Written by Fraz Butt, Senior Director · SRA-regulated · Last reviewed 8 September 2026
Before hiring your first employee at your startup business, a founder needs a written contract of employment, a small number of core policies, and an understanding of statutory obligations such as pension auto enrolment and the right to work checks. Getting this right from the first hire is significantly easier than retrofitting proper employment arrangements once the team has grown, and it protects both the business and the people you bring on board. This guide sets out what to have in place before you make an offer.
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Why Employment Documentation Matters From Hire One
It is tempting, in the early stages of a business, to treat the first few hires informally, relying on a friendly relationship rather than a proper contract. This creates risk on both sides, since without clear terms, disputes over pay, hours, notice periods or ownership of work created during employment become far harder to resolve.
It also sets a precedent. The habits and documents you put in place for your first hire tend to carry forward as the team grows, so it is worth getting the template right early.
What a Contract of Employment Should Cover
By law, employees are entitled to a written statement of key terms from day one of employment, but a proper contract goes further, covering matters such as probation periods, notice, confidentiality, restrictions on working for competitors after leaving, and ownership of any intellectual property created during employment. This last point is particularly important for early hires in technical or creative roles, since without a clear clause, ownership of work created can be disputed later.
Core Policies to Have in Place
Even a very small business benefits from a small number of core policies, covering matters such as disciplinary and grievance procedures, holiday entitlement, and, depending on the sector, health and safety. These do not need to be lengthy documents, but having them in writing protects the business if a dispute arises and demonstrates that reasonable processes were followed.
Statutory Obligations Founders Often Miss
New employers must comply with pension auto enrolment obligations, carry out right to work checks before employment begins, and register as an employer with HMRC. Missing these steps can result in penalties, and right to work checks in particular carry serious consequences, including potential criminal liability, if not carried out properly.
Employees Versus Contractors
Many early stage businesses engage their first workers as contractors rather than employees, often to keep costs down and retain flexibility. This is only appropriate where the working relationship genuinely reflects self employment, and getting this wrong can expose the business to claims for employment rights, and to tax liabilities, if the relationship is later found to actually be one of employment.
Bringing Employment Advice Into Your Wider Legal Setup
Employment arrangements do not sit in isolation. They connect to your intellectual property protection, your confidentiality obligations under supplier and customer contracts, and, for founders who are also shareholders, your shareholders agreement. Bringing all of this together, as covered in our broader startup legal guide, helps make sure nothing falls between the gaps as the team grows.
Related reading: our startup legal guide.
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Frequently Asked Questions / Questions & Answers
Do I need a written contract for my first employee?
Yes. Employees are legally entitled to a written statement of key terms from their first day, and a fuller contract covering matters such as confidentiality and intellectual property is strongly recommended for any founder taking on staff.
What is the difference between an employee and a contractor?
The distinction depends on the reality of the working relationship, including how much control the business has over the work, whether the person can send a substitute, and whether they work exclusively for the business. Labelling someone a contractor does not, on its own, avoid employment obligations if the relationship is really one of employment.
What happens if I do not have proper employment contracts?
The business remains exposed to disputes over pay, hours, notice and ownership of work, and may face claims that are harder to defend without clear, agreed terms in place.
Do small businesses need to auto enrol employees into a pension?
Yes, in most cases. Pension auto enrolment obligations apply to employers regardless of size, from the point an eligible employee is taken on.
Who owns work created by an employee during their employment?
As a general rule, intellectual property created by an employee in the course of their employment belongs to the employer, provided this is properly reflected in the contract of employment.
Speak to Saracens Solicitors
For advice on employment contracts and policies for your first hires, speak to our Corporate Law team.
Visit our Corporate Law service page or call us on +44 (0)20 3588 3500 to arrange a consultation.
Saracens Solicitors, Thanet House, 231 to 232 Strand, London, WC2R 1DA.
