Employment laws small businesses need to know

Employment Laws For Small Businesses A Guide In this article

Whether you employ one person or 100, it’s crucial to make sure you understand the employment laws that apply to your business. Mistakes can be costly. For instance, failure to meet minimum or living wage regulations can result in a fine of up to £20,000 per employee.

Here we outline the most common employment laws you need to be aware of.

Become a Trusted Trader

When customers see you displaying our logo, they'll know when you're a trader they can trust

Find out more

Minimum wage

The minimum you must pay your employees is determined by how old they are. Most workers over 23 need to be paid the National Living Wage, which is currently £10.42 an hour. For younger staff members there is a sliding scale of minimum wage, including an apprentice wage. The rates change every year on April 1. You can see all the current rates on the government website. There is also a handy calculator to make sure you’re paying enough.

There are some circumstances where people do not have to be paid the national minimum age. These include being self-employed, being a company director and people on a Jobcentre Plus trial. The full list of exclusions is available on gov.uk.

Maximum working hours and rest breaks

The Working Time Directive says that employees should not work more than 48 hours a week on average. However, employees can opt out of the 48-hour week. If you have employees or apprentices that 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. Employees are entitled to rest breaks at work, daily rest, and weekly rest. Find out all the rules here.

National insurance

You may need 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 what you need to pay on its website.

Find out more: national insurance calculator

Right to work

Before you employ someone, you need to check that they are allowed to work in the UK. To do this, you’ll need to check their documents, for instance passports, and take copies to keep in the office. Find out what you need to do here.

Employers’ liability insurance

You must get Employers’ Liability (EL) insurance as soon as you become an employer. The government says that the policy must cover you for at least £5 million and come from an authorised insurer. You can be fined £2,500 every 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.

Workplace pensions

You need to provide a workplace pension for eligible employees from the first day they start working for you. You need to enrol anyone aged between 22 and the state pension age who earns more than £10,000 a year. You’ll also need to pay employer contributions on their behalf worth 3% of their ‘qualifying earnings’. You can find out more about setting up a pension on gov.uk.

Find out more: workplace pensions explained

Holiday allowances and pay

Full-time employees are entitled to a minimum of 5.6 weeks holiday each year. 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. Many employers choose to offer more leave than the statutory minimum.

Bank holidays do not have to be offered as paid leave. Otherwise you can offer them on top of or within the statutory entitlement. Your employment contract should clearly state how bank holidays are treated. Legally, if you have employees that are on sick leave or maternity or paternity leave, they must still accrue holiday.

How pay is calculated depends on whether the employee is full or part-time and whether they have fixed hours. The government clearly sets out how to calculate pay on its website.

Sick pay

Your employees may be eligible for statutory sick pay (SSP) if they’re unwell and off work for more than four continuous days. To qualify, workers need to have an employment contract and earn an average of £123 per week. There are several exceptions, such as if the employee is getting statutory maternity pay, statutory maternity allowance or if they received Employment and Support Allowance within 12 weeks of starting to work for you. Learn more about eligibility criteria and exceptions on gov.uk.

Bereavement leave

An employee may be 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 if a dependent dies. This could be a spouse or partner, a child, or a parent. Legally, this time off does not have to be paid, although many employers choose to offer pay. There’s no legally prescribed time framework, other than that it should be reasonable.

Find out more: Britain's forgotten benefit: thousands missing out on bereavement support payment

Emergency leave and Parental leave

Employees are allowed to take time off to look after family and dependents in an emergency. There’s no set amount of time and it does not have to be paid. They cannot take this leave for situations that they knew about in advance.

However, 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. In total, parents can take 18 weeks of leave up until their child’s 18th birthday. It has to be taken in whole week chunks. There are various eligibility requirements, and you only need to offer it to employees who’ve worked with you for a year or more. You can find out all the exclusions on the gov.uk website.

Flexible working

All employees have the legal right to request flexible working once they have worked for a business for 26 weeks. However, you don’t have to grant it. Any employer can refuse an application if they have a good business reason for doing so. Find out more here.

Redundancy rules

If you want to make an employee redundant, you need to prove that their job will no longer exist. There are various rules you must follow, including looking for suitable other employment. You may also have to pay redundancy pay, depending on how long the person has been employed. Find out all the rules on gov.uk

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

Dismissal rules

If you want to fire an employee, you need to follow the rules carefully, otherwise you could find it is an unfair, wrongful or constructive dismissal. The government advises that businesses in England, Wales and Scotland follow the advice set in the Acas (Advisory, Conciliation and Arbitration Service) Code of Practice.


It is illegal to discrimination against employees. That means you cannot treat people less favourably due to protected characteristics such as sex, pregnancy, disability, religious beliefs or race. Discrimination could apply to acts such as not hiring someone or making them redundant or paying them less than their peers.


Employees who whistle blow are protected by law. To be a true ‘whistleblower’, the information they share must be in the public interest. Employers do not need a whistleblowing policy, but the government recommends having one. Learn more about whistleblowing here.

Reasonable adjustments

If you employ people with physical or mental health conditions, or disabilities, you need to be prepared to make reasonable adjustments. This could be things like adjusting your recruitment processes or giving people access to their own desks. The government has more information on reasonable adjustments here.

Data protection

The Data Protection Act 2018 governs what data you can keep on your employees and for how long. You may need permission from your employees if you want to hold certain kinds of protected data. You can learn more about how this impacts your business on gov.uk. Your employees have the right to request information about the data you hold on them, which must be provided within 30 days.

Fire safety

Employers have a responsibility to carry out measures such as regular fire safety assessments and fire safety training. You can find out all the things you need to do here.