Employment Law Basics for Trade Businesses UK — What Every Small Employer Must Know (2026)

The moment you hire your first employee, you become a small employer with obligations that span employment contracts, minimum wage, holiday pay, pensions, health and safety, and more. Most trade business owners learn employment law the hard way — after a dispute. This guide is the briefing you should have had before that first hire: the rules that matter, the rates that apply in 2026, and the mistakes that land trade employers in front of an employment tribunal.

1. Employment status: employee, worker or self-employed?

UK law recognises three categories of working person, and getting this wrong is one of the most expensive mistakes a trade employer can make. An employee works under a contract of employment, has the full range of employment rights (unfair dismissal, redundancy pay, statutory maternity/paternity pay), and has income tax and National Insurance deducted at source via PAYE. A worker has fewer rights than an employee but more than the self-employed — they are entitled to the National Minimum Wage, holiday pay, rest breaks, and protection against unlawful discrimination, but not unfair dismissal rights or redundancy pay. The genuinely self-employed are in business on their own account: they invoice you, handle their own tax, and have no employment rights against you.

The common mistake in the trades is treating someone as self-employed when HMRC and an employment tribunal would classify them as a worker or employee. The label you put on the arrangement is irrelevant — what matters is the reality of how the relationship works. HMRC and tribunals apply three key tests:

• Mutuality of obligation: Do you have to offer work and does the person have to accept it? If yes, this points toward employment.
• Personal service: Must the person do the work themselves, or can they send a substitute? The right to send an unrestricted substitute points toward genuine self-employment.
• Control: Do you control what they do, when, where and how? High levels of control point toward employment or worker status.

If you regularly use the same subcontractor, tell them when to arrive, what van to drive, and supply all their tools — HMRC may well conclude they are a worker or employee regardless of what their contract says. The consequences include unpaid employer NI, holiday pay arrears and potentially unfair dismissal claims.

2. Written statement of particulars

Since April 2020 every employee and worker must receive a written statement of their key employment particulars on or before their first day of work. This is not optional and the absence of one is an automatic finding against you in any tribunal claim. The statement must include:

• The employer's name and the employee's name
• The start date and, if relevant, the end date (for fixed-term contracts)
• Rate of pay and how often it is paid
• Hours of work
• Holiday entitlement and pay
• Notice periods on both sides
• Job title or a brief description of the job
• Sick pay entitlement (if any beyond SSP)
• Pension arrangements
• Any collective agreements that affect terms

A simple two-page document covering these points is sufficient. ACAS publishes a free contract template at acas.org.uk that is perfectly serviceable for most trade businesses. Do not copy a template from the internet without reading it — many circulating templates contain clauses that are either unenforceable or out of date.

3. National Minimum Wage 2026 rates

From April 2026 the National Living Wage (NLW) — the main rate for workers aged 21 and over — is £12.21 per hour. The rates for younger workers are:

These are legal minimums. Pay below them — including through unlawful deductions for tools, clothing or travel — is a criminal offence. HMRC runs an NMW enforcement team and names employers in a public register of non-compliance. In the trades, the most common NMW error is deducting the cost of PPE or uniform from a low-paid worker's wages and inadvertently taking them below the minimum.

4. Holiday entitlement

Full-time employees are entitled to 5.6 weeks' paid holiday per year — 28 days including bank holidays. You can structure this as 20 days plus 8 bank holidays (the most common approach), or 28 days with bank holidays counted within that total. Both are lawful. You cannot give less than 28 days total.

For part-time and irregular-hours workers, entitlement is pro-rated. From April 2024, HMRC confirmed that irregular-hours workers accrue holiday at 12.07% of hours worked in each pay period — a method that was formally legislated following the Harpur Trust v Brazel Supreme Court ruling. If you use day-rate or zero-hours workers, you must calculate and pay holiday correctly or expose yourself to arrears claims going back up to two years.

Holiday pay must be calculated on the basis of normal pay — including regular overtime and commission — not basic pay alone. This has been confirmed by the Supreme Court and consistently upheld in tribunal claims against trade employers who paid holiday at basic rate only.

5. Statutory Sick Pay

Statutory Sick Pay (SSP) kicks in from day four of a period of sickness absence (the first three days are “waiting days” for which you pay nothing). From April 2026 the SSP rate is £118.75 per week. You pay it for up to 28 weeks per period of incapacity. SSP is recoverable from HMRC only for small employers who qualify under the Statutory Sick Pay Rebate Scheme — check HMRC guidance for current eligibility thresholds, as these change.

You can offer enhanced sick pay (above SSP) in your employment contracts, but you cannot offer less than SSP. If your contracts say “no sick pay,” SSP still applies as a statutory floor. Document absence properly: employees can self-certify for up to seven days; after that you can require a fit note from their GP. Keep absence records — patterns of short-term absence are relevant to any capability or conduct process.

6. Maternity, paternity, adoption and parental leave

Eligible employees are entitled to up to 52 weeks' maternity leave and up to 39 weeks' Statutory Maternity Pay (SMP). SMP is paid at 90% of average weekly earnings for the first six weeks, then the flat rate (currently £187.18 per week from April 2026) or 90% of earnings if lower, for the remaining 33 weeks. You can reclaim 92% of SMP from HMRC (103% if you qualify as a small employer).

Eligible employees are entitled to up to two weeks' Statutory Paternity Pay (SPP) at the same flat rate. Adoption leave and pay mirrors the maternity arrangements. All employees on maternity, paternity or adoption leave have the right to return to the same job (or, where that is not reasonably practicable after longer leave, a suitable alternative). Failing to honour this right is automatic unfair dismissal and potentially sex discrimination.

Shared parental leave allows parents to share up to 50 weeks of leave and 37 weeks of pay between them. The take-up rate remains low, but eligible employees have the right to request it and you must not disadvantage them for doing so.

7. Auto-enrolment pension

The moment you hire your first eligible employee, you become a pension scheme employer. Auto-enrolment applies to all eligible employees aged 22 to State Pension age who earn more than £10,000 per year. You must automatically enrol them into a qualifying workplace pension scheme within six weeks of their start date.

Minimum pension contributions are: 3% from the employer and 5% from the employee (totalling 8% of qualifying earnings). Qualifying earnings are currently those between £6,240 and £50,270 per year. If you do not have an existing pension scheme, NEST (the government-backed National Employment Savings Trust) is the default option — it accepts all employers and has no minimum employer size. Register at nestpensions.org.uk before your first payroll run that includes the new hire.

Failing to auto-enrol is one of The Pensions Regulator's enforcement priorities. Fixed penalty notices start at £400 and escalate to daily fines of up to £10,000 for larger employers. Small trade businesses are not exempt from these penalties.

8. Working Time Regulations

The Working Time Regulations 1998 set maximum working hours and minimum rest requirements. The key rules are:

• 48-hour maximum working week: averaged over 17 weeks. Workers can opt out in writing — but only individually and voluntarily. A clause in a standard contract that says “you agree to opt out of the 48-hour limit” is lawful, but you cannot compel someone to sign it or dismiss them for refusing.
• Rest breaks: workers are entitled to a 20-minute unpaid rest break during any shift exceeding six hours. You must give it; you cannot substitute pay for the break.
• Daily rest: 11 consecutive hours between working days. A worker who finishes at midnight cannot be required to start again before 11am.
• Weekly rest: 24 uninterrupted hours in every seven-day period (or 48 hours in 14 days). Weekend working must be managed to comply with this.

Long hours culture is common in the trades — early starts, late finishes, Saturday working. Compliance does not require you to stop that, but it does require that you do not compel it or penalise workers who insist on their rest entitlements.

9. Right to work checks

Before every new hire starts work, you must check that they have the right to work in the UK. The check must be carried out and documented before day one — not at some point during the first week. There are two routes:

• Manual document check: for British and Irish passport holders. Take the original document, copy it, and record the date of the check. A valid passport is sufficient.
• Online right to work check: for anyone with a Biometric Residence Permit, eVisa, or other Home Office digital status. Use the Home Office employer checking service at gov.uk. You must use the online service for these workers — a physical document alone is not sufficient.

If you carry out the check correctly and the worker later turns out not to have had the right to work, you have a statutory excuse against a civil penalty (currently up to £60,000 per illegal worker). If you did not carry out the check, or carried it out improperly, you have no defence. Subcontractors on your site are responsible for checking their own workers — but if you are the principal contractor, ensure they are complying.

10. Discrimination law

The Equality Act 2010 protects workers and job applicants from discrimination based on nine protected characteristics: age, disability, gender reassignment, marriage and civil partnership, pregnancy and maternity, race, religion or belief, sex, and sexual orientation. Any decision — hiring, pay, promotion, dismissal, day-to-day treatment — that disadvantages someone because of a protected characteristic is potentially unlawful.

In the trades, the most common discrimination claims arise from: dismissal during maternity leave or pregnancy (automatic unfair dismissal and sex discrimination); age-related comments in the workplace that amount to harassment; and failure to make reasonable adjustments for disabled workers. There is no service requirement for discrimination claims — a worker can bring a claim from day one.

11. Unfair dismissal

Employees with two or more years' continuous service can bring an unfair dismissal claim to an employment tribunal. To defend a dismissal, you need both a potentially fair reason and a fair process.

The five potentially fair reasons for dismissal are: conduct(e.g. theft, persistent lateness, fighting); capability(e.g. poor performance, long-term sickness); redundancy(genuine reduction in the need for work of a particular kind); statutory bar (e.g. losing a driving licence that the job requires); and some other substantial reason (a catch-all that covers genuine business reorganisation, expiry of a fixed-term contract, etc.).

A fair process means following the ACAS Code of Practice on disciplinary and grievance procedures: investigate before acting, give the employee written notice of the meeting and the allegations, hold a meeting at which they can respond, allow them to be accompanied by a colleague or trade union representative, and give them the right to appeal any decision. Tribunals can uplift any award by up to 25% if you unreasonably fail to follow the ACAS Code.

The maximum compensatory award for unfair dismissal in 2026 is £115,115 or 52 weeks' pay (whichever is lower), plus a basic award calculated on service length. Most successful claims settle for significantly less — but the cost of defending a claim, even one you win, can run to thousands of pounds in management time and legal fees.

Getting help when you need it

ACAS (the Advisory, Conciliation and Arbitration Service) is the first port of call for any employment law question. Their free helpline is 0300 123 1100 and their guidance at acas.org.uk covers virtually every scenario a small trade employer is likely to encounter. For day-to-day HR support — contracts, policies, managing absence — a retained HR consultant charging a monthly retainer is often more cost-effective than paying a solicitor by the hour every time a question arises. When things go wrong and a tribunal claim lands, engage an employment solicitor immediately — early advice is significantly cheaper than late intervention.

Employment law is not something to learn as you go. The penalties for getting it wrong — tribunal awards, HMRC penalties, reputational damage — are disproportionate to the effort it takes to get it right from the start. A sound set of contracts, a documented process for discipline and grievance, and a clear auto-enrolment setup will protect most small trade businesses from the majority of employment law risk.