What Are the Employment Law Risks When Hiring Your First Team?

Summary

• Hiring your first employees creates immediate legal obligations, including providing written terms on day one, conducting right-to-work checks, paying at least the National Minimum Wage, and obtaining employer’s liability insurance.
• Common risks include misclassifying workers as self-employed, discriminating during recruitment, misunderstanding probationary period rights, and failing to comply with auto-enrolment pension duties.
• Getting employment law basics right from the start protects your business from tribunal claims, HMRC penalties, and compensation awards that can reach tens of thousands of pounds.
• This guide explains the main employment law risks when hiring your first team in England and Wales.
• LegalVision is a commercial law firm that specialises in advising clients on employment law matters.

Tips for Businesses

Provide written terms before the first day of work. Conduct right-to-work checks on original documents. Obtain the employer’s liability insurance immediately. Register with HMRC and The Pensions Regulator. Use tailored employment contracts and implement essential workplace policies. Avoid discriminatory language in job adverts and interview questions.

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On this page

• Failing to Provide Written Terms
• Misclassifying Workers
• Discrimination in Recruitment
• Inadequate Right to Work Checks
• Not Understanding Probationary Periods
• Failing to Comply With National Minimum Wage Requirements
• Inadequate Contracts and Policies
• Not Having Employer’s Liability Insurance
• Ignoring Auto-Enrolment Pension Duties
• Key Takeaways
• Frequently Asked Questions

Hiring your first employees creates immediate legal obligations under employment law that expose you to tribunal claims (legal claims brought by employees in an employment tribunal) and penalties if mishandled. Common risks include misclassifying workers, failing to provide written terms, breaching minimum wage requirements, discriminating during recruitment, and inadequate workplace policies. Getting the basics right from day one protects your business from costly disputes and builds a compliant foundation as you grow. This article explains the main legal risks to consider when hiring your first team.

Failing to Provide Written Terms

One of the most common mistakes you can make as a new employer is failing to provide written terms to employees on or before their first day of work. You must give all employees and workers a written statement of particulars that includes essential information such as pay, working hours, holiday entitlement, and notice periods.

You may assume a verbal agreement or an informal email is sufficient, but this does not meet your legal obligations. If you fail to provide written terms, employees can bring a tribunal claim, and you may face compensation awards of two to four weeks’ pay.

Misclassifying Workers

Employees have the most rights, including protection against unfair dismissal (currently after two years’ service, but this is due to change to six months from 1 January 2027), statutory redundancy pay (after 2 years’ service), and statutory notice periods. Workers have fewer rights but are still entitled to the National Minimum Wage, holiday pay, and protection from discrimination. Self-employed contractors have minimal employment rights.

You may classify individuals as self-employed to avoid employment obligations, but HM Revenue & Customs (HMRC) and employment tribunals look at the reality of the working relationship, not just what the contract says. If someone works set hours, uses your equipment, and is integrated into your business, they are likely an employee or worker, regardless of what their contract states. Misclassification can lead to claims for unpaid holiday, minimum wage arrears, and tax penalties.

Discrimination in Recruitment

Discrimination law applies from the moment you advertise a role. You cannot discriminate against candidates based on protected characteristics, which include age, disability, gender reassignment, marriage and civil partnership, pregnancy and maternity, race, religion or belief, sex, and sexual orientation.

Common mistakes include:

• using discriminatory language in job adverts, such as “young and dynamic” or “native English speaker”;
• asking inappropriate questions at an interview about plans to have children, marital status, or health conditions unrelated to the role;
• making assumptions about a candidate’s ability based on their age, appearance, or background; and
• failing to make reasonable adjustments for disabled candidates during the recruitment process.

Inadequate Right to Work Checks

You must check that every employee has the right to work in the UK before they start employment. Failing to conduct proper right-to-work checks can result in civil penalties of up to £60,000 per illegal worker and, in serious cases, criminal prosecution.

You must see and copy the original documents from the prescribed list, such as a passport or biometric residence permit, and conduct checks in the employee’s presence. Carry out follow-up checks for employees with time-limited permission to work in the UK.

You may overlook this requirement or accept photocopies or digital images without seeing originals, which does not provide you with a statutory excuse against penalties.

Not Understanding Probationary Periods

You may believe that probationary periods allow you to dismiss employees without consequence. This is incorrect. Employees have protection against discrimination, automatic unfair dismissal (such as for whistleblowing or asserting statutory rights), and wrongful dismissal from day one.

While employees currently need two years’ service before they can claim ordinary unfair dismissal, you must still follow fair procedures during probationary periods. Your employment contracts should clearly state the length of the probationary period, the notice period during probation, and the review process. If you decide not to confirm employment, you should document any concerns and allow the employee to improve.

Failing to Comply With National Minimum Wage Requirements

All employees and workers must be paid at least the National Minimum Wage or National Living Wage, depending on their age. You can fall foul of minimum wage rules by:

• requiring employees to pay for uniforms, tools, or training, which reduces their effective pay below the minimum wage;
• not paying for all working time, such as time spent opening or closing premises, attending mandatory training, or travelling between sites;
• incorrectly calculating pay for salaried employees who work additional hours; and
• making unlawful deductions that take pay below the minimum wage.

HMRC can investigate minimum wage compliance and issue penalties of up to 200% of the underpayment. They may also publicly name you as a non-compliant employer.

Inadequate Contracts and Policies

Using generic contract templates downloaded from the internet or copied from other businesses may be risky. They often do not reflect current law, are not tailored to your business, or contain unenforceable terms.

Your employment contracts should be clear, compliant, and appropriate for each role. You should also have essential policies in place, including:

• disciplinary and grievance procedures;
• health and safety policies;
• equal opportunities and anti-harassment policies;
• data protection policies; and
• sickness absence procedures.

Without proper contracts and policies, you will struggle to manage performance issues, conduct fair dismissals, or defend tribunal claims if a dispute arises.

Not Having Employer’s Liability Insurance

Employer’s liability insurance is a legal requirement as soon as you employ employees. It covers claims from employees who are injured or become ill as a result of their work. As a minimum, you must have at least £5 million worth of cover, though most policies provide at least £10 million.

Failing to have employer’s liability insurance can result in fines of £2,500 per day. You must also display your certificate of insurance or make it readily available to employees.

Ignoring Auto-Enrolment Pension Duties

You must automatically enrol eligible employees into a workplace pension scheme and contribute to it. This applies from the day you employ your first member of staff. Eligible staff are those who ordinarily work in the UK, are aged between 22 and state pension age, and who earn more than £10,000 per year.

You can postpone automatic enrolment for up to three months from an employee’s start date, which can simplify administration if you have high staff turnover. However, if an employee requests to join the pension scheme during the postponement period, you must enrol them immediately.

You must register with The Pensions Regulator, choose a pension scheme, enrol eligible staff, and make minimum contributions (currently 3% of qualifying earnings). Failing to comply can result in escalating fines and legal action.

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Key Takeaways

Hiring your first team brings numerous employment law obligations that can seem overwhelming. However, understanding the key risks and taking steps to comply from the outset protects your business and creates a solid foundation for growth. The most common mistakes: failing to provide written terms, misclassifying workers, discrimination in recruitment, and inadequate right to work checks, are all avoidable with proper preparation and advice. Investing time and resources in getting employment law right from the start saves high costs and stress in the long run.

If you need help managing employment law risks when hiring your first team in England and Wales, LegalVision provides ongoing legal support for businesses through our fixed-fee legal membership. Our experienced employment lawyers help businesses manage contracts, employment law, disputes, intellectual property, and more, with unlimited access to specialist lawyers for a fixed monthly fee. To learn more about LegalVision’s legal membership, call 0808 196 8584 or visit our membership page.

Frequently Asked Questions