACAS (employment law advice) - 0300 123 1100 (Free)
• The Pensions Regulator - 0345 600 1011 (Free)
• NEST Pensions - 0300 020 0393 (Free)
• Citizens Advice - 0800 144 8848 (Free)
• Gov.uk Apprenticeship Service - gov.uk/apply-apprenticeship (Free)

Sources

• HMRC employer registration and PAYE guidance (2025-26)
• The Pensions Regulator auto-enrolment guidance
• ACAS Code of Practice on disciplinary and grievance procedures
• Employment Rights Act 1996 (as amended by Employment Rights Act 2025)
• Employer's Liability (Compulsory Insurance) Act 1969

Related Guides

• Worker Status and What Rights You Have
• Misclassification: What To Do
• Chair Rental Complete Guide
• Insurance for Chair Renters
• Cash Flow Management
• HMRC Investigations: What Triggers Them

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