The Importance of Basic HR Functions for Small Businesses Ahead of the New UK Employee Rights Bill

The new year will bring significant changes to employee rights in the UK, with a new Employee Rights Bill set to come into force. For small and start-up businesses, this means adapting quickly to new legal requirements. Many small business owners may feel overwhelmed by the prospect of updating their human resources (HR) practices. Yet, having basic HR functions in place is not just about compliance, it’s about building a strong foundation that supports growth, protects the business, and fosters a positive workplace culture.

This article explains why small businesses need to prioritise basic HR functions now, what those functions include, and how they can prepare for the upcoming changes in employee rights.

Why Small Businesses Must Focus on HR Now

Small businesses often operate with limited resources and informal processes. When new legislation arrives, it can be tempting to delay action until the last minute. However, failing to establish basic HR functions can lead to costly mistakes, legal risks, and employee dissatisfaction.

The new Employee Rights Bill will introduce clearer rules on contracts, pay transparency, and employee protections. Without proper HR systems, small businesses risk:

• Non-compliance fines or legal disputes

• Poor employee communication and misunderstandings

• Difficulty managing recruitment, contracts, and payroll

• Damage to reputation and employee morale

  
  

By setting up basic HR functions now, small businesses can avoid these pitfalls and create a workplace that attracts and retains talent.

Essential HR Functions for Small Businesses

Small businesses do not need complex HR departments to meet legal requirements or support employees effectively. A few key functions can make a big difference:

1. Clear Employment Contracts

Every employee should have a written contract that outlines their role, pay, hours, and rights. The new bill will require contracts to be more transparent and detailed. Having clear contracts prevents confusion and protects both parties.

Example: A start-up that provides a simple, clear contract avoids disputes over working hours or pay rates, which can otherwise lead to costly grievances.

2. Accurate Payroll and Record-Keeping

Payroll must be accurate and timely. The new rules will increase scrutiny on pay transparency and record-keeping. Small businesses should use reliable payroll software or services to track hours, wages, and deductions.

Example: A small retailer using payroll software can easily generate payslips that comply with new transparency requirements, reducing administrative burden.

3. Basic Policies and Procedures

Even simple policies on absence, sick leave, and grievance handling help set expectations. These policies should be written down and shared with employees. They provide a framework for consistent treatment and legal compliance.

Example: A café with a clear sick leave policy can manage absences fairly and avoid misunderstandings during busy periods.

4. Recruitment and Onboarding Processes

Structured recruitment and onboarding ensure new hires understand their roles and rights from day one. This includes providing contracts, explaining policies, and introducing workplace culture.

Example: A tech start-up that follows a checklist for onboarding reduces early turnover and builds employee confidence.

5. Training and Development

While often overlooked, basic training on employee rights and workplace expectations benefits both employer and employee. It helps prevent breaches of the law and promotes a respectful environment.

Small business owner reviewing employee contracts

Preparing for the New Employee Rights Bill

The new bill will bring changes such as:

• Stronger rules on written statements of employment

• Enhanced rights for gig economy and zero-hours workers

• Increased transparency on pay and benefits

• Clearer protections against unfair dismissal

  
  

Small businesses should take these steps to prepare:

• Review and update contracts to meet new transparency standards

• Implement or upgrade payroll systems to ensure accurate record-keeping

• Develop clear policies on working hours, pay, and grievance procedures

• Train managers and staff on new employee rights and responsibilities

• Seek advice from HR professionals or legal experts if unsure

  
  

Taking action early reduces the risk of non-compliance and helps businesses adapt smoothly.

Benefits Beyond Compliance

Basic HR functions do more than keep a business legal. They improve communication, build trust, and create a positive work environment. Employees who understand their rights and feel supported are more likely to stay and contribute.

For example, a small business that communicates pay structures clearly and handles grievances fairly will see fewer disputes and higher morale. This leads to better productivity and customer service.

Final Thoughts

Small and start-up businesses face challenges with limited resources and fast growth. Yet, investing in basic HR functions is essential as the new UK Employee Rights Bill approaches. Clear contracts, accurate payroll, simple policies, and good communication form the backbone of a compliant and healthy workplace.