Employment Legislation Small Business Owners Should Know

By Richard Mitchell
Content writer
Last update: 16 May 20221 minute read
Employment Legislation Small Business Owners Should Know

Table of Contents

There are many steps you need to take when you are planning to turn a small business into a larger one, but one of the most important is taking on staff.

It is a big step. You are not just paying for someone’ time. You are taking responsibility for an important part of their future. You are bringing them onboard, and you have yet another reason why your new venture must succeed.

Of course, there are some other challenges to consider. If you’re taking on staff for the first time, it’s crucial that you get to grips with employment law immediately – and ideally, before you even start looking at potential candidates. 

It is a complicated area. Employment law is a maze made up dozens of different laws and acts in relation to the rights of employees, including disability discrimination, senior employees rights, health and safety and contracts.

The term ‘employment law’ refers to any piece of government legislation designed to protect employees. In the UK, there are four areas of employment legislation that form the basis of employee rights in the workplace - recruitment, pay, health and safety and discrimination:

  • Recruitment – this legislation outlines what employers can and cannot do when recruiting staff, and what their responsibilities are once a job offer has been made.
  • Contracts and pay – this legislation covers pay and is designed to ensure that the pay workers receive is above a set minimum level.
  • Health and safety – legislation around health and safety is designed to keep employees safe while they are at work for you.

These are all covered in separate pieces of legislation. Because of the complexity of this field, most medium-to-large companies choose to employ solicitors or business advisers to make sure that all the procedures are watertight in terms of the law and how they treat and deal with employees and their disputes. The HR departments of larger concerns take on responsibility for ensuring that hiring is done in line with the law – but as a small business owner, you will have no alternative but to do it all yourself.

Freelance workers

Freelance workers, subcontractors, casual workers – the names change with different industries, but the principles are the same for all. Agency workers or freelance workers will work under slightly different rules and regulations when it comes to contracts, but in many cases, the terms for workers who are not classed as employees, are similar to employed people. They are entitled to a number of rights, such as the right to be paid at least the minimum wage, limits on working time and for their employer to adhere to health and safety regulations.

Statutory rights

Employment legislation starts with statutory rights. These rights cover a multitude of directives and responsibilities for the employer to adhere to.

These include the right to a written contract, an itemised payslip, to be paid at least the national minimum wage, the right to at least 28 days paid holidays including bank holidays and, in some cases, paid maternity leave. Failure to comply with any of these obligations can leave your business facing substantial fines.


Recruitment is a complicated area. You can employ the best person for the job, but you must be seen to be operating a fair and reasonable recruitment process – and avoiding discrimination on virtually any grounds.

You will need to meet the requirements of:

  • Employment Rights Act (1996) – This sets out and protects the contractual rights of employees.
  • Equal Pay Act (1970) – Ensures that salary negotiations are not biased on gender. You must offer equal pay rates to male and female employees who do the same job.
  • The National Minimum Wage Act (1998) – Ensures that the pay meets legal minimum to allow for a decent living wage.
  • The Equality Act (2010) – Protects job seekers from discrimination based on a wide range of subjects during every step of the recruitment process.
  • Rehabilitation of Offenders Act (1974) – Allows ex-offenders to reapply for work without disclosing spent convictions, in order to remove bias from the decision making process.
  • Immigration, Asylum and Nationality Act (2006) – Prevents illegal employment in the UK by setting in place document checks to ensure the eligibility of every job applicant.
  • Data Protection Act (1998) – Ensures the responsible management of any personal data relating to job applicants.
  • Gangmasters (Licensing) Act (2004) – Regulates the agencies that place vulnerable workers in agricultural work, the shellfish collecting and packing industries.

You will also need to:

  1. Check if someone has the legal right to work in the UK. You may have to do other employment checks as well.
  2. Check if you need to apply for a DBS check (formerly known as a CRB check) if you work in a field that requires one, eg with vulnerable people or security.
  3. Get employment insurance - you need employers’ liability insurance as soon as you become an employer. The penalties are very high for not having this type of insurance cover – you cannot take the risk of not having it.

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Contracts of employment are important for both the employer and the employee, and, again, it is vital that your contract corresponds to the relevant employment laws.

The contract should set out the employee’s duties, responsibilities, rights and employment conditions. Obviously, it is usual for a contract to be written document – but be careful. It does not have to be. According to the government website, ‘as soon as someone accepts a job offer they have a contract with their employer’; it doesn’t have to be a written contract.

This means you have to be quite clear about what you expect a worker to do and how you will recompense them.

You also need to produce a principal statement of the main conditions of employment (Contract of Employment) for each employee on or before the day they start working for you. This is legally binding.

Contract terms can be:

  • in a written contract, or similar document like a written statement of employment
  • verbally agreed
  • in an employee handbook or on a company notice board
  • in an offer letter from the employer
  • need to comply with The Working Time Directive (1999) which guarantees the employee fair treatment in terms of working hours and time off for rest.


As an employer, you are required to give each employee a written and itemised pay statement which details gross salary, any deductions made and the employee’s net pay.

Employees are entitled to statutory sick pay commencing the fourth consecutive day they do not attend work due to illness.

As an employer, you normally have to operate PAYE as part of your payroll. PAYE is HM Revenue and Customs’ (HMRC) system to collect Income Tax and National Insurance from employment.

You do not need to register for PAYE if none of your employees is paid £120 or more a week, get expenses and benefits, have another job or get a pension. However, you must keep payroll records.

When paying your employees through payroll you also need to make deductions for PAYE.


From these payments, you’ll need to deduct tax and National Insurance for most employees. Other deductions you may need to make include student loan repayments or pension contributions.

You must automatically enrol workers into a workplace pension scheme if the employee is aged between 22 and pension age, if they earn more than £10,000 per year and if they work in the UK.

Tell HM Revenue and Customs (HMRC) you are bringing in employees by registering as an employer - you can do this up to 4 weeks before you pay your new staff.  

Health and safety

Employers are also responsible for their employees’ wellbeing at work. This includes health and safety responsibilities and compliance, issues relating to discrimination, bullying, maternity/paternity and adoption leave.

You must comply with the Health and Safety Act, which means that you must, where applicable, carry out a thorough risk assessment, have a health and safety policy and a paper-trail for recording injuries and accidents at work.

Employers should also have liability insurance and have dismissal, disciplinary and grievance rules set out in writing.

Employees are also entitled to time off for a number of different reasons and in the event of certain circumstances/occurrences. For example, emergency leave and maternity leave should be available in addition to standard holiday entitlements. Employees are also eligible to ask for flexibility in terms of working hours.

Making sure you meet your obligations

Expanding your business and employing new staff should be an exciting prospect; however, it’s important to make sure that you and your company adhere to all the necessary laws and regulations when taking and employing a growing team.

For best practices, employers should consider producing an employee handbook.

This can provide guidelines for new employees and also be a standard reference point to help resolve any disputes that may occur within the business.

It is not a legal requirement in the United Kingdom, but it can make it simpler if problems arise.

  • It ensures you have clearly thought through your employment policies and it allows you to communicate these clearly to your employees. A good handbook ensures there is no ambiguity about the conduct and behaviour you expect from your staff or what they can expect from you as their employer.
  • The handbook ensures consistency in how employees are treated - managers/business owners can use it as a source of reference when answering employee questions, making decisions or taking corrective action around performance.
  • Should an employee take you to an Employment Tribunal or seek other legal redress, an effectively written handbook provides an invaluable document demonstrating you have appropriate policies in place and have exercised a proper duty of care towards the employee (assuming you have behaved in a way which is aligned with the policies set out in the handbook!)

The contract of employment is legally binding and so any element of that which is expanded upon in the handbook is likely to be deemed part of the contract (and so legally binding) for example, calculation of remuneration, annual leave entitlement etc. Therefore these should not be changed without appropriate consultation with the staff concerned. It is usually beneficial to make such things non-contractual so they can be changed if necessary without getting the consent of the workforce. You can build in a "flexibility clause" to the handbook which gives you the right to amend the handbook from time to time when necessary (e.g. when employment law changes).

Here are some of the sections that you may wish to include:

  • About the Company
  • Disciplinary and Grievance Procedures
  • Data Protection Policy
  • Dress Code
  • Drug and Alcohol Policy
  • Staff Telephone, Email and Internet Policy (including the use of personal mobiles)
  • Equal Opportunities Policy
  • Flexible Working Procedure
  • Health and Safety Policy
  • Maternity, Paternity, Adoption and Parental Leave
  • Probation Periods
  • Redundancy Procedure
  • Staff Sickness and Absence Policy
  • Smoking and Vaping Policy
  • Company and Personal Property
  • Confidentiality
  • Leaving the Company incl Retirement
  • Whistleblowing Policy

You may be able to find online templates which you can use to set up your own handbook.

Help with the costs of becoming an employer

The costs of growing your business can be high, and bringing in employees will require investment as well as compliance with legislation.

You may need to bring in people before you can take on the extra work which will pay their wages, and that can mean a problem with cash flow. At Rangewell, we know that there are solutions - with short-term cash flow loans, designed to be paid back as soon as your new hires start generating extra profits. We can show you all the options, with specialised funding for start-ups

As experts in business funding, we know the fastest ways to secure the funding you need for property - or for any other aspect of your growth plans.

Call us now – our experts are ready to help you with your finance questions.

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