Contracts, rights and compliance: A start-up's legal checklist for new hires

Hiring your first employee is an exciting milestone for any business. But with that excitement comes nerves and a bunch of legal responsibilities you can't afford to ignore.

But we get it. As a business owner, compliance isn't your speciality and very few people start a business for the love of compliance.

The reality is, compliance does play a crucial role when scaling your company, and it encompasses everything from drafting contracts to staying up to date with employment law.

Nailing the basics may seem daunting, but it's what's going to set your business up for long-term success.

This blog helps you navigate the complicated world of hiring as a growing business, taking you through the key contracts, rights and compliance steps you need to be mindful of when expanding your team.

Whether you're bringing on your very first employee or scaling up quickly, this legal checklist will help you stay compliant, protect your business and create a strong foundation for growth.

1. Understanding employment contracts

Let's start with the basics and break down what an employment contract is (and what it's not).

An employment contract is a legally binding agreement between an employer and an employee. It clearly outlines the terms of employment and will define:

• conditions of employment

• responsibilities

• duties

• rights

While a formal written contract is generally considered good practice, employment contracts can sometimes be verbal agreements.

However, in the UK, employers must provide their employees with a written statement outlining pay, working hours and notice periods.

Keep in mind that an employment contract is for both parties. This means that, as an employer, you must:

• stick to the terms until the contract ends (either through you or the employee giving notice, or through you dismissing an employee)

• until the terms are changed, which will generally require the employee's agreement

Why are employment contracts essential for start-ups?

Defines the role clearly

One of the main purposes of an employment contract is to set clear expectations between the business and its new hire. It should state the:

• job title

• responsibilities of the role

• working hours

• salary

• benefits

Helps you abide by the law

Making sure your business keeps to UK legislation is essential. And in the UK, it’s a legal requirement to provide employees with a written statement of employment particulars from day one.

Having a comprehensive employment contract helps you meet this obligation, as well as demonstrating that your business takes its employment responsibilities seriously.

Here are the matters you must include when notifying employees in writing:

• Employer's name

• Employee's name, job title or a description of work and start date

• How much and how often an employee will get paid

• Hours and days of work and if and how they may vary (also if employees will have to work on Sundays, during the "night period" or take overtime)

• Holiday entitlement (and if that includes public holidays)

• Where an employee will be working, and whether they might have to relocate

• If an employee works in different places, where will these be and what the employer's address is

• How long a job is expected to last (and, if it’s a fixed-term contract, when it will end)

• The length of any probation period and the conditions that apply

• Any other benefits (for example, childcare vouchers, lunch)

• Obligatory training, and whether the employee pays for it

• The date any previous job started, if it counts towards a period of continuous employment

• Information about:

  • sick pay and procedures

  • other paid leave (for example, maternity leave and paternity leave)

  • notice periods

  • pensions and pension schemes

  • collective agreements

  • any other right to non-compulsory training provided by the employer

  • disciplinary and grievance procedures

If an employee has to work outside the UK for more than a month, the contract must also include:

• how long they'll be abroad

• what currency they'll be paid in

• what additional pay or benefits they'll get

• terms relating to their return to the UK

Reducing the risk of disputes

When growing your business, the last thing you want is a dispute. Providing clarity around notice periods, probation and disciplinary and grievance procedures can help lessen the risk of misunderstandings arising.

If a disagreement comes up, an employment contract can serve as a reference point to help resolve issues quickly and protect both parties.

Encourages professionalism

Having formal employment contracts in place sends a strong signal that your business is compliant and has all its ducks in a row.

It also goes towards reassuring new hires that you're serious about their employment and builds trust from the get-go. All good things if you're hoping to grow in the future.

2. Workplace policies

While a written employment contract is an agreement between employer and employee that can't generally be changed without both agreeing, a workplace policy is a document the employer writes and can change or withdraw at any time.

By law, businesses need only a few policies (such as a health and safety policy for businesses with five or more employees, and a disciplinary policy and grievance policy for all employers). However, a number of other policies are highly recommended for all employers.

For example, an employer will find it hard to show they've complied with their duty to take all reasonable steps they can to prevent sexual harassment unless they develop a written sexual harassment policy that sets out what sexual harassment is and that it won't be tolerated in their workplace.

Other common policies are those dealing with social media use, appearance and drugs and alcohol in the workplace. These allow employers to set standards of expected behaviour.

Without them, it can be hard to take action against employees for doing the wrong thing, as there will be no record of the employee having received a policy that spells out how they're expected to behave at work.

As a result, having adequate written policies in place is the key to obeying employment law and keeping to HR best practice.

3. Employee rights: The basics

The last thing you want is to end up in hot water before you've even started. To avoid any issues, it's essential that you understand employee rights.

Employee rights fall into one of two categories:

• Statutory rights: Every employee in the UK is entitled to these.

• Additional rights: Businesses can choose to offer extra benefits to help attract and retain top talent.

Statutory rights

Let's kick things off by looking at the minimum legal entitlements for all UK employees.

• Right to a written statement of employment particulars: Must be provided on or before the first day of work (as explained above, all this information can be included in an employment contract)

• Right to be paid at least the National Minimum Wage: Different rates apply depending on age and apprenticeship status

• Right to paid holiday: 5.6 weeks' paid holiday per year (pro-rata for part-time workers)

• Right to rest breaks and limits on working hours: Under the Working Time Regulations (for example, a 48-hour average work week unless opted out)

• Right to itemised payslips: Must include gross pay, deductions and net pay

• Right to sick pay: Statutory Sick Pay (SSP) if eligible

• Right to protection from unfair dismissal: Applies after two years of continuous service (exceptions apply for discrimination or whistleblowing)

• Parental rights: Including statutory maternity, paternity, adoption and shared parental leave and pay

• Protection from discrimination: Under the Equality Act 2010 (for example, age, race, gender, disability)

• Right to request flexible working: Employees can make a statutory request from day one of employment

Remember, these are guaranteed under UK employment law and are not elements you can negotiate or stipulate within an employment contract.

If you don't offer these statutory rights to your employees, you could:

• be taken to an employment tribunal (and need to pay the costs involved)

• face a financial penalty

• suffer damage to your reputation

Additional rights

Some businesses choose to offer additional rights or benefits. This isn't a legal responsibility, so you have the ability to pick which extra perks you’d like to give your team. For many start-ups, this is a great way of attracting and retaining top talent.

You can tailor these additional rights to your business, but some common ones include the following:

• Enhanced parental leave and pay: Going beyond the statutory minimum (such as full pay for part of maternity leave)

• Private healthcare or dental cover: A popular perk, especially in competitive markets

• Extra annual leave: More than the statutory 28 days (including bank holidays), or birthday leave

• Flexible or remote working as standard: Offering hybrid options or fully remote roles from day one

• Mental health support: Access to Employee Assistance Programmes (EAPs) or mental health days

• Learning and development budget: For courses, training or to attend conferences

• Equity or share options: A key incentive in early-stage start-ups to reward employees as the company grows

• Cycle to work scheme or travel subsidies: Encouraging sustainable commuting

4. The basics of compliance for new hires

Knowing what you need to do to remain compliant when hiring your first employee can feel a little overwhelming.

But it's more than just keeping your business on the right side of employment law. It's about setting solid foundations for your business to continue to grow and thrive.

To help untangle compliance, we’ve broken down the main things you need to be aware of when hiring your first employee.

Right to work checks

It sounds simple, but in order to work in the UK, you need to have the right to work.

This means either being a UK citizen or having a visa that allows you to work. As an employer, it is your responsibility to make sure anyone you hire has the right to work in the UK.

The consequences for employing someone who does not have the right to work in the UK are severe and can lead to civil penalties of up to £60,000 per illegal worker, plus damage to your business's reputation. So it’s clear that completing a right to work check is essential.

What’s involved in a right to work check?

• Verify original documents such as a UK passport, visa or biometric residence permit.

• Follow Home Office guidance on how to check and record this information correctly.

• Store copies of right to work documentation securely for at least two years after the employee leaves.

GDPR and employee data protection

When expanding your team, there is a host of GDPR and data protection legislation to think about.

Hiring someone requires you to collect and store their personal data (this includes anything from bank details to National Insurance numbers to emergency contacts and health information). Under GDPR, employers must handle this data lawfully, fairly and securely.

Your responsibilities as a small business owner hiring for the first time

• Being clear about what data you collect and why

• Only collecting data that's necessary for employment purposes

• Storing data securely and limiting access to authorised personnel

• Having a privacy notice outlining how you use employee data

• Giving employees access to their data (if they request it) and responding to any Subject Access Requests (SARs) within one month

Failing to keep to GDPR can result in fines and cause employees to mistrust you, so it’s important to get this right from the outset.

Health and safety obligations for new employees

Health and safety is another big thing for any new employer to keep in mind. Remember that health and safety applies to all workplaces, even when staff are operating from co-working spaces or remotely.

Health and safety obligations are covered under the Health and Safety at Work etc. Act 1974, and failing to meet them can lead to enforcement notices, fines or prosecution if negligence causes harm.

What you must do as an employer

• Conduct regular risk assessments of the workplace and implement appropriate measures to reduce the risks

• Provide clear health and safety information and training

• Have a written health and safety policy (if you employ five or more employees)

• Make sure all equipment (whether on the premises or home-based) is safe and fit for purpose

• Appoint someone to oversee health and safety, even in a small team (you can just appoint yourself!)

Workplace pensions

If your employee meets certain criteria, the Pensions Act 2008 states that you must automatically enrol them into a pension scheme and make contributions.

The criteria for automatic enrolment are:

• aged between 22 and up to state pension age

• earns more than £833 per month (£192 per week)

Employer's liability insurance

In the UK, it’s a legal requirement for all employers to have employer's liability insurance. So if you’re thinking about hiring, getting set up with the correct insurance is a must.

Employer's liability insurance must cover you for at least £5 million and come from an authorised insurer. Failing to have the correct insurance comes with hefty consequences, and the fine for not having it is £2,500 a day.

VIDEO: How does small business insurance work?

Watch this webinar to learn the basics of small business insurance, what it is and how it works:

5. Final checklist before your first hire

Register as an employer

Before the first payday, the most important thing you need to do is register as an employer with HM Revenue & Customs (HMRC). Once you've done this, you'll receive an employer Pay As You Earn reference number (PAYE).

Keep in mind that it can take up to 15 days for the process to go through, so leave enough time before your first payday. You can’t register as an employer more than two months before your first payday.

Create an employment contract

We’ve already taken a deep dive into employment contracts and why they are so important. So, you should now be clear on why you need one in place before a new employee starts.

If you haven’t got an employment contract sorted, make sure to put it on your to-do list!

Make sure you're keeping to the law

Before you extend an offer to your first employee, make sure you've covered all your bases in regards to:

• the right to work

• employee benefits

• pension entitlement

• GDPR (data protection)

• health and safety

• employer's liability insurance

Set up a payroll system

It sounds simple, but making sure your employees are paid on time is essential. It’s also important to report to HMRC on the wages you pay and the National Insurance and tax you deduct.

The reality is, payroll can be pretty complicated, especially when you don’t have a dedicated payroll professional handling it. Don’t worry, though, it is possible to manage payroll as a small or growing business.

Payroll software allows businesses to streamline, automate and make sure they're compliant. There are plenty of tools available, including free platforms such as Employment Hero’s payroll software.

6. Setting off on the right foot

Hiring your first employees is an exciting step for any business. But the contracts, policies, employee rights and need to stay within the law can feel really overwhelming. This is where having the right tools at your disposal can make all the difference.

Implementing an employment operating system, like Employment Hero, can streamline hiring and people management, automate complex payroll and keep your business compliant.

Whether you're recruiting your first hire or scaling up fast, you’ll have the tools you need to do it right, without the headache.

Find, attract, recruit and train talent to fuel your company's growth

Want to know when and how to hire people into your business?

Sign up to Talent Hub for free support with hiring staff, and recommendations on your next steps. Join now