HR Compliance Checklist for New Businesses in the UK

Starting a new business is exciting. Hiring your first employee is even more exciting.

It is also the point where HR compliance starts to matter.

You do not need a huge HR department or a 100-page employee handbook to employ people properly. But there are a number of HR compliance requirements for UK businesses that you need to understand from the beginning.

The important thing is that there is no single HR checklist that works perfectly for every business.

A small retail shop, a manufacturing company and an accountancy firm may all have five employees, but their HR requirements can look very different.

This guide covers some of the key areas new and growing businesses should consider. It is not an exhaustive HR compliance checklist, because the right requirements will depend on your business, your employees and the work they do.

1. Get your employment status right

Before anything else, make sure you understand who you are actually engaging.

Are they an:

• Employee?

• Worker?

• Self-employed contractor?

• Agency worker?

• Apprentice?

Employment status affects the rights and responsibilities that apply to the relationship. GOV.UK recommends that employers and other engagers consider employment status carefully and keep it under review because it determines which employment rights apply.

This is particularly important for businesses that use freelancers or contractors.

Calling someone a “contractor” does not automatically make them self-employed. The reality of the working relationship matters.

Getting this wrong can have consequences for pay, holiday entitlement, tax, National Insurance and other employment rights.

2. Provide the right employment documentation

If you employ someone, you need to provide a written statement of employment particulars.

The principal statement must be provided on or before the employee or worker’s first day of work and includes key information such as the employer’s name, the individual’s name, start date, job title, place of work and pay arrangements.

For most small businesses, the simplest approach is to use a proper employment contract that incorporates the required written statement information.

Your employment documentation should also reflect the actual arrangements in the business.

For example, if you tell someone they are working remotely but their contract says they work permanently from an office, you have created an unnecessary problem before they have even started.

3. Check the right to work

You must check that someone has the right to work in the UK before employing them.

Depending on the individual’s circumstances, this may involve an online right to work check, checking original documents or using an approved identity verification service.

You should also keep appropriate evidence of the check.

If someone has time-limited permission to work in the UK, you may need to carry out a follow-up check.

This is one of those relatively simple onboarding steps that can become a significant problem if a business ignores it.

4. Set up PAYE and payroll

Once you become an employer, you need to set up the appropriate payroll arrangements.

This includes registering as an employer with HMRC and making the required PAYE deductions from employees’ pay.

You will also need to make sure you are dealing correctly with:

• Income Tax

• National Insurance

• National Minimum Wage or National Living Wage

• Statutory payments

• Payslips

• Payroll records

• Reporting to HMRC

You do not necessarily need to run payroll yourself.

Many small businesses use payroll software or an accountant to manage this.

The important thing is that someone is clearly responsible for getting it right.

5. Check National Minimum Wage and National Living Wage

You need to make sure everyone is being paid at least the legal minimum applicable to them.

The correct rate can depend on factors including age and whether the individual is an apprentice.

Do not simply assume that paying someone a salary means you have automatically complied with minimum wage requirements.

For some roles, particularly those involving variable hours, overtime or unpaid time spent working, the calculation can require more consideration.

This is particularly relevant in businesses such as retail, hospitality and manufacturing where employees may work shifts or variable hours.

6. Deal with workplace pensions

Employers have workplace pension duties when they employ eligible staff.

You need to assess your employees, meet your automatic enrolment duties where applicable and make the required pension contributions.

GOV.UK identifies workplace pensions as one of the core areas a first-time employer needs to consider.

It is also important to keep appropriate pension records, including opt-out information where relevant.

Again, this is an area where payroll software or an external payroll provider can make life considerably easier.

7. Get Employers’ Liability insurance

If you employ people, you will generally need Employers’ Liability insurance.

There are some limited exceptions, but most businesses with employees will need it.

The policy must be provided by an authorised insurer and the certificate must be displayed or made available to employees.

You may also need other insurance depending on what your business does.

The requirements for an office-based consultancy are obviously going to be different from those for a manufacturing business with machinery, vehicles and a physical production site.

8. Make the workplace safe

Health and safety is not something you can leave until you have 50 employees.

Employers have duties to protect employees and other workers from harm.

You should consider the risks associated with the actual work being carried out and put appropriate controls in place.

This might include:

• Workplace risk assessments

• Health and safety arrangements

• Fire safety

• Equipment safety

• Manual handling

• Display screen equipment

• Lone working

• First aid

• Accident reporting

• Personal protective equipment

The appropriate arrangements depend heavily on the business.

An accountancy firm may have relatively straightforward office-based risks.

A manufacturing business may have significantly more complex risks involving machinery, chemicals, noise, manual handling and workplace transport.

The same generic “HR compliance checklist” cannot properly deal with both.

Businesses with five or more employees must have a written health and safety policy.

9. Consider equality and discrimination

Equality law applies from the recruitment process onwards.

Your business should consider how you:

• Advertise roles

• Shortlist applicants

• Conduct interviews

• Make recruitment decisions

• Manage employees

• Allocate opportunities

• Deal with performance and conduct

• Make decisions about dismissal

You should also consider reasonable adjustments for disabled employees and applicants where required.

Discrimination protection applies from day one, and GOV.UK identifies equality and reasonable adjustments as core employment rights.

This is why good HR compliance is not simply about having policies.

Your managers need to understand how to apply them fairly.

10. Have some basic HR policies in place

You do not need a policy for every conceivable workplace situation.

But a growing business should start establishing some basic HR foundations.

Depending on your business, this might include:

• Disciplinary procedure

• Grievance procedure

• Holiday and absence arrangements

• Flexible working

• Equality, diversity and inclusion

• Health and safety

• Family leave

• Data protection

• Expenses

• Remote or hybrid working

• Performance management

Some information can be provided by referring employees to separate policies rather than putting every detail into the employment contract. Acas specifically recognises that disciplinary and grievance procedures, for example, can be provided separately from the principal written statement.

The trick is proportion.

A five-person business does not need the same HR policy library as a multinational.

11. Keep employee information secure

As soon as you start employing people, you will hold personal information about them.

That might include:

• Names and addresses

• Dates of birth

• Bank details

• National Insurance numbers

• Emergency contacts

• Payroll information

• Sickness information

• Performance records

• Right to work evidence

Employee information needs to be handled securely and in accordance with data protection requirements.

You should also think about who has access to employee information and how long different records need to be retained.

Good HR administration is not just about creating documents. It is also about managing the information those documents contain.

12. Keep proper employment records

New businesses often underestimate the importance of keeping good records.

You should have a sensible system for maintaining records such as:

• Contracts and written statements

• Payroll information

• Pay and National Insurance records

• Holiday records

• Statutory leave and pay

• Pension records

• Right to work evidence

• Sickness absence

• Training

• Performance reviews

• Disciplinary and grievance matters

Business.gov.uk identifies a range of employment records that employers must keep, alongside records that are good practice to maintain.

You do not necessarily need an expensive HR system to do this.

For a small business, a well-organised and secure HR system can be perfectly adequate.

13. Think about recruitment and pre-employment checks

HR compliance starts before someone becomes an employee.

Depending on the role, you may need to consider:

• Right to work

• References

• Qualifications

• Professional registrations

• DBS checks

• Driving licences

• Other role-specific checks

For example, DBS checks may be relevant for certain roles involving children, healthcare or other regulated activities.

This is another area where the type of business matters.

An accounts assistant may need relatively straightforward pre-employment checks.

A care worker, school employee or regulated professional could require considerably more.

14. Understand the rules that apply to your particular workforce

This is the part that is easy to overlook.

Your HR compliance requirements will depend on who you employ and what they do.

Consider three very different businesses.

A retail shop

You may need to think particularly about:

• Variable working hours

• Shift patterns

• Minimum wage

• Weekend and evening work

• Holiday management

• Lone working

• Cash handling

• Customer-facing behaviour

• Health and safety

A manufacturing business

The focus could be very different:

• Machinery and equipment

• Manual handling

• Personal protective equipment

• Workplace transport

• Noise

• Hazardous substances

• Specific risk assessments

• Training and competency

• Shift work

An accountancy firm

The HR considerations might focus more heavily on:

• Office or hybrid working

• Professional qualifications

• Confidentiality

• Data protection

• Display screen equipment

• Professional development

• Flexible working

• Performance management

All three businesses need to comply with employment law.

But they do not need exactly the same HR documents.

That is why downloading a generic “50-point HR compliance checklist” and ticking every box is not necessarily the best approach.

15. Don’t forget the employee experience

Compliance is important, but good HR should also make employment easier to manage.

A new business should think about what happens after someone accepts a job.

Do they know:

• Who to report to?

• When and where to start?

• How to access systems?

• How to book holiday?

• What to do if they are sick?

• How they will be paid?

• What is expected during probation?

• Where they can find HR policies?

• Who they can speak to if they have a concern?

These might not all be separate legal requirements, but they are important foundations for a well-run business.

A practical HR compliance checklist for new UK businesses

If you’re employing your first few people, start by checking that you have considered:

• Employment status

• Written employment contracts

• Right to work checks

• PAYE and payroll

• National Minimum Wage or National Living Wage

• Workplace pensions

• Employers’ Liability insurance

• Health and safety

• Equality and discrimination

• Basic HR policies

• Employee data protection

• Employee records

• Appropriate pre-employment checks

• Role-specific requirements

• Onboarding and induction

This is a starting point, not an exhaustive checklist.

As your business grows, your HR requirements will grow with it.

When should you review your HR compliance?

Don’t wait until something goes wrong.

A sensible approach for a growing SME is to review your HR arrangements periodically, particularly when something changes.

For example:

You’re hiring your first employee

Review your contracts, payroll, pension, insurance, right to work and basic HR policies.

You’re growing from 5 to 15 employees

Review your HR processes, manager responsibilities, policies, records and health and safety arrangements.

You’re opening a physical workplace

Review health and safety, fire safety, risk assessments and workplace arrangements.

You’re hiring specialist or regulated roles

Check whether additional qualifications, DBS checks, licences or other requirements apply.

You’re introducing hybrid or remote working

Review contracts, policies, equipment, data protection and health and safety arrangements.

You’re expanding internationally

Review employment law, immigration, payroll, tax and local employment requirements before hiring overseas.

The bottom line

HR compliance for a new business does not need to be overwhelming.

You don’t need to build a corporate HR department before you hire your first employee.

But you do need to understand the foundations.

Start with the essentials:

Know who you’re employing.

Give them the right documentation.

Pay them correctly.

Check their right to work.

Keep them safe.

Protect their personal information.

Treat people fairly.

Keep appropriate records.

Then build your HR framework as your business grows.

The right HR setup for a five-person retail business will not be the same as the right setup for a 50-person manufacturing business.

The goal isn’t to have the biggest HR manual.

It’s to have the right HR foundations for your business.

Building your HR foundations?

FoundrKit helps startups and small businesses put practical HR foundations in place without the complexity of a large HR system.

Our HR document packs bring together the policies, contracts, procedures and practical guidance you need at different stages of your business.

One purchase. Clear pricing. No subscription.