You have been running flat out for months. The phone keeps ringing. Customers are waiting longer than they should. You are turning good work away because there simply are not enough hours in the day.
So the thought creeps in: maybe it is time to take someone on.
It is one of the biggest decisions you will make as a business owner. Get it right and you double your capacity, take on more profitable work, and start building something that does not depend entirely on you. Get it wrong and you end up with a wage bill you cannot sustain, admin you were not expecting, and more stress than when it was just you and a van.
This guide walks you through the financial side of hiring your first employee. Not the recruitment process or the interview tips — the numbers. Because the numbers are what will make or break this decision.
The Emotional Decision vs the Financial Decision
Here is the trap. You feel ready because you are busy. But being busy and being financially ready to hire are two very different things.
A full diary tells you there is demand. It does not tell you whether your margins are strong enough to absorb a significant new cost. It does not tell you whether your cash flow can handle paying someone else every month — even during the quiet spells in summer when the phone slows down.
Before you commit to anything, you need to answer one question honestly: can your business afford to pay someone £48,000-£55,000 a year and still leave you better off than you are right now?
That is not a typo. A £35,000 salary does not cost £35,000. Not even close. We will break it all down shortly.
If you have not already got a clear picture of your cash flow, start there. Our guide to managing cash flow in a trades business will help you see exactly where your money goes each month.
Employee vs Subcontractor: Know the Difference Before You Decide
You do not have to put someone on your payroll to get help. Subcontracting is an option. But it is not as simple as just paying someone and calling them self-employed. HMRC has a very clear view on this, and getting it wrong can be expensive.
The Control Test
The key question HMRC asks is: how much control do you have over the person doing the work?
If you tell them where to be, when to be there, what to wear, and how to do the job — that looks like employment. If they have the freedom to choose their own hours, provide their own tools, send a substitute, and work for other clients — that looks like genuine self-employment.
In the trades, this gets murky. You might bring in a “self-employed” engineer who drives your van, wears your uniform, uses your tools, and only works for you. In HMRC’s eyes, that person is an employee — regardless of what your agreement says on paper.
Disguised Employment: A Real Risk in the Trades
HMRC has been cracking down on disguised employment in construction and trades for years. If they decide your “subcontractor” is actually an employee, you will owe the employer’s National Insurance, plus penalties and interest, backdated to the start of the arrangement.
That bill can be devastating for a small business. It is not worth the risk.
The Legal and Financial Differences
Employee: You pay employer’s National Insurance, provide a pension, give them paid holiday, pay statutory sick pay when they are ill, and follow employment law on contracts, notice periods, and unfair dismissal protections.
Genuine subcontractor: You pay their invoices, potentially make CIS deductions, and that is largely it. No pension, no holiday pay, no NI. But they must genuinely be in business on their own account — not just doing what an employee does without the paperwork.
If you go down the subcontractor route, you will almost certainly need to operate within the Construction Industry Scheme. Our complete guide to CIS for plumbing and heating businesses explains exactly how deductions, registration, and monthly returns work.
The True Cost of an Employee: It Is Not Just the Salary
This is where most heating businesses get a shock. You think: I will pay someone £35,000. But the actual cost of putting that person in a van, on the road, and out earning money is far higher.
Let’s break down every cost you need to budget for.
Statutory Employment Costs
Employer’s National Insurance: You pay 13.8% on everything your employee earns above the secondary threshold of £9,100 per year. On a £35,000 salary, that is roughly £3,574 per year. This is your cost on top of their wage — the employee never sees it.
Pension auto-enrolment: You must enrol your employee into a qualifying workplace pension within 3 months of their start date. The minimum employer contribution is 3% of qualifying earnings. On a £35,000 salary, budget approximately £1,050 per year. This is a legal requirement, not optional.
Holiday pay: Every employee is entitled to a statutory minimum of 5.6 weeks paid holiday per year (28 days for a full-time worker, including bank holidays). That is over five weeks where you are paying a wage but generating no revenue from that person. Budget it in from day one.
Statutory Sick Pay (SSP): If your employee is off sick for more than 3 consecutive days, you are legally required to pay SSP. It is not a huge amount — £116.75 per week in 2025/26 — but it is still a cost you absorb while getting no productive work in return.
Employer’s liability insurance: This is a legal requirement the moment you employ anyone. You must have cover of at least £5 million, though most policies offer £10 million as standard. Expect to pay £300-£600 per year depending on your insurer and the type of work. You can be fined £2,500 for every day you operate without it.
Operational Costs
Van: Your new engineer needs wheels. Whether you lease, finance, or buy outright, budget £4,000-£6,000 per year for a van including maintenance, servicing, and tyres. Add £1,200-£2,000 for commercial vehicle insurance.
Fuel: An engineer covering a typical patch in and around Sheffield could easily clock up 15,000-20,000 miles a year. Budget £2,400-£3,600 for diesel.
Tools and PPE: A basic tool kit, power tools, specialist heating equipment, hard hat, safety boots, hi-vis, gloves. Initial setup might cost £2,000+, with ongoing replacements and additions of £1,000-£2,000 per year.
Uniform and branding: Branded workwear, van signage or wraps, and ID cards if you work on commercial or landlord properties. Budget £300-£500.
Training and Compliance
Gas Safe registration: If your employee is doing any gas work, they must be individually registered with Gas Safe. The annual fee is £400+, and that is before the cost of the ACS assessments they need to pass and keep current.
Manufacturer training: Boiler manufacturers like Worcester Bosch, Vaillant, and Ideal require engineers to complete product-specific training to install and commission under warranty. These courses cost £200-£500 each, and you will want your engineer trained on the brands you fit most often.
Ongoing CPD: Regulations change. New products launch. Budget £500-£1,000 per year for keeping your engineer’s skills and qualifications current.
Software and Admin
Job management software: An extra user licence on platforms like ServiceM8, Tradify, or Fergus typically costs £20-£50 per month.
Payroll software: Xero payroll or a standalone payroll solution. If your accountant handles payroll for you, this might be included in their fee. If you run it yourself, budget £5-£15 per month for the software.
Total Cost Breakdown: What £35,000 Really Costs You
| Cost | Annual Estimate |
|---|---|
| Gross salary | £35,000 |
| Employer’s National Insurance (13.8% above £9,100) | £3,574 |
| Pension auto-enrolment (3% employer contribution) | £1,050 |
| Employer’s liability insurance | £300 – £600 |
| Van (lease/finance inc. maintenance) | £4,000 – £6,000 |
| Van insurance | £1,200 – £2,000 |
| Fuel | £2,400 – £3,600 |
| Tools and PPE | £1,000 – £2,000 |
| Gas Safe registration | £400+ |
| Training and CPD | £700 – £1,500 |
| Uniform, signage, and branding | £300 – £500 |
| Software licences (job management + payroll) | £300 – £780 |
| Total estimated annual cost | £50,224 – £57,004 |
Look at that bottom line. A £35,000 salary becomes a true annual cost of somewhere between £48,000 and £55,000 at the conservative end — and potentially over £57,000 once you include everything it takes to get that person on the road and working productively.
The Revenue Target: How Much Do They Need to Earn?
Here is the number that matters most. Your new employee needs to generate enough billable work to cover their full cost, contribute to your fixed overheads, and still leave profit.
As a rule of thumb, an employee needs to generate at least 1.5 to 2 times their total cost in revenue. On a true cost of £50,000-£55,000, that means your new hire should be bringing in £75,000-£110,000 in billable work per year to make the hire genuinely worthwhile.
Is that realistic? For a competent heating engineer doing a mix of boiler installs, servicing, and repairs, yes — it is achievable. But not from week one. It takes time to build up enough jobs to keep a second engineer fully utilised. You need a pipeline of work before they start, not after.
If you are not confident the work is there, read our guide to growing your heating business from one van to a team before making any commitments.
Setting Up PAYE: Becoming an Employer with HMRC
Once you have decided to hire, you need to register as an employer with HMRC. Here is what that involves.
Register for PAYE. You can do this online through the Government Gateway. Do it at least two weeks before your employee’s first payday — HMRC needs time to set up your employer reference. You will receive an Accounts Office reference number and an employer PAYE reference, both of which you will need for payroll submissions.
Real Time Information (RTI) submissions. Every time you run payroll, you must submit a Full Payment Submission (FPS) to HMRC on or before the day you pay your employee. This reports their pay, tax, and National Insurance in real time. Late submissions can result in penalties.
Payroll deadlines. Tax and NI deducted from your employee’s pay, plus your employer’s NI, must be paid to HMRC by the 22nd of each month (or the 19th if paying by post). Miss this and you will face interest charges and potential penalties.
Year-end reporting. At the end of each tax year (5 April), you submit a final FPS and an Employer Payment Summary (EPS) if needed. Your accountant will typically handle this, but you need to know the deadlines exist.
The good news: if you are using Xero or a similar payroll platform, most of this happens semi-automatically. The software calculates the deductions, generates the submissions, and files them with HMRC. Your accountant can set this up and run payroll on your behalf — which, honestly, is the route most heating businesses take.
Employment Contracts: What You Must Include
Every employee has the legal right to a written statement of employment particulars from day one of their employment. This is not optional — it is a legal requirement.
At minimum, it must include:
- The employer’s name and the employee’s name
- Start date and continuous employment date
- Job title and description of duties
- Place of work
- Pay rate and frequency (weekly, monthly)
- Working hours
- Holiday entitlement (minimum 5.6 weeks)
- Notice period
- Pension arrangements
- Sick pay provisions
- Disciplinary and grievance procedures
Get a proper employment contract drawn up. A template from a reputable HR provider will cost you a fraction of what an employment tribunal claim costs if things go wrong down the line.
The Admin Burden: Payroll, Pensions, and Holiday Tracking
Let’s be honest about this. Taking on an employee creates admin. There is no way around it.
Payroll runs: Monthly or weekly, depending on how you pay. Each run involves calculating gross pay, tax, NI, pension deductions, and net pay. Then submitting the RTI return to HMRC.
Pension submissions: Contributions need to be calculated and paid to your pension provider each pay period. NEST is the most common scheme for small employers and is straightforward to set up.
Holiday tracking: You need to record holiday requests, track days taken, and make sure your employee takes their statutory minimum. You also need to calculate holiday pay correctly, which can be more complex than you think if your employee works variable hours.
P60s, P45s, and year-end paperwork: When the tax year ends, or when an employee leaves, you need to produce the right documents.
Here is the practical reality: your accountant and your software handle most of this. With Xero payroll set up correctly, the monthly process takes minutes, not hours. Pension submissions can be automated. And your accountant deals with the year-end reporting and any HMRC correspondence.
The admin is real, but it is manageable. Do not let it put you off if the numbers are right.
When Subcontracting Makes More Sense
Employment is not always the right answer. There are situations where subcontracting is the smarter move — at least for now.
Seasonal overflow. If you are slammed during winter but quiet in summer, a full-time employee might not be cost-effective year round. Bringing in a subcontractor for the busy months keeps your costs flexible.
Specialist work. You win a commercial job that needs an electrician or a specialist in renewable systems. Subcontracting that piece out makes more sense than hiring a permanent specialist you might not need again for months.
Testing before committing. Not sure if there is enough work to sustain a full-time hire? Work with a subcontractor for three to six months first. If you are keeping them busy consistently, that is a strong signal that a permanent hire will work financially.
If you do use subcontractors, remember your CIS obligations. As a contractor making payments for construction work, you must register with HMRC, verify your subcontractors, make the correct deductions, and file monthly CIS returns. Get the full picture in our CIS guide for plumbing and heating businesses.
Getting Your Business Structure Right
If you are still operating as a sole trader and thinking about employing someone, it is worth considering whether a limited company would serve you better at this stage. The liability protection alone is significant — as a sole trader, you are personally responsible for everything your employee does on a job.
There are also potential tax efficiencies once your turnover reaches a certain level. Our guide to sole trader vs limited company for heating engineers breaks down the decision in detail.
Making the Decision
Taking on your first employee is a commitment. It changes your costs, your responsibilities, and your role in the business. But it also changes what your business is capable of.
The key is making the decision with your eyes open — knowing the true cost, understanding the legal obligations, and being confident the revenue is there to support it.
Do not rush it. Do not hire because you are panicking about turning work away this week. Hire because the numbers show it makes sense over the next twelve months and beyond.
Thinking about hiring? Let’s make sure the numbers work before you commit. Book a free consultation.
And if you want to make sure you are quoting your work profitably enough to support a growing team, pick up a copy of The Quote Handbook on Amazon. It will change the way you price every job. If you are ready to put proper systems in place as you scale, The Systems Handbook lays out the frameworks — available in Kindle, Paperback, and Hardback, or grab the Hardcover edition here.