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What does it mean to take on employees?

Taking on employees is an important step in growing a business.  But what are the legal obligations on recruitment and during employment?  Does an employee need a written contract and what will their holiday entitlement be? Will work permits be required?  Will they be entitled to sick pay?  What happens if you want to let an employee go?

Knowing your rights as an employer and the rights of your employees is vital. This note is intended to provide a brief introduction to employment law issues which apply to employers setting up, or doing business, in England. You should take specific advice whenever an issue arises as employment law provisions do change regularly.

Contracts of employment

Under the Employment Rights Act 1996, every employee should be given a written statement of certain terms and conditions governing his employment within two months of commencing employment.

An employee is also entitled to receive an itemised statement of pay and deductions with each payment of his wages or salary.

Maximum working hours and holiday entitlement

Workers are protected by a Clock face48 hours maximum working week averaged over a period of 17 weeks, although they may opt out of this requirement. There are derogations for specific sectors such as transport and more general derogations including those for "autonomous decision-takers" such as those who manage their own time. Employers are required to keep certain records regarding the working time of their workforce.

The Working Time Regulations also provide for a minimum of 28 days' paid holiday each year (which may include the eight public holidays in the UK). Holiday entitlement accrues from the start of the employment. Pay in respect of holiday taken is usually based on the average pay over the 12 weeks prior to the holiday.

National minimum wage and national living wage

All workers benefit from either the National Minimum Wage or the National Living Wage (together the "NMW").  The genuinely self -employed and people under the age of 18 are outside of the scope of the NMW.

MoneySince 1 April 2016 there has been a new rate for workers aged 25 and over, known as the national living wage which is £7.20 per hour. The standard basic rate for payment of the NMW for workers aged 21 -24 inclusive is £6.70 per hour (increasing to £6.95 per hour from 1 October 2016).  Young workers aged between 18 and 20 are entitled to the NMW at the lower rate of £5.30 (Development rate) (increasing to £5.55 per hour from 1 October 2016), those aged 16 and 17 are entitled to a rate of £3. 87 (Young Workers rate) (increasing to £4.00 per hour from 1 October 2016) and apprentices aged under 19, or aged 19 or over and in the first year of their apprenticeship, to £ 3.30 (Apprentice rate) (increasing to £3.40 per hour from 1 October 2016).  These figures are reviewed each year . Employers are required to keep full records of payments to workers.

Basic gross pay, together with incentive and performance pay, bonuses and gratuities, paid through the pay-roll count towards the NMW.

Workers can bring a claim through the courts or employment tribunals for non-payment of the NMW. They can also make claims for unfair dismissal or victimisation if the employer sacks or takes action against them to prevent them from being paid the NMW. Companies can be guilty of criminal offences by failing to comply with their duties in relation to the NMW.


There is no legal definition of "intern" in the UK. Interns will generally be considered as "workers" which entitles them to the NMW unless:

  • the intern does not undertake any real work and instead merely work-shadows, and there is no obligation for the intern to show up to work and carry out duties; or
  • the intern is working as part of an accredited further or higher learning institution; or
  • the intern is volunteering at a charity, voluntary organisation, or associated fund-raising body.

If the intern is undertaking real work and does not fall within the possible exemptions above, then the employer must pay them NMW, and also provide other requirements under the Working Time Regulations 1998 including holiday pay, rest breaks, limits on working hours and protection from whistleblowing.

If employers don’t comply with the requirement to pay NMW they could be subject to penalties such as back-payment of wages, a penalty of up to 200% of the underpayment or £20,000 (whichever is the lower), naming and shaming by the Department for Business, Energy and Industrial Strategy, and potential criminal prosecution if the employer is persistently non-compliant. 

Statutory sick pay

Employees who earn over the lower earnings limit (which is currently £112 per week) who are absent from work due to illness or injury are entitled to receive Statutory Sick Pay from their employer for up to 28 weeks in a rolling three-year period. The provisions operate when the employee is absent for at least four consecutive days. Shorter absences would normally, but need not, be paid as salary.

stethoscopeTo be eligible to receive Statutory Sick Pay an employee must notify his absence to his employer and supply evidence of illness. The level of Statutory Sick Pay is set by statute and is regularly revised. Currently it stands at £88.45 per week but many employers make up any salary shortfall at least for a specified period of illness.

Employers may not contract out of the Statutory Sick Pay provisions and cannot require employees to contribute towards payments. Non-compliance with the Statutory Sick Pay provisions can amount to a criminal offence by an employer.

Employers are required to keep records for Statutory Sick Pay purposes.