Employment law

As soon as your growing business begins to take on staff, you take on new legal responsibilities and obligations. Employment law covers a wide spectrum of areas from discrimination, health and safety, contracts, data, payroll, pensions and employee rights. Our checklist takes a look at your responsibilities from recruitment to pay and terms, giving you essential information and best practice guidelines.

1. Recruitment

Employing new staff

You need to make sure that anyone you employ has the right to work in the UK. Failing to do so could result in a fine or even prison.1 But don’t worry, all you need to do is follow the right procedures and you shouldn’t have a problem. You should complete these three steps:

Step 1:

Potential employees must provide valid documentation from two lists in the Home Office Right to Work checklist:

  • One original document from List 1, (a passport or document showing the holder is a national of a European Economic Area country).


  • Two original documents from List 2, such as a full birth certificate, P60, P45 or National Insurance card.

All your employees should provide documentation. If you only check those who you feel may not have the right to work here, you may face a claim for discrimination. So just build in the request for documentation into your recruitment and on-boarding process for everyone you take on so they are being treated equally.

You can use the government’s online checking tool to see if the documentation you have been given allows someone to work in the UK.
Right to work checker and Right to work with a share code checker

Step 2:

Make sure your candidate is the rightful owner of the document(s).

Step 3:

The government checkers explain whether you need to copy the documents in full or just the parts that provide personal details, expiry dates, endorsements and government stamps.

It is worth completing and keeping the Home Office checklist for each employee for your records.

The impact of Brexit on right to work checks in the transition phase

How you check EU, EEA or Swiss citizens’ right to work in the UK has not changed, even though the UK has now left the EU. Employees and candidates can still use their passport or National Identity Card until a new immigration system is introduced in 2021. You don’t need to make retrospective checks for existing employees.

Providing a contract of employment

You must issue basic terms of employment within the first two months of taking on staff or be liable to pay compensation. Once an oral agreement has been made, it's good practice to confirm the details in writing as soon as possible to avoid confusion or dispute. This contract should be signed and dated by you and your employee. It should include:

  • The full names and addresses of the parties involved
  • Start date
  • Job title or description
  • Pay, including holiday entitlement and sick pay
  • Place of work
  • Hours of employment
  • Disciplinary, grievance and appeal procedures
  • Pension information
  • Notice periods
  • Any collective agreements
  • Duration of the contract if it’s not permanent
  • Whether the employee is expected to work outside the UK for more than a month (and, if so, under what terms).

The contract doesn’t cover all the obligations between employer and employee, so:

  • Nothing in a contract can detract from an employee's statutory rights and the employer's statutory obligations.
  • If the contract does not mention an employee's rights in a particular area, that doesn't mean they don't have any.

A contract lets both you and the employee know where you stand and help both sides understand their rights and obligations.

Job description

Make sure you always give your new employees and anyone changing roles a formal job description, detailing the type of role and the duties involved. To allow your employees to carry out a number of different tasks without breaching their contract, make sure the description covers the full scope of the job.

If you try to change the nature of an employee's job without their agreement, it may be considered a breach of contract and 'constructive unfair dismissal', for which you could face an employment tribunal claim. So make sure if you are making changes to job roles that this is done in consultation. It could be worth consulting an employment lawyer if you feel like you need help on this.

Qualifications and skills

As part of your recruitment and promotion processes, make sure all workers must have the necessary qualifications and the skills that they’re legally required to have in order to do their jobs. Check to ensure they have the relevant practice certificates, driving licence and professional insurance for example, if required. Keep these certificates or copies as part of their personnel records.

2. Terms of employment

Part-time workers

Part-time workers are entitled to the same benefits, bonuses and opportunities as full-time workers, calculated on a pro-rata basis.

Temporary fixed-term contracts

Employees on fixed-term contracts enjoy most of the rights of those on permanent contracts, so if you employ the same person on an ongoing basis, it could be worth making them permanent. After four years or more of consecutive fixed-term contracts, the employee can claim permanent status, although they may be entitled to redundancy payments after two years if the reason for non-renewal is redundancy.2


For the first four weeks of employment, there is no statutory right to notice. Setting this as a probation period means that, if your chosen candidate turns out to be unsuitable, you can terminate the contract immediately. Equally, they are under no obligation to give you notice should they wish to leave. After four weeks, an employee is entitled to receive statutory minimum notice of dismissal unless they commit gross misconduct.

You can set the employee’s probation for longer, for example, three months or six months to make sure they really are the right fit for the job and your organisation but you would have to give them notice before terminating their employment.

Working hours

Working Time Regulations set a legal limit of 48 working hours a week in most jobs, as well as rules for night work, daily rest and days off per week. You should keep up-to-date records of the hours your employees are working. By signed, mutual consent, employees can opt out of these terms, but you must ensure that health and safety requirements are still being met.


You are obliged to pay your workforce fairly, to meet legal requirements, including making sure pay is not discriminatory, and ensure that any necessary contributions are made on employees’ behalf. These are the key items to cover.

National Minimum Wage (NMW)

The National Minimum Wage (NMW) is worked out at an hourly rate but it applies to all eligible workers even if they are paid with an annual salary or as piecework (by their output). The government has set out rules about what can and can’t count as working time.

There are five rates and the rate changes every April:

  • The main NMW for 25 and over
  • 21-24 years old
  • 18-20 years old
  • Under 18
  • Apprentice (for those apprentices under 19 or in the first year of their apprenticeship if they are aged 19 or over).

Every business must pay the minimum wage – there are no exceptions. When setting up your payroll make sure your systems recognises when employees on the minimum wage reach a new pay bracket so that they will be paid the correct rate. Profit and performance-related pay that goes through the payroll may also be included.

Check the current rates and any forthcoming increases when you take on new employees on the NMW and make sure this is correctly factored into your payroll. More on payroll systems and records.


You must:

  • Tell HM Revenue & Customs (HMRC) whenever you employ someone, even if that person is you.
  • Deduct PAYE (Pay As You Earn) income tax and National Insurance contributions from every employee’s earnings.
  • Provide your employees with a P60 tax form every year and a P45 at the end of their employment.
  • Provide HMRC with an annual return for every employee in addition to the business return and/or your personal return.

Other deductions may include pension schemes, student loan repayments, money ordered by a Court, the Child Support Agency and GAYE (Give As You Earn) contributions to charity.

You will also need to tell HMRC about any non-cash benefits such as company cars or health insurance that you provide your staff with, which may be taxable.

National Insurance

How much National Insurance individuals need to pay depends on their employment status and how much they earn. Employees are Class 1. Employers will pay Class 1A or 1B contributions on their employees’ expenses or benefits. Class 1 NIC is generally collected at the same time as PAYE income tax. For information on which apply to you and your staff, contact HMRC.

Pay statements

You are legally obliged to give each employee a written, itemised pay statement which can be a traditional hard copy or an online electronic version. It must detail:

  • Gross salary
  • Any variable deductions like tax and National Insurance
  • The employee's net pay
  • If your pay varies depending on time worked, the number of hours you are being paid for.

You must also explain any deductions that are a fixed amount such as repayment of a season ticket loan either on the payslip or on a separate written statement. This statement needs to be sent out before the first payslip and be updated every year if appropriate.

Equal pay

Before setting the rate of pay and even starting the recruitment process, it's wise to grade each position according to criteria such as:

  • Level of supervision
  • The skills and qualifications required
  • Risk
  • The initiative that employees will need to show.

This will help you to determine the different roles that carry ‘equal value’ and should therefore be paid the same amount. Men and women must be paid the same amount for doing similar work. Any pay differential must be justifiable by genuine and objective material factors. Equal pay covers all aspects of pay and benefits including basic pay, overtime rates, performance-related pay, hours of work, pension schemes and annual leave entitlement.

Paid holidays

Most employees are entitled to a minimum of 5.6 weeks' paid holiday a year, this includes workers on zero-hour contracts and workers with irregular hours. For those working a five-day week this means 28 days holiday a year. For part time workers it is pro rata. If you want to, you can choose to offer more leave than the statutory minimum.

You control when your employees take their holiday and it is up to you to decide how much notice they need to give you.

Employees do not have a statutory right to paid leave on the eight bank/public holidays. If you decide to give paid leave on those days, this can count towards the minimum holiday entitlement or you can offer time off in lieu. Employees start to earn holiday as soon as they start work. If they leave the job, they should get paid for any holiday not taken. Workers will also build up holiday entitlement during maternity, paternity or adoption leave.

Sick pay

Your employees are entitled to statutory sick pay from the fourth consecutive day they are off, provided they meet the qualifying conditions. This should be paid in the same way as the employee’s normal wages would be and you will need to deduct tax and National Insurance. You will need to pay this for up to 28 weeks if the employee continues to be unwell. Employees can self-certify their illness if they are off work for 7 days or less, otherwise they will need a certificate from a doctor or other medical professional such as a physiotherapist.

If you have to dismiss someone who has been off sick regularly or for a long time this should be done with sensitivity and with respect for their rights. If not, you could be liable to pay compensation for unfair dismissal and/or disability discrimination.

If your employee becomes disabled you must make changes to their working conditions to enable them to continue to work. These ‘reasonable adjustments’ could include things like shorter hours or adapting the equipment the employee uses.


Employers have to provide a workplace pension scheme for eligible staff as soon as your first member of staff starts working for you (known as your 'duties start date'). You can find out more about what you need to do as an employer at https://www.gov.uk/workplace-pensions-employers

ACAS (the Advisory, Conciliation and Arbitration Service) which helps resolve issues between employers and employees offers free online training on topics that includes:

  • 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

Your ongoing responsibilities as an employer

Once you’ve recruited your staff, you are responsible for their wellbeing at work, taking out the necessary insurance policies and guarding against discrimination or harassment.

Health and safety

To make sure you are keeping your employees safe and are complying with the Health & Safety at Work Act 1974, you must:

  • Carry out a thorough risk assessment.
  • Draw up a Health & Safety policy (in writing if you employ five or more people).
  • Ensure your workplace meets minimum standards of comfort and cleanliness.
  • Record injuries, accidents and diseases in an accident book.

For more information and guidance about what you need to do see Health & Safety Executive website.


To safeguard your business and your employees you should make sure you have the necessary insurance cover to protect them should an accident or injury occur in the workplace:

  • Employer's Liability Insurance is essential – even if you only employ workers on a temporary or casual basis. The policy must be renewed every year and the certificate prominently displayed in the workplace. Most employers should have at least £5 million cover in place or face a fine if you are not properly insured.
  • Public Liability Insurance is essential if members of the public or customers come into your premises or you go to theirs to carry out work.

You may be asked to prove that you have these insurance policies in place when you tender for work. Some organisations may ask for more than £5 million in cover so it’s worth checking what your potential clients expect before selecting a policy – although you can increase your level of cover if you need to because of a customer’s expectations and requirements.

Discipline and grievances

By law, you must set out dismissal, disciplinary and grievance rules in writing. They must reflect the minimum statutory requirements. If you don’t follow your own rules then any dismissal will be automatically held to be unfair, and the employee will be entitled to an increase of 10-50 per cent in any compensation they would have got for an unfair dismissal claim.

Legal expenses insurance is normally an optional extra on business insurance and can cover the costs of legal fees and the expense of consulting a lawyer, so could be worth considering.

You must also be able to demonstrate that any complaints are taken seriously and fully investigated. If you do nothing, you could be held responsible.

It can help to document your policies so that employees understand what is expected of them, what you can ask them to do and what their rights are.


Increasing diversity and inclusion in the workplace has been shown to be tied to business success. Businesses with a healthy balance of men and women are 15% more likely to outperform their competitors, while those with employees from a good mix of ethnic backgrounds are 35% more likely, according to research by McKinsey & Co.3

So as well as encouraging diversity to improve success it also prevents any unlawful discrimination in the workplace. You, nor any member of your staff may, discriminate against other employees or potential employees on grounds of gender, sexual orientation, marital status, age, race, colour, ethnic origin, nationality, beliefs or because of a disability, pregnancy or trade union membership. Get guidance from the Equality and Human Rights Commission on the Equality Act and what it means for employers.

Harassment and bullying

You may be liable if an employee suffers sexual, racial or other harassment or bullying at work – even if you had no knowledge of it. A bullying and harassment policy can help discourage such behaviour.


Your employees are entitled to certain time off work over and above holidays and sick leave.

Maternity leave

Rights for pregnant women will vary depending on the expected week of childbirth, how much she earns and the length of time you have employed her. A pregnant employee is entitled to one of the following:

  • Statutory Maternity Pay (SMP).
  • Contractual (company) maternity pay.
  • Other family benefits depending on her situation.

Adoption leave

  • If an employee has worked for you for 26 weeks when the adoption agency certifies that a match has been made, they are entitled to Ordinary and Additional Adoption Leave.
  • Statutory Adoption Pay (SAP) is paid at the same standard rate as SMP.

Paternity leave

  • The father of a child or the mother's husband/partner is allowed to take one or two consecutive weeks leave within 56 days of the birth or placement for adoption.
  • Eligibility for Statutory Paternity Pay (SPP) is assessed on the same terms as SMP and paid at the same weekly rate.

Parental leave

If an employee has worked for you for at least a year, they are entitled to:

  • 13 weeks off work (in total, not per year) for each child, up to their fifth birthday (or up to five years after the placement date of an adopted child).
  • 18 weeks for each disabled child, up to the child's 18th birthday.

You must hold the employee's job open for them or provide them with a broadly similar job on their return from parental leave.

Emergency leave

All employees have a right to take reasonable time off work to deal with emergencies involving a dependant.

Other types of leave

Time off must also be allowed for:

  • Public duties
  • Union activities
  • Training
  • Job hunting or training when their role is at risk of redundancy
  • Jury service (although you do not have to pay staff unless you have stated otherwise in their contract).

Flexible working

Many employers now realise that it is worth holding on to talented and experienced people who have become parents or carers. Flexible working can be key to retaining such staff.

All employees have the right to ask for flexible working – it doesn’t only apply to parents and carers. Employees are eligible for flexible working if they have been continuously working for 26 weeks. You have to deal with all requests in a reasonable manner for example considering the pros and cons of the application. Types of flexible working include:

  • Job sharing – where two people do one job and share the hours
  • Working from home
  • Part-time working
  • Compressed hours – working full time hours but over fewer days
  • Flexitime – where the employee chooses when to start and finish the day within agreed limits but works set core hours e.g. 10am-4pm every day
  • Annualised hours – where a set number of hours a year is agreed but there is some flexibility about when the employee works
  • Staggered hours – so different start and finish times from other employees
  • Phased retirement – older workers may wish to continue to work but cut their hours back and work part-time.

Reasons for refusing an employee flexible working must be set out in writing and be legally justified.

Flexible working rules are slightly different in Northern Ireland so check local rules if this applies to your business.

Young people

There are separate rules for workers under 18. These cover issues such as parental consultation and consent, working hours and higher standards of Health & Safety. If you are employing young workers then check out what your obligations are.


Generally, it is fair to dismiss someone when the job (rather than the person) is no longer economically viable and the business no longer requires that role to be fulfilled. You must make a redundancy payment to employees who have been with you for more than two years.

You could be liable to a claim of unfair dismissal if it can be shown that:

  • You used redundancy as a pretext for dismissal for other reasons.
  • You failed to follow the correct redundancy procedure, for instance by failing to offer a suitable alternative position in the business.
  • You failed to follow a fair procedure in selecting an employee for redundancy.

Running a law-abiding business

As an employer, the legislation you follow is set out by a number of different authorities, including:

  • Department for Business
  • Enterprise and Regulatory Reform
  • HM Revenue & Customs
  • Health & Safety Executive.

The law frequently changes so if you are concerned about a particular issue, contact the relevant authority or speak to ACAS (the Advisory, Conciliation and Arbitration Service).

In individual cases, especially if you want to dismiss someone, it is sensible to consult a solicitor who specialises in employment law. Many solicitors will offer a short consultation free to assess your problem and this can help you work out where you stand.

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6 steps to help you build a culture your staff want to be part of.

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Business Insurance

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Important legal information

Lloyds Bank is a trading name of Lloyds Bank plc, Bank of Scotland plc, Lloyds Bank Corporate Markets plc and Lloyds Bank Corporate Markets Wertpapierhandelsbank GmbH.

Lloyds Bank plc. Registered Office: 25 Gresham Street, London EC2V 7HN. Registered in England and Wales no. 2065. Bank of Scotland plc. Registered Office: The Mound, Edinburgh EH1 1YZ. Registered in Scotland no. SC327000. Lloyds Bank Corporate Markets plc. Registered office 25 Gresham Street, London EC2V 7HN. Registered in England and Wales no. 10399850. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority under registration number 119278, 169628 and 763256 respectively.

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