Hire your first employee: what to arrange before day one and what it really costs
Register, check, insure and calculate before day one, so that your first hire pays for itself.
In this topic: The first year 5
You become an employer before your first employee walks in
What to arrange before day one, what an employee really costs and when the hire pays for itself.
Hiring your first employee starts weeks before the first working day
Most employer obligations share one deadline: the first working day or first payday. By then you are registered, the right-to-work check is done and payroll and insurance are in place.
The harder question is whether the work earns enough to pay a wage every month, including months when the new person is learning, on holiday or ill. The example uses euros; the logic works in any currency.
Employee or something else?
Three questions first. Is the work structural, for at least a year? Does it bring in more margin than the person costs? Can you carry the cost for six months if revenue grows slower than planned?
| Option | Suits | Watch out |
|---|---|---|
| Employee | Structural work you want to direct and keep in-house | Fixed cost, employer obligations, wages during sickness |
| Part-time employee | Work for two or three days a week | Same obligations, smaller wage bill |
| Freelancer or contractor | Peaks, specialist work | Higher rate; must be truly independent |
| Agency worker | Seasonal peaks, cover for absence | Agency margin on top of the wage |
| Outsourcing | Bookkeeping, payroll, cleaning, IT, delivery | Less control over timing and quality |
If you set the hours, method and tools, and the person works only for you, a tax authority may see an employee. The IRS weighs behavioural control, financial control and the type of relationship (source: IRS, May 2026); other countries apply their own tests, and getting it wrong can mean back payments.
What to arrange before day one
The principle is the same in most countries; start a month or two ahead.
- 01
Register as an employer
With the tax authority and, where needed, social insurance bodies.
- 02
Check identity and right to work
Before the first working day; keep a copy.
- 03
Put the contract in writing
Job, hours, pay, duration, probation and notice.
- 04
Set up payroll
Software or a provider, payslips and filings.
- 05
Insurance and pension
Employers' liability or workers' compensation, and pension where required.
| Country | What to arrange | Key rules |
|---|---|---|
| United States | An EIN, a W-4 withholding form, the I-9 eligibility form, a state new hire report and workers' compensation through a carrier, self-insurance or a state programme (source: US Small Business Administration, August 2025). | Employee section of the I-9 by the first day of paid work, employer section by the third business day (source: USCIS, October 2026); report new hires within 20 days (source: US Administration for Children and Families, September 2016). |
| United Kingdom | Register as an employer for PAYE before the first payday, but not more than 2 months before you start paying people (source: GOV.UK, September 2026); check right to work before employment starts (source: GOV.UK, October 2026). | Employers' liability insurance of at least £5 million, fines of £2,500 a day without it (source: GOV.UK, October 2026); pension enrolment for workers aged 22 to State Pension age earning at least £10,000, with 8% minimum contributions, 3% from the employer (source: GOV.UK, September 2026). |
| Australia | Register for PAYG withholding before the first payment you withhold from, with payroll software that reports through Single Touch Payroll (source: Australian Taxation Office, July 2025); a TFN declaration from the employee. | Super guarantee of 12% of ordinary time earnings (source: Australian Taxation Office, February 2026), under Payday Super rules from 1 July 2026 (source: Australian Taxation Office, October 2026); give new employees the Fair Work Information Statement (source: Federal Register of Legislation, July 2026). |
| Germany | A company number (Betriebsnummer) from the Federal Employment Agency, which you apply for online (source: German Federal Employment Agency, October 2026). | Report each employee to the social insurance collecting agency when insured employment begins (source: German Federal Ministry of Justice, October 2026); the minimum wage is €13.90 an hour since 1 January 2026 (source: German Federal Ministry of Labour and Social Affairs, October 2026). |
| Canada | A payroll program account with the CRA, the employee's social insurance number and completed TD1 forms (source: Canada Revenue Agency, January 2026). | Register the payroll account before the first remittance due date (source: Canada Revenue Agency, January 2026); file T4 slips by the last day of February (source: Government of Canada, October 2026). |
- Check your country: who registers employers, and which identity checks are required?
- Insurance: employers' liability, workers' compensation or accident insurance?
- Pay: is pension compulsory, and is there a minimum wage or collective agreement for your sector?
Rules and rates change every year, so check the official portal before the start date.
What an employee really costs
Total employer cost = gross wage + employer social contributions + pension + insurance + payroll administration + equipment and training
Across the EU, non-wage costs such as employers' social contributions made up 24.8% of total labour costs in 2025, highest in France at 32.3% and Sweden at 31.7% (source: Eurostat, March 2026); these figures cover businesses with 10 or more employees, outside agriculture and public administration. In the US the employer pays 6.2% Social Security tax on wages up to $184,500 in 2026 and 1.45% Medicare tax (source: IRS, September 2026). UK employers pay 15% National Insurance on earnings above £5,000 a year (source: GOV.UK, September 2026). For other countries, the OECD's annual Taxing Wages report compares employer contributions.
Sick pay: the risk you carry
| Country | What the employer pays during sickness |
|---|---|
| United Kingdom | Statutory Sick Pay of up to £123.25 a week for up to 28 weeks (source: GOV.UK, October 2026). |
| Germany | Full pay for up to six weeks, once the employment has lasted four weeks without interruption (source: German Federal Ministry of Justice, October 2026). |
| United States | No federal requirement for paid sick leave; the Family and Medical Leave Act requires unpaid leave for covered employers (source: US Department of Labor, October 2026). Check state and city rules. |
Probation and fixed-term contracts
A probation period lets either side end the contract quickly, and many countries cap it. In Germany it lasts at most six months, with two weeks' notice (source: German Federal Ministry of Justice, October 2026). Put it in writing.
A fixed-term contract suits a first hire when you are unsure the work will last. EU countries must prevent abuse of successive fixed-term contracts through objective reasons, a maximum total duration or a maximum number of renewals (source: EUR-Lex, June 1999). Germany allows a fixed term without objective reason for up to two years, with at most three extensions (source: German Federal Ministry of Justice, October 2026). Decide on a permanent contract before the last renewal ends.
Subsidies: fewer than people think
Most wage subsidies target specific groups, such as long-term unemployed people, people with disabilities or apprentices, and many are paid afterwards or offset against payroll taxes, so they do little for your cash in the first months. Some reliefs help a first employer: the UK Employment Allowance for 2026 to 2027 is £10,500 (source: GOV.UK, September 2026), which reduces the employer's National Insurance bill for eligible businesses. Leave subsidies out of your forecast until approved.
Example: when does the first hire pay for itself?
Jonas runs a small coffee roastery that supplies cafés and sells online. Roasting, packing and shipping leave him little time for sales, so he wants a production assistant for 24 hours a week and two free days to win café customers.
| Cost item | Per year |
|---|---|
| Gross wage, €1,950 a month | €23,400 |
| Employer contributions and pension, 22% | €5,148 |
| Payroll administration, insurance, training and equipment | €1,452 |
| Total employer cost | €30,000 |
Extra revenue needed = total employer cost / gross margin percentage = €30,000 / 0.45 = €66,667 a year, about €5,556 a month
| Year 1 | Year 2 | Year 3 | |
|---|---|---|---|
| Extra revenue | €48,000 | €78,000 | €90,000 |
| Extra gross margin, 45% | €21,600 | €35,100 | €40,500 |
| Employer cost, rising 3% a year | €30,000 | €30,900 | €31,827 |
| Balance | -€8,400 | €4,200 | €8,673 |
| Cumulative | -€8,400 | -€4,200 | €4,473 |
Fictitious Firmfocus example. The contribution rate, margin and growth are illustrations; use your own country's rates.
The hire costs Jonas €8,400 of profit in year one, because café customers take months to win. In year two the extra margin passes the cost, and during year three the first-year loss is earned back. Two risks remain. Wages go out from the first month, so he keeps a buffer of three months' employer cost, €7,500. And in a country with six weeks of full sick pay, a long absence would cost about €2,700 in wages without output (€23,400 x 6 / 52).
Freelancer becoming an employer, or opening with a team
Freelancer who becomes an employer
Your week shifts from doing the work to organising it. Start part-time or fixed-term, outsource payroll, and keep your own billable hours up until the new person works independently.
Starter who opens with a team
A shop, restaurant or workshop often needs staff on opening day. Everything in the country table is done before you open, and the wage bill belongs in the financing plan from the start.
Pitfalls with the first employee
- Registering late: without an employer reference you cannot run the first payroll correctly.
- Counting on subsidies: budget without them until they are approved in writing.
- Forgetting holidays and sickness: you pay the wage every week of the year, but the work gets done in fewer weeks.
- Staff data: payroll records are personal data; agree a processor contract with your payroll provider.
Hiring is one of the choices in the first year within Start a business. Add the wage bill to your profit and loss forecast and cash flow forecast, review your insurance and put payroll dates in the compliance calendar.
When must I register as an employer?
Do I have to offer a pension to my first employee?
How much do I pay if my employee is ill?
Sources
- US Small Business Administration: Hire and manage employees (August 2025)
- USCIS: Complete and correct the employment eligibility form (October 2026)
- GOV.UK: Register as an employer (September 2026)
- GOV.UK: Rates and thresholds for employers (September 2026)
- Australian Taxation Office: How much super to pay (February 2026)
- Eurostat: Hourly labour costs (March 2026)
- German Federal Ministry of Justice: Continued Remuneration Act, continued pay during illness (in German) (October 2026)
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