Hiring your first engineer: UK employment basics

UK employment law is more protective than the lore suggests but still lighter than most of Europe. The few rules it has are unforgiving on timing. Get the structure right on the first contract and you will reuse it ten times. Get it wrong and the first dismissal turns into a tribunal claim, the first contractor turns into a 50,000-pound IR35 bill, and your investor's due diligence finds an IP hole.

The frame sits in four statutes: the Employment Rights Act 1996 (ERA, the spine of UK employment law), the Equality Act 2010 (discrimination and protected characteristics), the Working Time Regulations 1998 (SI 1998/1833, hours, breaks, holiday), and Chapter 10 of Part 2 ITEPA 2003 (off-payroll working, the IR35 reform). Every clause in your offer letter ladders to one of those four.

The Section 1 statement, not optional and not the same as a contract

Every employee and every worker is entitled to a written statement of particulars under ERA 1996 s.1, given on or before day one of employment (revised by the Good Work Plan reform effective 6 April 2020). It must cover names, start date, pay, hours, holiday, place of work, job title, probationary period, training entitlement, and notice on both sides. The Section 1 statement is a statutory minimum, not a contract. You still need a separate employment contract with the IP assignment, confidentiality, restrictive covenants and post-termination obligations. Most UK startups bundle both into one document signed before day one.

Probation, notice, and unfair dismissal

Statutory notice under ERA 1996 s.86 is one week after one month of employment, then one additional week per complete year of service up to a maximum of 12 weeks. You can contractually extend (one to three months is typical for engineering hires) but cannot drop below the statutory floor. A 3 to 6 month probationary period is standard; contractual notice during probation is commonly one to two weeks. Unfair-dismissal protection kicks in at two years' continuous service under ERA 1996 s.108, with a few exceptions (discrimination claims under the Equality Act and automatically unfair dismissals such as whistleblowing or pregnancy attract no qualifying period). Before two years, you can dismiss for any non-discriminatory reason; after two years, you need a fair reason and a fair procedure.

Can I dismiss someone during probation if their performance is poor?

Yes, with two cautions. Before two years of service the unfair-dismissal regime does not apply, so a poor-performance dismissal needs only contractual notice (not a fair procedure). But the Equality Act 2010 applies from day one, so any dismissal that could look discriminatory on a protected characteristic (sex, race, religion, age, disability, pregnancy) carries tribunal risk with uncapped compensation. Document the performance issues, give written feedback, and confirm the dismissal reason in writing. Tribunal fees were ruled unlawful in R (UNISON) v Lord Chancellor [2017] UKSC 51 and remain at nil, so the cost of a claim is in your time and legal fees, not the claimant's pocket.

PAYE, NI and registering as an employer

Before the first payday, register as an employer with HMRC and set up PAYE (Pay As You Earn). Income tax bands for 2024/25 run 0 percent up to 12,570 pounds (personal allowance), 20 percent to 50,270, 40 percent to 125,140, and 45 percent above. Employee National Insurance is 8 percent on the band from 12,570 to 50,270 and 2 percent above. Employer NI is 13.8 percent on everything above 9,100 pounds per year, and is your cost on top of the headline salary. A 100,000 pound salary costs the company roughly 112,500 pounds with employer NI before benefits. Add auto-enrolment workplace pension contributions under the Pensions Act 2008: employer 3 percent minimum, employee 5 percent, on qualifying earnings.

IR35 and the contractor temptation

Contractor via personal service company looks cheaper until IR35 catches you. The off-payroll working rules in Chapter 10 ITEPA 2003 (effective 6 April 2021 for medium and large private-sector clients) require the engager to assess whether the contractor would, absent the intermediary, be an employee for tax purposes. The test follows Ready Mixed Concrete v Ministry of Pensions [1968] 2 QB 497: mutuality of obligation, control, and absence of personal-service substitution. If the contractor is inside IR35, you must operate PAYE on their fees, pay employer NI on top, and issue a Status Determination Statement (SDS). Small clients (turnover under 10.2 million, balance sheet under 5.1 million, fewer than 50 employees) are exempt, but you grow out of that quickly. Get the SDS right or HMRC bills you for the tax the contractor did not pay.

We are a 15-person startup. Are we exempt from the IR35 SDS obligation?

Probably yes today, but the threshold tracks the Companies Act 2006 small-company definition (s.382), and you cross it the moment you raise a meaningful Series A. The exemption is tested year on year against the prior accounting period, so a fast-growth startup that crosses the threshold owes SDS from the start of the next financial year. Even when exempt, the IR35 risk simply shifts to the contractor's personal service company; if you hire someone who later gets re-assessed inside IR35, your future-self contract is on HMRC's radar. The clean approach: put serious engineers on payroll under EMI, use contractors only for true short-term project work with substitution rights and no fixed hours.

IP assignment, confidentiality, and the moonlight problem

Copyright in code written by an employee in the course of employment vests in the employer under CDPA 1988 s.11(2). Patents from employees follow the Patents Act 1977 s.39: inventions made in the course of normal duties belong to the employer; inventions outside normal duties belong to the employee. Add an explicit IP-assignment clause covering all work product, all code, all designs, and a duty to disclose inventions within seven days of conception. Add a moral-rights waiver under CDPA 1988 s.87. Without the explicit clause, your engineer's clever side project, built on the company laptop at the weekend, may not belong to you.

Restrictive covenants after Tillman

Post-employment non-competes are enforceable in England under the restraint-of-trade doctrine but only if they protect a legitimate business interest and go no wider than necessary. Tillman v Egon Zehnder Ltd [2019] UKSC 32 rewrote the law: the court will sever (blue-pencil) unenforceable wording from a clause if (a) the unenforceable wording can be removed without rewriting, (b) the remaining wording stands as a meaningful contract, and (c) severance does not generate a major change to the overall effect. A 12-month non-compete on a senior engineer is now routinely held unenforceable; 6 months in a defined market with named direct competitors is defensible. Pay garden leave for the notice period to preserve confidentiality, and rely on 6 months non-solicit of customers and employees as the workhorse clauses, not on non-compete.

Realistic budget for hiring my first non-UK engineer post-Brexit?

After Brexit, EU and non-EU nationals follow the same regime. You need to be a licensed Skilled Worker sponsor (UK Visas and Immigration application fee 536 pounds for small companies, 1,476 for large, plus a Certificate of Sponsorship at 239 pounds per hire). The Skilled Worker visa requires a 38,700 pound minimum salary (raised from 26,200 in April 2024, with limited exceptions for shortage-occupation roles and new entrants), Immigration Skills Charge of 364 pounds per year for small companies (1,000 for large), and an Immigration Health Surcharge paid by the employee at 1,035 pounds per year. Total marginal cost above salary for the first sponsored hire: 6,000 to 12,000 pounds plus 8 to 12 weeks of timeline from licence application to first day. UK and Irish hires start in 4 weeks for no marginal cost.