Introduction

If you’re running a small business with up to 20 staff, HR might not always feel like the top priority-until something goes wrong. From costly fines to time-consuming disputes, the smallest misstep can turn into a big expense. Here are the top three HR mistakes we see UK small businesses make, and how to avoid them with simple, practical fixes.

1. Not Paying the Correct Minimum Wage

The Cost: Fines of up to £20,000 per worker, plus 200% of the underpayment and repayment of all owed wages. In 2022–2023, HMRC issued £13.72 million in penalties and recovered £13.66 million in arrears for over 108,000 workers.

The Risk: Even a minor mistake in pay calculations or using outdated rates can trigger serious penalties. Common issues include unpaid working time and incorrect apprenticeship rates. Over 200 employers (many SMEs) were publicly named and shamed in 2023.

Avoid It: Stay on top of pay changes. The government updates rates every April, make sure you're using the latest version. Bookmark the official guidance: National Minimum Wage rates - GOV.UK

2. Mishandling Dismissals or Grievances

The Cost: Average unfair dismissal awards exceed £13,700, with a maximum compensatory award of £118,223. Landmark cases like Wright-Turner v Hammersmith Council resulted in a £4.5 million payout for disability discrimination—this was an uncapped award, which is allowed in discrimination cases.

The Risk: Without clear policies or a fair process, you leave yourself open to legal claims, even if your intentions were fair. Tribunal claims rose 13% in Q2 2024, with open cases up 18%.

Avoid It: Use simple, clear contracts and policies. Tackle issues early, and keep notes of conversations. If you’re unsure what’s fair, get advice before acting.

3. Failing to Conduct Right to Work Checks

The Cost: Up to £45,000 per illegal worker for a first offence, rising to £60,000 for repeat breaches. In Q2 2024 alone, £21.4 million in penalties were issued affecting 861 workers.

The Risk: SMEs are often disproportionately impacted. A small business hiring just two ineligible workers could face up to £120,000 in penalties.

Avoid It: Always check documents before the first day of work and keep a secure copy. Follow the government guide to stay safe: Right to work checks - GOV.UK

Final Thoughts

For small businesses, getting HR wrong isn’t just risky-it’s expensive. The good news is that these mistakes are totally avoidable with the proper support and systems.

Get a Free HR Audit

Not sure where your risks are? We’re offering a free HR audit to small businesses across the UK. It’s fast, friendly, and focused on helping you stay compliant and confident.

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