Hiring your first employee is a significant milestone. It can free you to focus on growing your business, bring in skills you do not have and help you meet customer demand. But taking on staff also brings legal responsibilities that can trip up even the most careful employer. Employment tribunal claims, HMRC penalties and damaged morale are expensive mistakes.
The good news is that most problems are avoidable if you get the basics right from the start. This guide to UK employment law for small businesses sets out practical lessons for women founders, updated for 2026/27.
1. Look beyond family and friends
It is natural to turn to people you trust when your business is growing, and family members or friends can be a useful source of early support. However, building a team solely from your personal network is risky. Enthusiasm and loyalty are not substitutes for the skills, experience and capacity your business needs.
If you do employ someone close to you, treat the arrangement exactly as you would any other employment relationship. They are entitled to the same statutory rights, including the National Living Wage, holiday pay, sick pay and protection from discrimination. You must also follow fair procedures if things go wrong. Put the terms in writing, agree clear boundaries and be honest about whether the relationship can survive a difficult conversation.
2. Check the risks of outsourcing
Using freelancers, contractors and associates can give you flexibility, but employment status is one of the most contested areas of UK employment law. Someone you regard as self-employed may later be judged to be a worker or even an employee, with rights to holiday pay, the National Minimum Wage and, if they are an employee, protection from unfair dismissal after two years.
Since April 2021, medium and large private-sector clients have been responsible for deciding a contractor’s employment status for tax under the off-payroll working rules, known as IR35. Small companies are exempt from making that decision, but the contractor may still be caught by IR35 themselves. HMRC’s Check Employment Status for Tax tool can help, but it is not definitive. If in doubt, take professional advice before you start the engagement. You can read more in our IR35 guide for women contractors.
Always use a written consultancy agreement covering confidentiality, intellectual property and any restraint-of-trade clauses. Be aware that restrictive covenants must be reasonable and narrowly drawn to be enforceable. The government has also proposed capping post-termination non-compete clauses at three months.
3. Get your employment contracts right
Anyone classed as an employee or worker has the right to a written statement of particulars from their first day of employment. This must set out key terms such as pay, hours, place of work, holiday entitlement, notice periods and job title.
Crucially, you cannot contract out of statutory employment rights. A clause that tries to remove the right to statutory notice, holiday pay, rest breaks or protection from discrimination is unenforceable. Cheap templates downloaded from the internet are a false economy if they contain errors or are not tailored to your business. Use the templates on GOV.UK or ACAS as a starting point, and ask an employment lawyer or HR professional to review anything complex.
4. Handle probation and dismissal fairly
A probationary period gives both you and the new hire time to assess whether the role is right. There is currently no statutory maximum, but three to six months is common and it must be reasonable for the role. Set clear objectives at the start, hold regular review meetings and give prompt feedback. If problems arise, address them early rather than waiting for a final decision.
The Employment Rights Bill, progressing through Parliament during 2025 and 2026, proposes a statutory probationary framework and day-one rights to unfair dismissal, with details still being finalised. Keep an eye on the Employment Rights Act employer timeline so you know when new rules take effect and how they affect probation, dismissal and flexible working.
Remember that employees do not lose all their rights during probation. They are protected from discrimination and from dismissal for certain automatically unfair reasons from day one. They are also entitled to their contractual and statutory notice. If you decide to dismiss, follow a fair process, document your reasons and pay everything owed.
5. Back up instinct with evidence
Instinct has a place in recruitment and management, but it should support evidence, not replace it. If a new recruit is not performing, or a long-serving employee’s behaviour has changed, document specific examples and have an open conversation. During probation you can usually part company more easily, provided you act fairly and give notice. Outside probation, follow your disciplinary or capability procedure and the ACAS Code of Practice on Disciplinary and Grievance Procedures.
One of the most common regrets among small-business owners is “I wish I had dealt with it sooner.” Nipping problems in the bud is almost always cheaper and less stressful than letting them fester.
6. Know your UK employment law obligations
You do not need to be an employment lawyer, but you do need to know your core obligations. For 2026/27 these include:
| Obligation | Current position |
|---|---|
| National Living Wage | £12.77 per hour from April 2026 for workers aged 21 and over (HMRC, 2026). Lower rates apply to younger workers and apprentices. |
| Holiday entitlement | 5.6 weeks’ paid holiday a year for almost all workers, including bank holidays (GOV.UK, 2026). Rolled-up holiday pay can be used for irregular-hours and part-year workers. |
| Workplace pensions | Auto-enrol eligible staff. For 2026/27 the earnings trigger is £10,000 a year and qualifying earnings are between £6,500 and £50,270. The minimum total contribution is 8%, with at least 3% from the employer (The Pensions Regulator, 2026). |
| Statutory Sick Pay | £118.75 per week from April 2026, payable to eligible employees from the fourth consecutive day of sickness (HMRC, 2026). |
| Right to work checks | Check every employee’s right to work in the UK before they start. Keep copies of documents or use the Home Office online right-to-work service (Home Office, 2026). |
| Employers’ liability insurance | If you employ anyone, you must have at least £5 million of cover and display the certificate where staff can see it (HSE, 2026). |
Keep accurate records of hours, pay, holidays, sickness and any formal meetings. Good paperwork protects you if a dispute arises. If an employee raises a grievance or threatens a tribunal claim, contact ACAS early. Early conciliation is usually mandatory before an employment tribunal claim can be lodged, and strict time limits apply.
Take these practical next steps
- Issue a written statement of particulars from day one and review any contract template against current law.
- Review the employment status of every freelancer and contractor, and document the working arrangement.
- Check your payroll against 2026/27 National Living Wage, pension and SSP rates.
- Put a right-to-work check process in place before anyone starts work.
- Confirm you have at least £5 million of employers’ liability insurance and that the certificate is accessible.
- Keep records of hours, pay, holidays and formal meetings, and follow the ACAS code if problems arise.
Taking on staff is one of the most important steps you can take as a woman founder. Get the contract, status and processes right, keep up to date with your legal duties, and act fairly and promptly when issues arise. Do that, and UK employment law for small businesses becomes far easier to navigate.
