How to Set Up HR From Scratch: Complete UK Guide for New Businesses

Quick Answer: What Do I Need to Set Up HR?

At minimum, you need employment contracts, a payroll system registered with HMRC, employer's liability insurance, a workplace pension scheme, right to work checks, and core HR policies (disciplinary, grievance, health and safety, equal opportunities). Most of these are legal requirements from day one of hiring.

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Step 1: Before Your First Hire

Register as an Employer with HMRC

You must register as an employer with HMRC before your first employee's first payday. This gives you a PAYE reference number which you need to:

• Report employee earnings to HMRC via Real Time Information (RTI)
• Calculate and deduct income tax and National Insurance contributions
• Pay employer's National Insurance (currently 15% above the secondary threshold of £5,000)

Get Employer's Liability Insurance

This is a legal requirement under the Employers' Liability (Compulsory Insurance) Act 1969. You must:

• Have cover of at least £5 million (most policies are £10 million)
• Display the certificate (or make it available electronically)
• Keep records of expired policies for 40 years
• Failure to have insurance can result in a fine of up to £2,500 per day

Set Up a Workplace Pension

Under the Pensions Act 2008, you must automatically enrol eligible workers into a workplace pension scheme. Current minimum contribution rates (2025/26):

Qualifying earnings for 2025/26 are between £6,240 and £50,270 per year. You must set up your pension scheme and complete your declaration of compliance with The Pensions Regulator.

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Step 2: Employment Contracts

Every employee and worker is entitled to a written statement of employment particulars from their first day. Since April 2020, this is a day-one right (previously it was within 2 months).

What the Statement Must Include

Section 1 statement (day one):

• Employer's name and address
• Employee's name, job title, and start date
• Pay rate and intervals
• Hours of work
• Holiday entitlement
• Place of work
• Probationary period details
• Any benefits provided
• Training requirements and who pays

Section 2 statement (within 2 months):

• Pension arrangements
• Collective agreements
• Disciplinary and grievance procedures
• Notice periods

Practical Tips

• Use a proper employment contract that goes beyond the statutory minimum
• Have it reviewed by an employment solicitor, especially for the first version
• Include restrictive covenants if needed (non-compete, non-solicitation) -- but keep them reasonable
• State clearly whether the employee handbook is contractual or non-contractual

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Step 3: Core HR Policies

At minimum, you need these policies in place:

Mandatory Policies

• Disciplinary and grievance procedure -- must follow the ACAS Code of Practice
• Health and safety policy -- required in writing if you have 5+ employees
• Equal opportunities policy -- demonstrates compliance with the Equality Act 2010
• Data protection / privacy notice -- required under UK GDPR

Strongly Recommended Policies

• Absence and sickness policy
• Holiday policy
• Maternity, paternity, and parental leave policies
• Flexible working policy
• Whistleblowing policy
• IT and social media policy
• Anti-harassment and bullying policy

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Step 4: Set Up Payroll

You can run payroll in-house using software, outsource to an accountant, or use a payroll bureau. Whichever method you choose, you must:

• Submit Full Payment Submissions (FPS) to HMRC on or before each pay date
• Submit an Employer Payment Summary (EPS) if claiming reductions (e.g., statutory payments)
• Pay HMRC by the 22nd of the following month (or 19th if paying by post)
• Provide employees with payslips on or before each pay date (a legal requirement since 2019 for all workers)
• Issue P60s to employees by 31 May each year
• Issue P45s when employees leave

Payroll Deductions (2025/26)

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Step 5: Onboarding New Employees

Create a structured onboarding process:

1. Before start date: Send contract, request right to work documents, set up payroll and pension
2. Day one: Right to work check, induction programme, issue employee handbook, IT setup
3. First week: Introduce to team, assign buddy/mentor, begin role-specific training
4. First month: Set probation objectives, schedule check-ins
5. Three months: Formal probation review, feedback session

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Step 6: Ongoing Compliance

Monthly

• Submit payroll returns to HMRC (RTI)
• Pay employer NI and PAYE to HMRC
• Process pension contributions

Annually

• Issue P60s (by 31 May)
• Review and update HR policies
• Re-enrol eligible workers who opted out of pension (every 3 years)
• Review statutory rates (change every April)

As Needed

• Process leavers (P45, final pay, accrued holiday)
• Handle disciplinary and grievance cases
• Respond to subject access requests
• Update contracts for role changes or pay increases

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Common First-Year Mistakes

• Not having employer's liability insurance -- this is a criminal offence
• Missing auto-enrolment deadlines -- The Pensions Regulator can issue fines
• No written employment contracts -- leaves you exposed at tribunal
• Not keeping right to work records -- civil penalties of up to £60,000 per illegal worker
• Ignoring health and safety -- personal liability for directors
• Using generic contract templates that do not reflect actual working arrangements
• Not setting up Real Time Information payroll reporting correctly

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Using Grove to Set Up HR From Scratch

Grove gives new businesses a complete HR platform from day one. Store contracts, run onboarding checklists, track leave, manage documents, and stay on top of compliance -- all in one place.

Get started with Grove and build your HR function the right way from the start.