Employment law for small businesses: What you need to know

Employment Laws For Small Businesses A Guide In this article

Whether you’re employing one person for the first time or well over 100, the decision to do so can be quite an intimidating one – both because of the responsibility it comes with and the various small business employment laws you’ll need to brush up on.

Simply put, setting aside time to learn all the nuts and bolts of law for small businesses is essential. Failing to do so can be costly for your business’s finances and reputation.

So, if you’re looking to take your first employee on board in the near future, we’ve broken down everything you need to know about navigating employment law for small businesses.

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Paying minimum wage

When employing anyone in your business, you are legally obliged to pay them the minimum wage. Failure to meet this minimum or living wage could result in a fine of up to £20,000 per employee.

Most workers over 21 need to be paid the National Living Wage, which is currently £12.21 an hour, while minimum pay rates for younger staff members will differ depending on their current age.

Please note, however, that these rates change every year on April 1st, so you’ll need to stay on top of any changes that occur to avoid breaking the law. Fortunately, you can see all the current rates on the government website, and there’s even a handy calculator to make sure you’re paying your staff enough.

As an aside, there are circumstances where people do not have to be paid the national minimum wage. These include self-employed individuals, company directors, and anyone on a Jobcentre Plus trial. But for a full list of exclusions around minimum wage, it’s best to visit the UK government website.

Setting maximum work hours

Similarly to paying minimum wage, there is a recommended maximum number of hours that employees should be working each week. Currently, the Working Time Directive specifies this as no more than 48 hours a week on average.

However, this is not a hard limit, and employees can opt out of the 48-hour week. For example, if you have employees or apprentices who are under 18, they cannot work more than 8 hours a day or 40 hours a week.

You also need to make sure that you’re following the law when it comes to rest breaks. All employees are entitled to breaks at work, daily rest, and weekly rest. So, if you require your potential employees to work longer than their contracted hours, you will need to negotiate overtime with them to ensure fair compensation for the additional hours worked.

Paying national insurance

In some cases, you may be required to pay national insurance for your employees, depending on how much they earn and their ‘category letter’. The government has a helpful table that sets out if you need to pay for national insurance on its website, as well as a national insurance calculator to help you calculate what rates to pay.

Understanding an employee's right to work 

No matter your industry, before you employ someone, you need to check your potential employee has a right to work in the UK. To do this, you’ll need to assess their documentation, for instance, passports, and take copies to keep in the office.

Getting employers’ liability insurance

As an employer, you are legally required to have employers’ liability (EL) insurance in place for your employees. The government states that this policy must cover you for at least £5 million and come from an authorised insurer.

If you fail to acquire this level of insurance, you could be fined £2,500 for each day you are not properly insured and face a further fine of £1,000 if you do not display your EL certificate or refuse to make it available to inspectors upon demand.

Setting up workplace pensions

Upon hiring your first employee, you’ll need to provide a workplace pension for anyone who is eligible, with enrolment starting from their very first day.

Legally, you’ll need to enrol and set up a pension for anyone aged between 22 and the state pension age, who earns more than £10,000 a year. On top of this, you’ll also need to pay employer contributions on their behalf worth 3% of their ‘qualifying earnings’.

Providing holiday allowances and pay

Under UK law, full-time employees are entitled to a minimum of 5.6 weeks paid holiday each year. While part-time workers have to be offered the same amount of holiday but pro-rata. This includes agency workers, workers with irregular hours, and workers on zero-hours contracts.

These 5.6 weeks are the minimum you must offer your employees, however, many employers choose to offer more leave than the statutory minimum as a form of employee benefit.

With regard to bank holidays, employers do not have to offer these as paid leave, and you can either offer them on top of, or as part of, their base statutory entitlement. Either way, your employment contract should clearly state how bank holidays are treated.

Finally, if you have employees who are on sick leave or maternity or paternity leave, they must still be allowed to accrue holiday while off.

As for how pay is calculated for holiday leave, this depends on whether your employee is a full-time member of staff or part-time, and whether they work fixed hours. We recommend visiting the government website for more information on this.

Employee sick pay

All employees are eligible for statutory sick pay (SSP) if they’re unwell and off work for more than four continuous days. However, in order to qualify, workers need to have a dedicated employment contract and earn an average of £123 per week.

Please note though, that there are several exceptions to this rule, such as if the employee is currently receiving statutory maternity pay, statutory maternity allowance, or if they received any Employment and Support Allowance within 12 weeks of starting to work for you.

Providing bereavement leave

While not necessarily commonplace, all employees are eligible for Parental Bereavement Leave and Statutory Parental Bereavement Pay if their child has died or they experience a stillbirth after 24 weeks.

Employees also have the right to time off for bereavement if a dependent dies. This could be a spouse, a partner, a child, or a parent. And while, legally, this time off does not have to be paid, many employers choose to offer pay as a token of compensation.

There is also no legally prescribed time framework for bereavement leave, other than that it should be for a reasonable length of time.

Emergency leave and Parental leave rights

Under small business employment law, employees are allowed to take time off to look after family and dependents in the event of an emergency. However, there’s no set amount of time for this and it does not have to be paid. Please note as well that they cannot take this leave for situations that they knew about in advance.

Alongside this, parents are also entitled to take unpaid parental leave. They can use this for a variety of reasons including spending more time with their children and family, but also to look after an ill child if there is no one to do so in their absence.

In total, parents can take 18 weeks of leave up until their child’s 18th birthday, and it must be taken in whole week chunks, with a maximum of 4 weeks taken per year. There are also various eligibility requirements that will need to be met in order for employees to qualify, and you’re only required to offer it to employees who have worked with you for a year or more.

Flexible working policies

All employees have the legal right to request flexible working once they have worked for a business for 26 weeks or more. However, you do not legally have to grant it, and any employer can refuse an application if they have a good business reason for doing so.

Understanding redundancy rules

In order to make an employee redundant, you are required to prove that their job is no longer required by the business. There are various rules you must follow for this, including looking to find them suitable employment alternatives within your business, and you may have to pay redundancy, depending on how long the person has been employed by you.

Find out more: 8 things to know if you’re at risk of redundancy

Firing and dismissal rules

To legally fire an employee, you need to follow the government-recommended code of practice rules carefully, otherwise, it may be classed as unfair, wrongful, or constructive dismissal – all of which could lead to legal implications and costs.

Discrimination in the workplace

Under UK law, it’s illegal to discriminate against employees in the workplace. This means you cannot treat people less favourably due to protected characteristics, such as sex, pregnancy, disabilities, religious beliefs or race.

Furthermore, discriminatory practices can also apply to acts such as not hiring someone for said protected characteristics in the first place, making them redundant, or paying them less than their peers.

Whistleblowing

Employees who whistle blow are protected by UK law – provided that the information they share is in the public interest. Employers do not need a whistleblowing policy, but the government recommends having one just in case.

Accommodating reasonable adjustments

If you employ people with physical or mental health conditions or disabilities, you should be prepared to make reasonable adjustments to accommodate their work needs. This could be things like tweaking your recruitment processes or giving people access to their own desk setups instead of hot desking.

We recommend visiting the government page on making reasonable adjustments for employees for more information.

Meeting data protection requirements

The recent Data Protection Act 2018 governs what data you can keep on your employees and for how long. This means that you may need permission from your employees if you wish to hold certain kinds of protected data on them.

It’s vital that you learn more about how data protection laws can impact your business, and know that your employees have the right to request information about the data you hold on them at any time, which must be provided within 30 days of their request.

Fire safety

Finally, all employers have a responsibility to establish safety measures in the event of a fire in their place of work. This should include regular fire safety assessments and fire safety training, and your employees should be aware of where to assemble should your work residence need to be evacuated.