Employment law essentials for small business owners

Employee, worker or self-employed

Most employment rights depend on the legal status of the person doing the work, so settle that question first. The law recognises three broad groups. An employee works under a contract of employment and has the fullest set of rights, including protection against unfair dismissal, statutory redundancy pay, minimum notice and the right to request flexible working. A worker has a contract to do work personally but a looser relationship with the business. Workers are still entitled to the National Minimum Wage, paid holiday, rest breaks, protection from discrimination and whistleblowing protection. Someone who is genuinely self-employed runs their own business and has very few employment rights against you.

The label in the contract does not decide the question. A tribunal looks at how the arrangement works in practice: whether the person must do the work themselves or can send someone else, whether you control how and when it is done, whether they are required to work regularly, and whether they work as part of your business rather than for their own customers. HMRC assesses status for tax separately, and a person can have one status for employment rights and another for tax. If status is wrong, the business can face claims for holiday pay and the minimum wage as well as unpaid tax, National Insurance and penalties, so check it before someone starts.

What you must have in place from the first day

Before anyone starts, check they have the right to work in the UK. You can do this online with a share code, or by checking their original documents with them present and taking a copy. Keep the copies for as long as they work for you and for two years afterwards. If you employ someone who does not have the right to work and you did not carry out a correct check, you can face a civil penalty of up to £60,000 for each illegal worker. You also need to register with HMRC as an employer before the first payday, and to hold employers' liability insurance with cover of at least £5 million from the day you become an employer, unless an exemption applies.

On the first day, give the employee a written statement of employment particulars. The principal statement must cover the employer's name, the employee's name, job title and start date, pay and how often it is paid, hours and days of work, holiday entitlement, place of work, the length and conditions of any probation period, other benefits and any training they must complete. On the first day you must also give information about sick pay, other paid leave and notice periods. A wider written statement covering pensions, collective agreements, other training and your disciplinary and grievance procedures must follow within two months, and any later change has to be confirmed in writing within one month.

The government's timeline for the Employment Rights Act 2025 says that from 30 October 2026 employers will also have to tell workers in writing that they have the right to join a trade union, at the same time as giving the written statement. Our guide to hiring your first employee covers payroll, pensions and the contract itself in more detail.

Pay, working hours and holiday

Minimum wage rates change every April. From 1 April 2026 the National Living Wage for workers aged 21 and over is £12.71 an hour. The rate for workers aged 18 to 20 is £10.85. Workers under 18, and apprentices who are under 19 or in the first year of their apprenticeship, must be paid at least £8.00 an hour. The Fair Work Agency enforces the minimum wage and workers can also bring their own claims, so check every rate of pay when the new rates take effect each April.

Workers cannot be required to work more than 48 hours a week on average, normally averaged over 17 weeks, unless they choose to opt out. Adult workers are entitled to one uninterrupted 20-minute break if they work more than six hours a day, 11 hours' rest between working days, and either 24 hours off each week or 48 hours off each fortnight. Workers under 18 have stronger protection and cannot work more than eight hours a day or 40 hours a week.

Almost all workers are entitled to 5.6 weeks' paid holiday a year. For someone working five days a week that is 28 days, and you can include bank holidays within it. Statutory holiday is capped at 28 days, although you can offer more. Since 6 April 2026 employers have had a legal duty to keep records that show they have complied with the rules on holiday entitlement and holiday pay, and to keep those records for six years. If your system only tracks the days people book, check that it will also show how holiday pay was worked out.

Sick pay, family leave and flexible working

Statutory sick pay changed on 6 April 2026. It is now payable from the first day of sickness instead of the fourth, and the lower earnings limit has been removed, so employees on low pay now qualify. The rate for 2026/27 is £123.25 a week or 80% of the employee's average weekly earnings, whichever is lower, for up to 28 weeks. You can pay more under a company sick pay scheme but you cannot pay less. If your contracts, handbook or payroll settings still refer to waiting days, update them.

Paternity leave and unpaid parental leave became day-one rights on 6 April 2026, so employees no longer need a minimum period of service before taking them. Statutory paternity pay still has its own eligibility conditions. Eligible employees can take up to 52 weeks' maternity leave. Statutory maternity pay is 90% of average weekly earnings for the first six weeks, then £194.32 a week or 90% of average weekly earnings if lower. Statutory paternity pay is also £194.32 a week or 90% of average weekly earnings if lower.

Employees can make a statutory request for flexible working from their first day. They can make two requests in any 12-month period. You must deal with each request in a reasonable manner, discuss it with the employee before refusing it, and give your decision within two months unless they agree to a longer period. A refusal has to be based on one of the business reasons listed in the legislation, such as extra costs or an inability to reorganise the work among other staff. Changes due in 2027 will also require the refusal to be reasonable, with an explanation of why you consider it reasonable.

Discrimination, harassment and whistleblowing

The Equality Act 2010 protects job applicants, employees and workers from discrimination because of nine protected characteristics: age, disability, gender reassignment, marriage and civil partnership, pregnancy and maternity, race, religion or belief, sex and sexual orientation. There is no qualifying period, so the protection applies from recruitment onwards, and there is no statutory cap on compensation for discrimination. Disability brings an additional duty to make reasonable adjustments.

Since 26 October 2024 employers have had a legal duty to take reasonable steps to prevent sexual harassment of their employees. If a tribunal upholds a sexual harassment claim and finds that you did not take those steps, it can increase the compensation by up to 25%. The government's timeline says that from 30 October 2026 the duty becomes a duty to take all reasonable steps, and employers will also be liable for harassment of their employees by third parties, such as customers and clients, unless they took all reasonable steps to prevent it. Before that date, assess the risks in your own workplace, update your policy, train managers, give staff a clear way to report concerns and make sure reports are acted on.

Whistleblowing law protects workers who make a disclosure they reasonably believe is in the public interest and tends to show wrongdoing such as a criminal offence, a breach of a legal obligation or a danger to health and safety. Since 6 April 2026 a disclosure that sexual harassment has happened, is happening or is likely to happen also qualifies. Dismissing an employee because they made a protected disclosure is automatically unfair whatever their length of service, and any clause in an agreement that tries to stop a worker making a protected disclosure is void.

Handling discipline and grievances

The Acas Code of Practice on disciplinary and grievance procedures sets the standard tribunals expect. It covers misconduct, poor performance and grievances, but not redundancy dismissals or the non-renewal of fixed-term contracts when they expire. In outline, deal with issues promptly and consistently, investigate to establish the facts, tell the employee in writing what the problem is and give them copies of the evidence, hold a meeting at which they can put their side, allow them to be accompanied, confirm your decision in writing and offer an appeal, heard where possible by a manager who has not been involved.

Workers have a statutory right to be accompanied at a disciplinary or grievance hearing by a colleague or a trade union representative. If their chosen companion cannot attend, you must postpone the hearing to a reasonable time the worker proposes, as long as it is within five working days of the original date. If a claim succeeds and the tribunal finds you unreasonably failed to follow the Code, it can increase the award by up to 25%. It can also reduce an award by up to 25% if the employee unreasonably failed to follow the Code.

Acas published a draft updated Code for consultation on 30 July 2026, with responses due by 23 September 2026. The draft puts more emphasis on resolving concerns informally and early. A new Code has to be approved and laid before Parliament before it takes effect, so until then the 2015 Code applies.

Ending employment fairly

A dismissal is fair only if you have a reason the Employment Rights Act 1996 recognises and you act reasonably in treating it as sufficient. The recognised reasons are capability or qualifications, conduct, redundancy, a legal restriction that prevents the person continuing in the job, and some other substantial reason. Acting reasonably usually means following a fair procedure. At present most employees need two years' continuous service to bring an ordinary unfair dismissal claim. Where the effective date of termination is on or after 1 January 2027, that falls to six months and the cap on the compensatory award is removed. Some reasons, such as whistleblowing, pregnancy or asserting a statutory right, are automatically unfair and need no qualifying service. Our guide on how to dismiss an employee fairly sets out the process.

Once an employee has worked for you for a month they are entitled to statutory minimum notice: one week until they have two years' service, then one week for each complete year of service, up to 12 weeks. Their contract may give them more. A redundancy needs a genuine reason, fair selection, consultation and a search for alternative work, and employees with two years' service are entitled to statutory redundancy pay. Our guide to running a fair redundancy process covers each step. Where both sides want a clean break, a settlement agreement lets the employee give up claims in return for agreed terms, provided the statutory conditions are met.

Tribunal claims, time limits and enforcement

Before bringing most employment tribunal claims, the employee must notify Acas, which offers early conciliation. The time limit for the claim is put on hold while conciliation takes place. For most claims the limit is currently three months less one day from the date of dismissal or the act complained of. Where that date falls on or after 1 October 2026, the limit becomes six months. Potential claims will stay open for longer, so keep a written record of meetings, warnings and decisions for every employee.

A tribunal that upholds an unfair dismissal claim can order reinstatement, re-engagement or compensation. Compensation is made up of a basic award, calculated in the same way as statutory redundancy pay, and a compensatory award for financial loss. Where the effective date of termination falls between 6 April 2026 and 31 December 2026, the compensatory award is capped at £123,543 or 52 weeks' gross pay, whichever is lower. There is no cap in whistleblowing and health and safety cases, and for dismissals taking effect on or after 1 January 2027 the cap is removed altogether.

State enforcement has also changed. The Fair Work Agency was established on 7 April 2026. It brings together existing enforcement bodies and takes on enforcement of other rights, including holiday pay and statutory sick pay. Employees who have not been paid a tribunal award can also ask it to contact the employer.

Where to start if your paperwork is out of date

If you have not looked at your employment documents for a while, start with the gaps most likely to cause a claim or a penalty. Check that every employee and worker has a written statement that matches the job they actually do and the pay they actually receive. Confirm that right to work checks are on file for everyone. Make sure your holiday records show how holiday pay was calculated as well as the days taken, and that payroll pays statutory sick pay from the first day of sickness. Read your disciplinary and grievance procedure against the Acas Code, and update your harassment policy and manager training before 30 October 2026.

Then plan for 1 January 2027. With a six-month qualifying period, the first months of employment matter more. Set clear expectations when people start, hold probation reviews well before the six-month point, and record performance concerns and the support you gave as they arise. Longer time limits and an uncapped compensatory award make it more important to handle every dismissal properly. Our Employment Rights Act 2025 timeline lists the other changes and their dates.

We review contracts, handbooks and procedures for small and growing businesses, and advise on individual situations as they come up. Before we start any piece of work we agree the scope and the cost with you in writing.

Frequently asked questions

Do I have to give employees a written contract?

You must give employees and workers a written statement of the main terms of employment on or before their first day, followed by a wider written statement within two months covering pensions, training and disciplinary and grievance procedures. The statement is the legal minimum. A full employment contract also deals with notice, confidentiality, intellectual property and restrictions after someone leaves, so it makes sense to use a contract that includes all the required particulars.

When can an employee claim unfair dismissal?

At present most employees need two years' continuous service to bring an ordinary unfair dismissal claim. Where the effective date of termination is on or after 1 January 2027, the qualifying period is six months, and employees who already have six months' service on that date are covered straight away. Claims for automatically unfair dismissal, such as dismissal for whistleblowing or pregnancy, and discrimination claims need no qualifying service at all.

How much holiday are employees entitled to?

Almost all workers are entitled to 5.6 weeks' paid holiday a year. For someone working five days a week that is 28 days, which can include bank holidays. A part-time worker on regular hours gets 5.6 times their working week, so someone working three days a week gets 16.8 days. Statutory holiday is capped at 28 days, and since 6 April 2026 employers must keep records showing compliance with the holiday and holiday pay rules for six years.

What is the National Minimum Wage from April 2026?

From 1 April 2026 the National Living Wage for workers aged 21 and over is £12.71 an hour. Workers aged 18 to 20 must be paid at least £10.85 an hour and workers under 18 at least £8.00. Apprentices aged under 19, or aged 19 or over and in the first year of their apprenticeship, must be paid at least £8.00 an hour. The rates change on 1 April every year.

Is statutory sick pay paid from the first day of sickness?

Yes. Since 6 April 2026 statutory sick pay has been payable from the first day of sickness instead of the fourth, and the lower earnings limit has been removed, so employees on low pay also qualify. The rate for 2026/27 is £123.25 a week or 80% of the employee's average weekly earnings, whichever is lower, and it can be paid for up to 28 weeks.

What happens if I do not follow the Acas Code of Practice?

Not following the Acas Code does not create a claim on its own, but tribunals take the Code into account when deciding whether you acted fairly. If a claim succeeds and the tribunal finds your failure to follow the Code was unreasonable, it can increase the award by up to 25%. It can also reduce an award by up to 25% where the employee unreasonably failed to follow the Code.

How long does an employee have to bring a tribunal claim?

For most claims the time limit is three months less one day from the dismissal or the act complained of. Where that date falls on or after 1 October 2026, the limit is six months. The employee must notify Acas for early conciliation before bringing most claims, and the time limit is put on hold while conciliation takes place.

Sources & further reading

• GOV.UK — Plan to Make Work Pay and Employment Rights Act: timeline update
• GOV.UK — Written statement of employment particulars
• GOV.UK — National Minimum Wage and National Living Wage rates
• HMRC — Rates and thresholds for employers 2026 to 2027
• Acas — Code of Practice on disciplinary and grievance procedures
• GOV.UK — Dismissing staff: eligibility to claim unfair dismissal
• legislation.gov.uk — Equality Act 2010, section 40A
• Acas — Employment Rights Act 2025

This article is general information, not legal advice. The law changes and depends on your circumstances — always take advice on your specific situation before acting. Last reviewed 17 September 2026. AD Solicitors is a trading name of AD Solicitors Limited, a recognised body regulated by the SRA (no. 8011228).