HR for UK startups: the essentials
Reviewed by Mellow Editorial Team, HR & payroll content team
Most UK startups can meet their core HR obligations by getting five things right: a written employment contract, a compliant payroll, auto-enrolment pension, statutory leave management, and a basic discipline and grievance process. Get these in place early and you avoid the most common — and costly — mistakes.
Written contracts of employment
Every employee must receive a written statement of particulars on or before their first day of work. This is a legal requirement, not optional paperwork. The statement must cover pay, working hours, holiday entitlement, notice periods, job title, and place of work, among other details.
The Employment Rights Act 2025 has strengthened day-one rights further, so there is less room than before to delay or cut corners on documentation. If you use offer letters before the contract is ready, make clear they are not the employment contract itself.
For early-stage startups, a standard employment contract template reviewed by an employment solicitor is a reasonable upfront investment. It saves significant cost if a dispute arises later.
Payroll and HMRC compliance
Once you have an employee, you need to operate PAYE (Pay As You Earn). This means registering as an employer with HMRC before your first payday, then calculating and deducting income tax and National Insurance from each employee's pay.
The key figures for the 2026/27 tax year:
- Income tax personal allowance: £12,570 — earnings below this threshold are not taxed
- Basic rate: 20% on earnings above the personal allowance up to the higher-rate threshold
- Higher rate: 40% beyond that; additional rate 45% at the top band
- Employee National Insurance: 8% on earnings within the primary threshold to the upper earnings limit, then 2% above
- Employer National Insurance: 13.8% on employee earnings above the secondary threshold
You must submit a Full Payment Submission (FPS) to HMRC on or before every payday under Real Time Information (RTI) rules. Missing this triggers automatic penalties.
At year-end, issue P60s to all current employees by 31 May. If you provide any benefits in kind, file P11Ds with HMRC by 6 July.
If you offer benefits beyond salary — private health cover, company cars, travel season tickets — check whether these are taxable and how to report them correctly. Getting this wrong is a frequent and avoidable compliance failure for startups.
Auto-enrolment pensions
If you employ at least one person aged between 22 and state pension age who earns above the earnings trigger, you have auto-enrolment duties. You must enrol eligible employees into a qualifying workplace pension scheme and make contributions.
The current minimum contribution rates are:
- Employer: at least 3% of qualifying earnings
- Employee: at least 5% of qualifying earnings
You have duties from your first employee, not from some later headcount milestone. The Pensions Regulator will assign you a staging or duties start date; do not wait for a reminder. Set up a scheme before that date, enrol eligible employees promptly, and keep records of who has been enrolled, opted out, or re-enrolled.
Employees can opt out, but you must re-enrol opt-outs every three years.
Statutory leave and pay entitlements
Full-time employees working a five-day week are entitled to 5.6 weeks of paid annual leave — 28 days including bank holidays. Part-time employees receive a pro-rated equivalent.
Beyond annual leave, you must be ready to manage:
- Statutory Sick Pay (SSP): payable to eligible employees who are off sick for more than three consecutive days
- Statutory maternity, paternity, adoption and shared parental leave and pay: obligations apply from day one of employment in most cases under the updated rights framework
- Unpaid carer's leave and other day-one rights strengthened by the Employment Rights Act 2025
Many startups underestimate the administrative burden of tracking and processing leave correctly. A simple HR system or even a well-maintained spreadsheet is better than nothing. Failing to pay statutory entitlements correctly exposes you to Employment Tribunal claims.
Discipline, grievance and basic HR policies
Even a two-person team can face a grievance or a performance issue. Having a written disciplinary and grievance procedure is a statutory requirement once you have staff. The ACAS Code of Practice sets the standard; Tribunals take it into account when assessing whether an employer acted fairly.
At minimum, have documented:
- A disciplinary procedure covering warnings, investigation steps, and the right to be accompanied at hearings
- A grievance procedure employees can follow if they have a workplace complaint
- A basic equality and anti-harassment policy
You do not need a 50-page HR manual on day one. But brief, clear written policies protect both sides and demonstrate good faith if a dispute ends up before a Tribunal.
One practical note on scaling: as soon as you are hiring across multiple locations or engaging contractors alongside employees, the complexity increases substantially. How Mellow runs payroll across six countries on one platform is worth reading before that complexity arrives rather than after.
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