What HR does a small business need in the UK?

UK small businesses need employment contracts within 2 months of hiring, a basic employee handbook covering policies and procedures, compliance with minimum wage and holiday entitlements (5.6 weeks minimum), auto-enrolment pension setup for eligible employees, and right-to-work checks for all new hires.

Is an employment contract legally required in the UK?

Yes, UK employers must provide a written statement of employment particulars within 2 months of the start date. This must include job title, pay, hours, holiday entitlement, notice periods, and place of work. Not providing this can lead to employment tribunal claims.

What are the HR obligations of a small business employer in the UK?

Key obligations include paying at least minimum wage, providing 5.6 weeks paid holiday, setting up auto-enrolment pensions for eligible staff, conducting right-to-work checks, maintaining employee records for HMRC, ensuring workplace health and safety, having employers' liability insurance, and following fair dismissal procedures.

UK Employment Law: What Small Business Owners Must Know

Employment law can feel overwhelming when you're running a small business. This guide breaks down your legal obligations into practical, actionable steps. We'll cover what you must do, common pitfalls to avoid, and how to stay compliant without getting bogged down in legal complexity.

Core Legal Obligations

Minimum Wage & Pay Requirements

The National Minimum Wage isn't just about the hourly rate — it's about getting the calculations right. As of April 2026, the National Living Wage (21+) is £12.21 per hour.

Current Rates (April 2026):

• 21 and over: £12.21 per hour
• 18-20: £10.18 per hour
• Under 18 and apprentices: £7.55 per hour

Watch out for: Unpaid training time, uniform costs, and travel between sites can push pay below minimum wage. HMRC can investigate up to 6 years back and publicly name non-compliant employers.

Penalties: Up to 200% of arrears owed (max £20,000 per worker) plus the back pay itself.

Holiday Entitlement

All workers are entitled to 5.6 weeks (28 days) paid annual leave, pro-rated for part-time workers. This can include bank holidays if stated in the contract.

Calculating Holiday Pay:

• Regular hours: Normal daily/weekly pay
• Variable hours: Average of previous 52 paid weeks
• Commission/overtime: Must be included in holiday pay calculations

Recent case law means you must include regular overtime, commission, and bonuses in holiday pay calculations. Getting this wrong is one of the most common sources of employment tribunal claims.

Auto-Enrolment Pensions

You must automatically enrol eligible employees into a workplace pension scheme and contribute at least the minimum amounts. This applies from your first employee.

Who's Eligible:

• Aged 22 to State Pension age
• Earning over £10,000 per year
• Working in the UK

Minimum Contributions:

• Employer: 3% of qualifying earnings
• Employee: 5% (includes tax relief)
• Total: 8%

The Pensions Regulator takes non-compliance seriously. Fines start at £400 and can escalate to £10,000 per day for persistent non-compliance.

Right-to-Work Checks

You must check every employee has the right to work in the UK before they start. This applies to all workers, regardless of nationality or how 'obviously British' they appear.

How to Check:

• Online: Use the Home Office online checking service (for those with digital immigration status)
• Manual: Check original documents in person, take copies, and record the date
• Follow-up: Diarise expiry dates and recheck when required

Penalties: Up to £45,000 for a first breach (per illegal worker) and £60,000 for repeat breaches. You'll have a defence if you can prove you conducted proper checks.

Dismissal & Disciplinary Procedures

Fair Dismissal Process

Dismissing someone incorrectly is expensive. The average unfair dismissal award is £13,500, but can reach £115,115 (or a year's pay if higher in discrimination cases).

The Five Fair Reasons for Dismissal:

Capability (performance or ill-health)
Conduct (misconduct or gross misconduct)
Redundancy (job no longer exists)
Statutory restriction (e.g., driver loses licence)
Some other substantial reason (SOSR)

Even with a fair reason, you must follow a fair process. This means:

→Investigating properly before taking action
→Holding a formal meeting (with right to be accompanied)
→Considering alternatives to dismissal
→Providing a right of appeal

Note: Employees with less than 2 years' service can't usually claim ordinary unfair dismissal, but can still claim for discrimination, whistleblowing, or automatically unfair reasons. Always follow proper procedures.

Key Compliance Deadlines

Day 1 of Employment

Right-to-work check, contract/written statement, employee added to PAYE

Within 2 Months

Full written statement of employment particulars

Within 3 Months

Auto-enrolment assessment and enrolment if eligible

Ongoing

Payroll submissions, pension contributions, holiday accrual tracking, annual pay reviews against minimum wage

Stay Compliant Without the Complexity

Let Small HR handle your employment law compliance. Templates, reminders, and guidance designed specifically for UK small businesses.

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