Employing Your First Member of Staff in Scotland: A Tax and Payroll Guide

Taking on your first member of staff in Scotland requires you to register as an employer with HMRC, set up a payroll scheme, deduct income tax and National Insurance through PAYE, report payments in real time via RTI, enrol eligible workers into a workplace pension, and meet your employment law obligations — all before the first pay date.

Step 1: Register as an employer

Register with HMRC as an employer before your new employee's first pay day. HMRC will issue a PAYE reference and Accounts Office reference. You can register up to two months before paying anyone. Do not wait until after the first payroll has run, as late registration can cause RTI submission failures.

Step 2: Payroll software and RTI

You must file payroll information to HMRC in real time using RTI-compliant software. Every time you pay an employee you submit a Full Payment Submission (FPS) to HMRC on or before the pay date. Basic PAYE Tools is free from HMRC, but most businesses use Xero, QuickBooks, or dedicated payroll software that integrates with their accounting records.

Step 3: Tax codes and employee starter declarations

When a new employee starts, ask them to complete a starter declaration (replacing the old P46). Their tax code determines how income tax is deducted. Scottish employees receive an S-prefix code. If no information is available, operate an emergency tax code until HMRC issues the correct one. For most new starters in Scotland this will be S1257L on a cumulative basis.

Step 4: Employer National Insurance

• Employer NI: 15% on gross pay above the £5,000 secondary threshold.

• Employee NI: 8% between the primary threshold (£12,570) and upper earnings limit (£50,270), 2% above.

• Employment Allowance: £10,500 — claim through RTI if eligible.

Step 5: Auto-enrolment

If your employee is aged 22 to state pension age and earns above £10,000 per year, you must automatically enrol them into a qualifying workplace pension scheme and contribute a minimum of 3% of qualifying earnings. The employee contributes at least 5%. You must choose a pension scheme — NEST is a free government option — and communicate enrolment to the employee within six weeks of their start date.

Step 6: Employment contract and legal obligations

All employees are entitled to a written statement of employment particulars from day one. In Scotland, employment law is reserved to Westminster so the same rules apply as in England and Wales. The National Minimum Wage must be paid, and statutory rights including sick pay, annual leave, and parental leave must be honoured from the start of employment.

Countify's payroll management service in Glasgow handles all aspects of first-time employer set-up and ongoing payroll compliance. Our HR and employment tax advisory service can guide you through employment contracts and statutory obligations.