How to hire and manage people lawfully in a small tech startup.

This is general information, not legal advice. UK employment law is being reformed and many rules, rates and qualifying periods are changing, so check current guidance from ACAS and GOV.UK before acting.

Why it matters

Employment mistakes are expensive in time and money, and they are distracting at the moment you can least afford it. Most disputes in small companies come from missing paperwork, unclear expectations or rushed exits. A small set of documents and habits prevents most of them. For hiring strategy and team design, see the people playbook.

Employee, worker or contractor

Employment status decides which rights a person has, and it depends on the reality of the relationship, not just the label in the contract. Employees have the fullest rights; workers have some, including minimum wage and holiday; genuinely self-employed contractors have few. Separately, the off-payroll rules (often called IR35) decide how contractors who supply services through their own company are taxed. If your company qualifies as small, the contractor normally makes that assessment, but this changes as you grow. HMRC explains the rules in its off-payroll working guidance.

Step by step: your first hire

1. Check the right to work before employment starts, following the GOV.UK process, and keep a record. If you plan to sponsor visas, you will need a sponsor licence first.
2. Issue a written statement of terms by the first day of employment. It must include key particulars such as pay, hours, holiday, notice and place of work. Most companies combine this with a full contract that adds IP assignment, confidentiality and reasonable post-termination restrictions.
3. Register as an employer with HMRC and run PAYE through payroll software or your accountant.
4. Set up a workplace pension. Employers must automatically enrol eligible staff. The Pensions Regulator explains your duties.
5. Get employers’ liability insurance, which is compulsory for most employers.
6. Pay at least the National Minimum Wage or National Living Wage, which is updated each year. Unpaid internships and “equity only” roles can breach minimum wage law if the person is in reality a worker.
7. Write a short staff handbook: holiday, sickness, disciplinary and grievance procedures, equal opportunities, remote working, IT and data security. Base disciplinary and grievance processes on the ACAS Code of Practice.
8. Handle equity properly. If you offer share options, schemes such as EMI can be tax-efficient but have conditions and notification deadlines. Take advice and see the finance playbook.

Managing performance and exits

Set clear objectives and probation reviews, record conversations, and follow your own procedure. Discrimination protections apply from the recruitment stage onward, regardless of length of service. When someone must leave, a settlement agreement can resolve matters by agreement, but the employee must take independent legal advice for it to be valid. Redundancy has its own rules on fair selection and consultation. Take advice before starting any dismissal.

Worked example

Pebblepath, a Newcastle edtech company, hires its first two developers. It runs right to work checks, issues contracts with IP and confidentiality clauses, registers for PAYE, enrols both in a pension and buys employers’ liability cover. Six months later one developer is not meeting expectations. Because objectives and probation reviews were written down, the conversation is specific and fair, an improvement plan follows the handbook, and both sides agree a managed exit on clear terms.

Common mistakes

• Calling someone a contractor when they behave like an employee.
• Starting someone before their right to work check.
• Contracts without IP assignment, so code written at home is disputed.
• Copying a large company’s handbook that you cannot follow.
• Dismissing quickly without a process, then facing a claim.

What to measure

• Staff with a signed contract, completed right to work check and pension enrolment.
• Probation reviews completed on time.
• Employment cost per head, using the hiring and team cost planner.