HR Due Diligence for UK Startups: The Absolute Legal Minimum and Culture Checklist

HR Due Diligence: UK Culture & Policy Documentation

For UK startups in the pre-seed to Series B stage, the focus is rightly on product, growth, and runway. HR documentation often feels like a problem for another day. That day arrives abruptly when a potential investor’s due diligence questionnaire lands, asking for detailed employee policies, diversity data, and evidence of a healthy workplace culture. Suddenly, that patchwork of offer letters and unwritten rules looks fragile. For an operational lead juggling finance, legal, and people, creating a robust yet pragmatic HR framework from scratch can seem daunting.

This guide provides a UK startup HR compliance checklist, outlining what is needed from your first hire to your fiftieth. It explains how to demonstrate your culture to investors without breaching GDPR, and how to maintain it all without a dedicated HR team. Consider this a practical roadmap for building a compliant and scalable people foundation that supports growth and instils investor confidence.

First Hire Essentials: A UK Startup HR Compliance Checklist

What is the absolute legal minimum you need for your first UK hire? The answer is simpler than many founders expect, but the details are non-negotiable. The UK’s legal framework is fundamentally different from the US, and getting the basics right from day one prevents significant headaches later.

A fundamental requirement of UK employment is the ‘Section 1 Statement’. According to the Employment Rights Act 1996, all employers must provide a written statement of main terms and conditions on or before an employee's first day. This is not just an offer letter; it is a specific legal document with required components.

A common misstep is using US-style 'At-Will' employment language. This is not compliant in the UK and creates immediate legal risk, as UK law provides statutory protections against unfair dismissal after a qualifying period. So, what must be included? The Employment Rights Act 1996 specifies several key details for a Section 1 Statement:

• Names of the employer and employee
• Start date and any previous continuous employment
• Pay details, including amount and frequency
• Working hours, including any variations
• Holiday entitlement and holiday pay calculation
• Job title or a brief description of the work
• Place of work

This information forms the core of your employment contract. Furthermore, the Section 1 Statement must point to where policies on sickness, grievance, and disciplinary procedures can be found. For an early-stage startup, these policies can be simple, one-page documents. The critical step is ensuring they exist and are correctly referenced. For most pre-seed companies, these foundational documents, combined with a clear contract governed by the laws of England and Wales, are all you need for your initial hires, forming a solid base for your staff onboarding documents UK.

Scaling Up (10-50 Employees): The Pragmatic Employee Handbook

As your team grows past ten employees, reliance on a simple contract and a few separate policies becomes inefficient. Questions arise more frequently about parental leave, flexible working, or expenses. This is the trigger point for creating a centralised employee handbook. The objective is to produce a document that serves the business without creating unnecessary contractual obligations, meeting the core employee handbook requirements UK.

Crucially, employee handbooks are typically designated as non-contractual. This status allows for easier updates as the company and its policies evolve; you can change a policy without needing every employee to sign a new contract. The employment contract itself should explicitly state that the handbook is non-contractual and subject to change by the company. This distinction is vital for maintaining operational agility.

When building your first handbook, focus on the real-world questions your team is asking. Avoid copying a 100-page corporate template filled with irrelevant policies. Start with the essentials:

• Code of Conduct: Outlines expected standards of behaviour.
• Equal Opportunities Policy: A statement of your commitment to fair treatment.
• Grievance and Disciplinary Procedures: More detailed versions of the policies referenced in your contracts.
• Sickness Absence and Pay: Clarifies reporting procedures and statutory pay.
• Data Protection Policy: Explains how you handle employee data in a GDPR-compliant way.
• Health and Safety Policy: A legal requirement for any business.

Then, add policies that reflect your specific culture. A SaaS startup encouraging remote work, for example, will need a clear flexible working policy. Consider this simple wording:

We operate on a basis of trust and mutual respect. We support flexible working arrangements where they align with business needs. Team members wishing to adjust their hours or location should discuss their proposal with their line manager. The focus will be on maintaining team collaboration and meeting performance objectives. Formal requests will be considered in line with statutory requirements, but we encourage informal, practical arrangements wherever possible.

This approach creates a document that is both compliant and culturally relevant, serving as a useful guide rather than a restrictive rulebook.

The Investor Question: Demonstrating Culture & D&I for Due Diligence

During fundraising, investors scrutinise people risk just as closely as financial projections. A key part of preparing for investor HR review is providing data on your company culture and Diversity and Inclusion (D&I) efforts. For founders without an HR team, this presents two challenges: how to collect this information and how to present it without violating privacy laws like GDPR.

Under GDPR, certain information is classified as 'special category data', which includes details on ethnicity, sexuality, religious beliefs, and health. This is highly sensitive information. A scenario we repeatedly see is a well-intentioned founder collecting this data in a spreadsheet to answer a due diligence question. However, collecting D&I data in a spreadsheet tied to employee names is a significant GDPR breach. It creates enormous risk and signals operational immaturity to potential investors.

The correct approach is to use a third-party, anonymised survey. Tools like Culture Amp, Peakon, or even a carefully configured Google Forms can collect this data without linking responses to individuals. The key is communicating this process clearly to your team to build trust. Here is an example of GDPR-compliant phrasing for a voluntary D&I survey request:

To help us understand our team’s diversity and ensure we are building an inclusive environment, we are running a short, anonymous survey. Your participation is completely voluntary. All data is collected by a secure third-party platform and will only be viewed in an aggregated, anonymised format. No individual responses will ever be seen or shared. This information helps us meet our D&I goals and provides necessary reporting for stakeholders.

This aggregated data is what you share with investors. It demonstrates that you are proactively managing UK diversity reporting and workplace culture documentation in a compliant, professional manner. It shows maturity beyond your company’s size, and proves your process is as important as the numbers.

Keeping it Current: A Low-Effort Maintenance Plan

Creating your HR documents is one task; preventing them from becoming obsolete is another. For a resource-constrained startup, a complex annual review process is unrealistic. A more effective method is a mix of event-triggered and simple calendar-based updates to ensure your UK employment policies remain fit for purpose.

Event-triggered updates happen in response to a specific change. This could be a significant shift in UK employment law, like new legislation on parental leave, or an internal change, such as introducing a major new benefit that needs to be documented. These updates are reactive but necessary to maintain compliance and relevance.

Calendar-based updates are proactive but should be kept simple. Schedule a single, brief review once a year. The operational lead who owns the documents should check them against two primary criteria: Are they still legally compliant? And do they still reflect how we actually work? This light-touch review prevents the handbook from becoming a work of fiction. For instance, if your company has gone fully remote, the section on office etiquette is no longer relevant and should be updated. This low-effort plan ensures your documentation remains a living, useful resource rather than a forgotten file.

Building a Scalable and Compliant HR Foundation

Navigating HR compliance for startups in the UK does not require a massive investment, but it does demand attention to detail and a pragmatic, staged approach. As you build your company, your documentation should evolve with you. By following a clear process, you can build a strong, compliant HR foundation that supports your growth and satisfies the scrutiny of due diligence.

• For your first hire, the priority is a compliant Section 1 Statement. It is the legal minimum and must be in place from day one. Do not use US-style 'at-will' templates.
• As you scale toward 50 employees, a non-contractual employee handbook becomes essential for consistency and efficiency. Keep it simple and focused on policies that reflect your genuine ways of working.
• When investors ask for culture and D&I data, use anonymised surveys to collect sensitive information. This respects GDPR and demonstrates operational maturity. Never use a spreadsheet with names for this purpose.
• Finally, maintain your documents with a simple system of event-triggered and annual reviews. This ensures your policies remain relevant without becoming a time-consuming burden.

Frequently Asked Questions

Q: Do I need a full employee handbook for my first hire in the UK?
A: No, for your first hire, the legal minimum is a compliant Section 1 Statement and access to policies on sick pay, grievance, and disciplinary procedures. A full handbook typically becomes necessary for consistency and efficiency as you scale beyond 10-15 employees.

Q: Can I use our US employee handbook for our UK team?
A: No, this is a common and risky mistake. US employment concepts like 'at-will' employment are not compliant with UK law, which grants employees statutory rights against unfair dismissal. You must create UK-specific documents governed by the laws of England and Wales.

Q: What's the biggest HR mistake UK startups make before fundraising?
A: A frequent error is collecting sensitive diversity and inclusion data on an internal spreadsheet with employee names. This is a significant GDPR breach and a major red flag for investors, who will see it as a sign of poor governance and potential liability.

Q: How do I prove a positive workplace culture to investors beyond D&I data?
A: To demonstrate a healthy culture, you can share anonymised employee engagement survey results, such as an employee Net Promoter Score (eNPS). You can also present your key policies on flexible working and professional development, and discuss positive metrics like employee retention and promotion rates.