Employment Law : An Overview for Business Owners

Read time: 25 mins Date added: 30/11/23

Employment laws govern the employee-employer relationship to ensure protection for both parties. This guide provides an overview of best practice on topics such as health and safety, recruitment and flexible working.

You’ll also find useful checklists to help you stay on the right side of the law if you’re an employer in Scotland, England or Wales. It doesn’t apply to employers in Northern Ireland.

5 things you’ll learn from this guide

How to recruit fairly

Employee eligibility to work in the UK

It’s your responsibility to ensure anyone you hire has the legal right to work in the UK. This must be done before they start working for you. If you employ someone that is later to be found not to have the right to work here, you could face a fine or imprisonment.

Documentation

Anyone you’re looking to hire must be able to produce valid documents from lists A or B in the Employers’ right-to-work checklists. It’s important you treat everyone equally during your recruitment process. This means all potential employees should provide documentation, not just those you suspect may be ineligible to work in the UK. Singling certain candidates out could lead to a race discrimination claim being made against you.

In some cases, you may need to officially verify someone’s right to work. The government’s online document-checking tools below can help:

Confirmation

The next stage involves checking that:

  • The individual’s documents are genuine
  • Your candidate is the rightful document owner
  • They’re permitted to do the job you’re looking to offer them

These confirmation checks should be done with the prospective employee present.

Recording the checks

You’re required to make and keep a copy of each relevant document the candidate has given you. Before this stage, you should look at government advice, as not all documents may need to be copied in full. The date of your checks also needs to be recorded, and each employee must have a completed copy of the Home Office checklist kept in their file.

Brexit brought about a change in the law regarding right-to-work checks. You can learn more about the process in the government’s Guide for employers.

Evidence of skills and qualifications

For many jobs, there are legal requirements around qualifications and registrations. You need to ensure you’ve asked for and received the necessary documents, such as a driving licence, professional insurance or practice certificate. Again, your copies of these documents should be held in the staff member’s personnel file.

Issuing an employment contract

Once you’ve reached a verbal agreement, you must issue certain terms of employment in writing. These terms should be sent to your new employee before they start working for you. You should provide written confirmation as soon as possible to avoid any confusion or dispute.

It’s recommended to issue a contract of employment to make things clear for both parties. This should contain all the terms of employment and be signed and dated by you and the new employee.

Employment contracts don’t cover everything. While they lay out your company’s and your employee’s legal rights and obligations, you should note the following:

  • Your contract can’t detract from or override your obligations as an employer or the statutory rights of your employee
  • If a specific set of an employee’s rights isn’t mentioned in their contract of employment, they may still have protection under UK law

To learn and understand more about employment contracts and your legal responsibilities, see the government’s guidance on the ‘Written statement of employment particulars’.

What to include in your employment contracts
 

  • The full names and addresses of the parties involved
  • Agreed start date
  • Job title or description 
  • Payment details, including holiday entitlement and sick pay 
  • Place(s) of work
  • Agreed working hours
  • Procedures around disciplinary matters, grievances and how to appeal 
  • Details of any pensions
  • Notice periods 
  • Any collective agreements 
  • Contract length (when not permanent employment)
  • Details of any probation period
  • Training requirements 
  • Any expectation that the employee should work outside the UK for over one month and, if so, under what terms

Understanding employment terms

It pays to be up-to-speed with employment contract terminology and what your legal obligations are before starting the hiring process. There are several examples below. 

Hiring part-time staff

If you’re looking to employ part-time members of staff, you should be aware they’re entitled to the same benefits, bonuses and opportunities as your full-time employees on a pro-rata basis.

Fixed-term contracts

There’s no difference in the rights of employees whether they’re on a fixed-term or permanent contract with your business. After two years of continuous employment, a contract employee could be entitled to claim redundancy payments. After four years on a fixed-term basis, they might be able to claim status as a permanent staff member.

Setting probationary periods

You can decide what length of probationary period (if any) you’d like to give your new employees. It should be a reasonable amount of time for you to assess their performance in the role, given the type of work they’re doing. Many probation periods are set at either three or six months.

Notice periods in a nutshell

There is no statutory right to notice during the first month of employment. This means you or the employee can terminate the contract immediately unless it’s clearly stated otherwise in the employment contract.

With the exception of gross misconduct, an employee is entitled to a statutory minimum notice period if they’ve worked for you for at least one month. This right applies to those still within their probation period. However, the employment contract can include that employment may be terminated on shorter notice during a new hire’s probationary period (subject to the statutory minimum).

If the contract of employment states a longer period than the statutory minimum, you will need to adhere to that agreed notice period.

Regulations on working hours

In most jobs, working time is limited to an average of 48 hours per week under the Working Time Regulations. Night work, daily rest, and the number of days off per week are also governed by law. While you must still comply with their health and safety rights, employees can sign a mutual consent form to opt-out of the working hours limit.

Your staff can give you three months’ notice to cancel their opt-out. You can’t treat them unfairly or fire them for changing their stance on their working hours. You should maintain accurate and up-to-date records of all employees who have chosen to opt out and the number of hours worked by staff who have chosen not to.

Paying your staff in line with the law

There are several things to consider from a legal standpoint when paying your staff. First and foremost, you need to ensure there’s no discrimination and that you’re making all the required financial contributions on behalf of your employees, such as Income Tax, National Insurance and pensions.

National Minimum Wage (NMW)

The NMW isn’t only for workers on contracts. It applies to those on annual salaries too. It’s based on an hourly rate, and there are government rules on what counts and doesn’t count as working time.

  • The NMW rates change every April. There are five rates for five employee categories:
  • Those under 18 but above compulsory school age
  • 18-20-year-olds
  • 21-22-year-olds
  • Apprentice (for apprentices under 19 or first-year apprentices aged 19 or over)
  • The main NMW for workers aged 23 and over (known as the National Living Wage)

There are no exceptions to paying the NMW. It’s vital you’re aware of the age brackets above, so you can update your employees’ pay at the right time - this is particularly important if you’re doing your payroll manually. You should also include any other forms of pay, such as those related to company profits or performance, that go through payroll.

As well as being the right thing to do, ensuring all your employees receive the correct NMW at least will prevent:

  • Them from making a pay-related claim against you at an employment tribunal
  • Your business being subject to the government’s ‘naming and shaming’ scheme

Learn more about payroll systems and records.

Tax matters

Here’s a quick checklist to ensure you’re doing all that’s required in terms of taxes.

  • You must inform HM Revenue & Customs (HMRC) when you hire a new employee, including yourself
  • Deduct Pay As You Earn (PAYE), Income Tax and National Insurance contributions from employee earnings
  • Ensure every employee gets a P45 when they leave your business and a P60 tax form annually
  • Prepare and submit an annual return to HMRC for every employee as well as your business and personal returns

Other deductions to be aware of include: 

  • Give As You Earn (GAYE) contributions to charity
  • Pension schemes
  • Student loan repayments
  • Money ordered by a Court or the Child Support Agency

You’re also obligated to let HMRC know about any other non-cash benefits you give to your staff that may be taxable. Examples of these are the provision of company cars or private health insurance.

National Insurance Contributions

As an employer, you’ll pay Class 1A or 1B National Insurance Contributions (NICs) on employees’ expenses or benefits along with their PAYE Income Tax. The amount payable depends on an individual’s employment status and earnings. Learn more about rates and thresholds for NICs.

Workplace pension schemes

From the moment your first eligible employee starts working for you, you must provide them with a workplace pension scheme. They should be enrolled into the scheme automatically and pay minimum contributions.

Pay statements

Every employee must receive a written, itemised statement of their pay on or before payday. This doesn’t have to be a paper version; it can be done electronically.

Your pay statements need to include the following: 

  • Gross salary
  • Any variable deductions like tax and National Insurance
  • The employee's net pay
  • The number of hours paid for (if it varies)

If there are any other fixed deductions, such as repayments for season ticket loans, these must be explained on the payslip or a separate written statement. You should send the latter out before the first payslip and ensure it’s updated annually, if appropriate.

Ensuring equal pay

Before you begin the hiring process or set pay rates for individual roles, you should grade each position in your business using the following criteria:

  • Initiative required
  • Level of supervision
  • Risk
  • The skills and qualifications needed

Going through this process will help you assess the value of different roles. It’s essential to do this because you have a legal obligation to pay everyone the same for work which is the same, similar or equal value.

If you’re paying men and women different amounts in your business, you need to have a legitimate reason for this, such as seniority or location. If this factor puts women at a particular disadvantage, then you must show that it is a proportionate means of achieving a legitimate business aim.

Equal pay legislation covers all aspects of pay and benefits, including the following:

  • Annual leave entitlement
  • Basic pay
  • Overtime rates
  • Pension schemes
  • Performance-related pay
  • Working hours

Paid holiday entitlement

Before hiring any employees, you should be aware of their paid holiday entitlement, so you can plan accordingly. Most employees are entitled to a minimum of 5.6 weeks annual holiday. Any staff who work five days a week should get 28 days paid holiday per year. The entitlement for part-time workers is calculated on a pro-rata basis of the above. No laws prevent you from offering more than the minimum statutory leave.

You have the right to decide when your staff take their holidays and how much notice they need to give you. However, it’s against the law to completely refuse any annual leave for your staff.

There are no statutory rights around paid leave on bank and public holidays. There are three options for bank holidays:

  • You can include them as part of employees’ minimum holiday entitlement
  • Provide bank holidays in addition to the minimum
  • Offer time off in lieu

Your employees start to earn holiday pay from the day they join your business. If they leave, you must ensure they’re paid for any annual leave they’ve accrued but haven’t taken. If you have staff off on maternity, paternity, adoption or sick leave, their holiday entitlement will continue to accrue.

Sick pay

Statutory sick pay (SSP) is paid to employees from their fourth consecutive day off, providing they meet the qualifying criteria. This is payable in the same way as their regular wages and should have tax, and National Insurance deducted. The maximum time an employee can receive SSP is 28 weeks. You may want to provide additional sick pay as part of an employee’s contract. 

Your employees don’t need a doctor’s note if they’re off work for seven days or less due to illness - this is known as self-certification. However, if they’re off for longer, they should provide a doctor’s note or certification from another medical professional. 

Employee payment checklist
You must pay your workforce fairly, including all required financial contributions.

 

National Minimum Wage (NMW)

This applies to all eligible workers. 

The NMW rates change every April. There are five rates for five employee categories:

  • Those under 18 but above compulsory school age
  • 18-20-year-olds
  • 21-22-year-olds
  • Apprentice (for apprentices under 19 or first-year apprentices aged 19 or over)
  • The main NMW for workers aged 23 and over (known as the National Living Wage)

Tax matters

Do the following for every employee:

  • Inform HM Revenue & Customs (HMRC) when you hire a new employee, including yourself
  • Deduct Pay As You Earn (PAYE), Income Tax and National Insurance contributions from employee earnings
  • Ensure every employee gets a P45 when they leave your business and a P60 tax form annually
  • Prepare and submit an annual return to HMRC for every employee as well as your business and personal returns

Other deductions:

  • Give As You Earn (GAYE) contributions to charity
  • Non-cash benefits
  • Pension schemes
  • Student loan repayments
  • Money ordered by a Court or the Child Support Agency

National Insurance Contributions (NICs)

The amount individuals pay depends on their employment status and earnings. 

Pay statements

Give each employee a written, itemised pay statement on or before payday containing the following:

  • Gross salary
  • Any variable deductions like tax and National Insurance
  • The employee's net pay
  • The number of hours paid for (if it varies)
  • It must also explain any other fixed deductions

Equal pay

Grade each position using the following criteria:

  • Initiative required
  • Level of supervision
  • Risk
  • The skills and qualifications needed

Equal pay covers all aspects of pay and benefits, including the following:

  • Annual leave entitlement
  • Basic pay
  • Overtime rates
  • Pension schemes
  • Performance-related pay
  • Working hours

Paid holidays

Most employees get 5.6 weeks paid holiday per year. Anyone who works a five-day week should get 28 days’ holiday per year.

Part-time workers should get the same entitlement on a pro-rata basis.

Sick pay

Employees get statutory sick pay from their fourth consecutive day off. 

Employees can self-certify their illness if absent for seven days or less. Beyond that, they need a doctor's note if they are sick.

Pensions

From the moment your first eligible employee starts working for you, you must provide them with a workplace pension scheme. They should be enrolled into the scheme automatically and pay minimum contributions.

Your ongoing responsibilities

As an employer, you’re responsible for the wellbeing of your staff while they’re at work. This covers several areas, as outlined below. 

Health and Safety

You’ll need to comply with the Health and Safety at Work Act 1974 to ensure your employees are working in a safe environment. Your obligations include the following: 

  • Conduct a thorough risk assessment of your workplace and any tasks that may pose a risk 
  • Draw up a Health and Safety policy (in writing if you have five or more employees)
  • Ensure your workplace meets minimum standards of comfort and cleanliness
  • Provide adequate training and supervision to all staff
  • Record injuries, accidents and diseases in an accident book

You can find more guidance on the Health and Safety Executive website.

Insurance cover

Despite everyone’s best efforts, workplace accidents and injuries may still occur. Therefore, having sufficient insurance cover in place is vital, as you may need to compensate employees if you’re deemed liable.

Types of insurance cover include:

Employers’ Liability Insurance is essential, even if you only employ temporary or casual workers. Ensure you renew your policy annually and display the certificate prominently in your workplace. Most employers need at least £5 million cover, or they could face a fine. 

Public Liability Insurance is a requirement if members of the public or customers come into your premises or you go to theirs to conduct your work.

Before choosing a policy, it’s worth exploring what level of insurance cover your potential clients expect. For example, it may be a prerequisite for some tenders to have coverage of £5 million or more. If circumstances change, you should be able to increase this after taking out your policy. 

Disciplinary and grievance procedures

It’s a legal requirement for you to put your rules around disciplinaries and grievances in writing so your employees know:

  • What you expect from them
  • What you can and can’t ask them to do
  • What their rights are, and how to make a complaint

It’s important you follow your own procedures if you need to dismiss an employee. The reason and process must also be fair. If you fail to implement what you’ve put in writing, your employee could make a successful unfair dismissal claim.

You must also follow the ACAS (The Advisory, Conciliation and Arbitration Service) Code of Practice on Disciplinary and Grievance Procedures, where the process might lead to the dismissal of an employee for poor performance or misconduct.

Legal Expenses Insurance is an optional extra on business insurance. It’s worth considering this, as it could cover you in the event of a costly legal action.

You must also be able to show that any complaints are:

  • Dealt with promptly
  • Taken seriously 
  • Thoroughly investigated to ensure a fair process

Workplace discrimination
Neither you nor your staff may discriminate against other employees or potential employees on the following grounds:
 

  • Gender                                          
  • Sexual orientation
  • Gender reassignment
  • Marital status
  • Age
  • Race
  • Colour
  • Ethnic origin
  • Nationality
  • Religion
  • Beliefs 
  • Disability
  • Pregnancy
  • Maternity

If any of your employees have a disability, you may need to make reasonable adjustments to enable them to continue working or help support their return to work. These adjustments could include:

  • Agreeing on different working hours
  • Giving them a new role
  • Providing adapted equipment to enable them to carry out their job fully

Any adjustment will depend on what’s reasonable for the individual’s circumstances.

The benefits of workplace diversity extend beyond avoiding legal issues around unlawful discrimination. According to McKinsey, companies are 15% more likely to outperform their competitors when they have a healthy balance of men and women. Meanwhile, those with employees from a good mix of ethnic backgrounds are 35% more likely to have better performance than their competition.

Read about the Equality Act (PDF, 1.54MB) and what it means for employers.

Bullying and harassment

Harassment and bullying in the workplace are classed as unwanted behaviour that makes someone feel offended or intimidated. It’s your responsibility as an employer to ensure measures are in place to prevent this from happening to your employees.

Having a formal policy in place regarding bullying and harassment can help to discourage it. It’s worth noting that your business might still be held liable even if you were unaware of an issue based on any of the discrimination grounds above.

Employee leave

In addition to standard holiday entitlement and sick leave, your employees may be due other time off work in certain circumstances. You’ll find more information on these below.

Adoption leave

Statutory adoption leave (SAL) is available to employees looking to adopt a child and who have been employed by you for at least 26 weeks. The entitlement is up to 52 weeks, starting as soon as the adoption agency certifies a match. Only one-half of an adopting couple can claim SAL, and it’s paid at the same rate as Statutory Maternity Pay (SMP).

Emergency leave

Unpaid leave is a legal right for emergencies involving a dependant. The amount of time should be reasonable in the circumstances, but this isn’t stated in law. As an employer, you may decide to pay a staff member in this situation, but there’s no obligation unless written in their employment contract.

Maternity leave

As an employer, there are a few legal requirements around maternity pay that you need to know about.

All employees qualify for 52 weeks’ statutory maternity leave, regardless of their length of service. However, they must tell you at least 15 weeks before their baby is due when they want their maternity leave to begin.

Depending on how much they earn and the length of time been employed, every pregnant employee is entitled to at least one of the following benefits:

  • Contractual (company) maternity pay
  • Maternity Allowance
  • Paid time off for antenatal care
  • Statutory Maternity Pay (SMP)

Parental leave

Parental leave is unpaid and must be used to care for a child. There’s a maximum of four weeks’ entitlement per year for each child unless you’ve agreed otherwise with your employee.

Employees become eligible for parental leave once they’ve been with you for a year. The total entitlement is up to 18 weeks off work for each child until they’re 18 (including adopted children).

Paternity leave

Eligibility for Statutory Paternity Pay (SPP) is assessed on the same terms as SMP and paid at the same rate.

Paternity leave consists of one or two consecutive weeks leave within 56 days of a birth or adoption placement. The father of a child or the mother’s partner is eligible for SPP.

Shared parental leave

In the 12 months after their child is born or placed with their family, employees may be able to share up to 50 weeks of statutory shared parental leave and 37 weeks of statutory parental pay with their partner. However, specific eligibility criteria need to be met, and they’ll need to give up some of their maternity or adoption leave and pay.

Parental leave can be taken all in one go or split into blocks of time interspersed with periods of work. Your employees’ rights are protected while they’re out of your business on any type of family leave. This protection includes returning to the same job or a similar position within your company.

Discover more about shared parental leave and pay.

Other types of leave

There are other circumstances where you must allow your employees to take time off, including:

  • Job hunting or training when an employee’s role is threatened by redundancy
  • Public duties and jury service (although you don’t have to pay staff unless stated in their contract)
  • Training
  • Union activities

Younger employees

If you’re looking to hire employees under the age of 18, there are separate rules you need to understand around issues such as:

  • Health and Safety
  • Limits on working hours
  • Parental consultation and consent

Redundancy

Understanding the laws around redundancy is vital to safeguard yourself from any potential unfair dismissal claims. It’s generally considered fair to let someone go when their job isn’t economically viable or no longer necessary in your business. If an employee has been with you for over two years, you must pay them redundancy under the law.

There are a few potential redundancy pitfalls you should avoid:

  • Failing to follow the correct procedure, e.g. not offering the employee a suitable alternative role within your company if available
  • Not being able to justify why you selected a particular employee for redundancy
  • Using redundancy as a cover for other reasons to dismiss an employee

Dismissing an employee

Failing to act fairly and reasonably in dismissing someone could result in you having to pay compensation for an unfair dismissal claim and possibly discrimination, depending on the circumstances.

The reason for dismissal also matters. For example, if you let an employee go for any reason other than gross misconduct, they are still entitled to notice pay as per their employment contract, even when they haven’t served it. Any accrued holidays they haven’t taken must also be paid in full.

Read more guidance on how to handle the dismissal of staff.

Resignation

If one of your employees decides to resign after their first month of employment, they need to give you at least one week’s notice. Their contract of employment can set out a longer notice period.

Employee responsibilities at-a-glance
You must pay your workforce fairly, including all required financial contributions.
 

Health and Safety

You must comply with the Health and Safety at Work Act 1974.

  • Conduct a thorough risk assessment of your workplace and any tasks that may pose a risk
  • Draw up a Health and Safety policy (in writing if you have five or more employees)
  • Ensure your workplace meets minimum standards of comfort and cleanliness
  • Provide adequate training and supervision to all staff
  • Record injuries, accidents and diseases in an accident book

Insurance

  • Employer’s Liability Insurance
  • Public Liability Insurance
  • Tenders may require cover of £5m or more

Disciplinaries and grievances

It’s a legal requirement for you to put your rules around disciplinaries and grievances in writing so your employees know:

  • What to expect from them 
  • What you can and can't ask them to do 
  • What their rights are, and how to make a complaint

Discrimination

You should never discriminate on the following grounds:

  • Gender
  • Sexual orientation
  • Gender reassignment
  • Race
  • Colour
  • Ethnic Origin
  • Nationality 
  • Religion
  • Beliefs
  • Disability
  • Pregnancy 
  • Maternity

Bullying and harassment

Having a formal policy in place regarding bullying and harassment can help to discourage it.

Employee leave

Make sure you are compliant with the following:

  • Adoption leave 
  • Emergency leave
  • Maternity and paternity leave
  • Other types of leave, such as jury service, union activities or training
  • Parental leave
  • Shared parental leave

Young people

Be aware that there are separate rules for workers under the age of 18.

Redundancy

It’s generally considered fair to let someone go when their job isn’t economically viable or no longer necessary in your business. If an employee has been with you for over two years, you must pay them redundancy under the law.

Dismissal

Handle dismissals fairly and reasonably. Generally, employees who are dismissed are entitled to the same pay as they’d get if they worked their notice period. The exception is in cases of gross misconduct.

Resignation

Any employee who resigns after one month of employment is required to give at least one week’s notice.

A quick guide to flexible working

The need to work flexibly during the pandemic has created a legacy that gives many employees a better work/life balance.

Many employers have been happy to adapt to this new way of working, so they can retain and recruit the best talent.

Who is eligible?

When an employee has worked in your business for 26 weeks or more, they can ask to work flexibly. This applies to all staff, not just parents and carers. You have a duty to consider all applications in a reasonable manner.

Flexible working comes in many forms

  • Job sharing – where two people do one job and split the hours 
  • Working from home
  • Part-time working
  • Compressed hours – working full-time hours but over fewer days
  • Flexitime – starting and finishing the day within agreed limits but with core hours, for example, 10am-4pm
  • Annualised hours – where a set number of hours per year is agreed upon, but there’s some flexibility about when the employee works
  • Staggered hours – different start and finish times from other employees
  • Phased retirement – where older workers reduce their hours and work part-time

What if you don’t want to provide flexible work?

Your reasons for refusing flexible working must be set out in writing and be legally justifiable.

How to run a legally compliant business

The legislation you’ll need to follow when running your business is set out by several different authorities, including:

It’s also your responsibility to keep up-to-date with any changes to employment law. If you’re unsure about anything, you can speak to the relevant organisation above or contact ACAS.

For tailored advice based on your circumstances, you may want to get in touch with a specialist UK employment lawyer. Many firms will offer a free consultation and initial guidance.

Resolving disputes

If you’re having a dispute with an employee that you can’t resolve, ACAS will be able to help with this. They offer free online training on the following topics:

  • Contracts, hours and pay
  • Dealing with workplace problems
  • Equality, diversity and inclusion
  • Health and wellbeing
  • Leave and time off
  • Managing people and performance

See the ACAS website for details of the training.

Bank of Scotland. Because the difference is in the details.

 

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