TUPE when you buy a small business: what happens to the staff, and what to ask the seller first
By Provenance Diligence team · .
Contents
- Share sale or business sale: does TUPE apply?
- Who moves across with the business
- What passes to you with each contract
- Changing pay and terms after you buy
- Pay, notice and holiday: the numbers to price
- Sources
1. Share sale or business sale: does TUPE apply?
Short answer: TUPE applies when you buy a business or a part of one that keeps its identity after the sale. It does not apply when you buy the shares of the company that employs the staff.
Start with the deal structure, because it decides everything else in this post. In a share purchase you buy the company itself. The company stays the employer, so the same company still holds every staff contract before and after the sale, and TUPE has nothing to transfer (BIS guide, Part 1).
In a business or asset purchase you buy the trading operation from the company that runs it. The staff contracts sit with the seller's company, and TUPE moves them to you if the deal is a "relevant transfer". A business transfer is a transfer of an undertaking, business or part of one in the UK to another person, where an economic entity keeps its identity (TUPE reg 3(1)(a)).
An economic entity is an organised grouping of resources that has the objective of pursuing an economic activity, whether or not that activity is central or ancillary (TUPE reg 3(2)). In small-business terms that means the trading unit as a whole: premises or the right to use them, stock, equipment, customer relationships, the brand, and the people who work it.
Buying equipment alone is not a transfer of an economic entity. The BIS guide gives the sale of equipment alone as an example that TUPE does not cover (BIS guide, Part 1). If you buy a van and some tools but not the customers, the name or the staff's work, you may not be buying a business at all.
The second route into TUPE is the service provision change, which applies when a client moves a contract for services to a new provider (TUPE reg 3(1)(b)). It matters to a buyer of a small business only when the business lives on a contract that is being re-let. Check whether the main revenue comes from one such contract before you assume a plain asset sale.
What to do with this:
- Write down, in the offer letter, which structure you are proposing: shares, or business and assets.
- List what you are buying. If the list contains premises, stock, customer contracts, name and staff, treat the deal as a business transfer.
- Do not rely on the seller's description of the deal. The test is what actually transfers, not what the contract is called (TUPE reg 3(1)(a)).
A share purchase does not remove staff risk. The employer's history of pay arrears, holiday owed or unresolved grievances stays inside the company you now own. In a share sale you take those liabilities because you own the employer. In an asset sale you take them because TUPE passes them to you. Either way the liabilities arrive.
One question to put to your adviser for this section: does the draft heads of terms describe a transfer of an economic entity, or only a purchase of assets, and which does the seller's company intend?
2. Who moves across with the business
Short answer: Employees who are assigned to the part of the business you buy, other than on a temporary basis, move to you automatically. You cannot choose who moves.
The people who transfer are those employed in the business immediately before the transfer (TUPE reg 4(3)). Employee here has a defined meaning: an individual working under a contract of service or apprenticeship or otherwise, but not under a contract for services (TUPE reg 2(1)). Genuinely self-employed contractors are outside the definition.
Staff must also be "assigned" to the part you are buying. Assigned means assigned other than on a temporary basis (TUPE reg 2(1)). The BIS guide says the question turns on the link between the person and the work, not just the time spent on it (BIS guide, Part 1).
Where one person works across several sites or companies, the written facts decide: where the hours were spent, who directed the work and which part of the business depended on it. A job title does not settle the question.
Ask the seller for these documents, and settle the list of transferring staff in writing before signing:
- The staff list as at the date of the offer, with start date, role, normal place of work and the part of the business each person works in.
- The rota or timesheets for the last 12 weeks, showing where each person actually worked.
- For each person who works across more than one business or site, a note of how the hours split.
That list is your working assumption, not a legal conclusion. A person left off the list who spends most of their working time on your part of the business can still transfer. A person on the list who is really assigned elsewhere may not. The test is the facts of the work (BIS guide, Part 1).
You cannot refuse individual employees. The BIS guide states that the buyer cannot pick and choose which employees transfer (BIS guide, Part 2). If you want a smaller team, the legal route is a fair redundancy process, not a refusal at the door.
Agency workers need a separate look. TUPE requires the employer to tell staff representatives how many agency workers work temporarily for and under its supervision, in which parts of the business and doing what work (TUPE reg 13(2)). Ask for the agency contract and a list of agency workers by role, because the information duty counts them.
One question for your adviser here: for each person whose time is split, does the written staff list put them in the part of the business you are buying?
3. What passes to you with each contract
Short answer: You take the contract as it stands, with its rights, duties and liabilities, and the employee's length of service carries over unbroken.
On a relevant transfer the contract of each transferring employee has effect as if it had originally been made with you. The seller's rights, powers, duties and liabilities under or in connection with the contract pass to you (TUPE reg 4(1) and (2)). That means pay, hours, holiday, notice, bonus terms, contractual sick pay and any promises made in the contract or in writing.
Service carries over too. A transfer of a trade, business or undertaking does not break continuity: it counts as one continuous period of employment (ERA 1996 s.218(2)). A person who started in 2019 with the seller arrives with seven years behind them, and that length drives redundancy pay and notice (see section 5).
The BIS guide adds the point that matters most in price talks: the buyer inherits liabilities, including those that arose from the seller's breaches before the transfer, and an indemnity from the seller is common practice (BIS guide, Part 2). Pay arrears, unpaid holiday and an unresolved discrimination claim can all follow the employee to you.
Collective terms follow as well. A collective agreement in force at the transfer has effect after it as if you had made it (TUPE reg 5). Trade union recognition passes to you only if the transferred part keeps an identity distinct from the rest of your operations (TUPE reg 6(1)). A small buyer that merges the acquired shop into its own team may lose that identity, and with it the recognition.
Put the inherited terms into one table before you price the deal:
| Term | Document to request | Period |
|---|---|---|
| Pay rate and any bonus | Payroll register and each employment contract | Last 12 months |
| Holiday owed | Holiday record per employee for the current leave year | Current leave year |
| Notice | Written statement of employment particulars per employee | As issued |
| Sick pay and benefits | Contract or staff handbook | In force |
| Collective terms | Collective agreement and union recognition letter | In force |
The written statement is the starting document. An employer must give each employee a written statement of the basic particulars of employment from the start of employment (ERA 1996 s.1). Ask for every person's statement and check it against the payroll register line by line. Where the two disagree, the employee's contract and the statement matter, not the seller's explanation.
Terms the seller promised orally also pass if they form part of the contract. Ask the seller to confirm in writing, in the sale agreement, a complete list of all agreed terms with each employee, including any informal arrangement on pay rises, commission, flexible hours or time off in lieu.
For your adviser in this section: which pre-transfer breaches by the seller would pass to you under the draft asset purchase agreement, and does the draft indemnity cover each of them?
4. Changing pay and terms after you buy
Short answer: A change to a transferred contract is void if the sole or principal reason is the transfer, even if the employee agrees. Only the listed exceptions let you change terms.
The general rule is that contracts cannot be varied if the sole or principal reason for the variation is the transfer. A purported variation of that kind is void, even where employer and employee agreed it and it would have been valid without a transfer (BIS guide, Part 3). The same restriction applies to the seller who changes terms in anticipation of the transfer for the staff who will move (BIS guide, Part 3).
The BIS guide lists the circumstances in which terms can change (BIS guide, Part 3):
| Exception | What it means in practice |
|---|---|
| Reason unrelated to the transfer | The sole or principal reason is something else |
| ETO reason, with the employee's agreement | An economic, technical or organisational reason entailing changes in the workforce, agreed by employer and employee |
| The contract allows it | The contract already contains a power to vary, and the power was not agreed because of the transfer |
| Collective agreement terms, after a year | The change takes effect more than a year after the transfer and leaves the contract no less favourable overall |
| Entirely positive change | Every change is to the employee's benefit |
| Insolvency | A variation permitted in insolvency |
Harmonisation is the trap that catches small buyers. A buyer that wants transferred staff on the same pay scale or holiday scheme as its existing team is acting because of the transfer. The BIS guide says that bringing terms into line with existing staff makes the transfer the reason for the change, so the change is void and harmonisation is not an ETO reason (BIS guide, Part 3).
Unrelated reasons exist, and the guide gives three examples: the sudden loss of an expected order, a general upturn in demand, and a change in a key exchange rate (BIS guide, Part 3). Write down any such reason with its date and figures before you propose a change, because the reason decides whether the change stands.
There is no safe waiting period. The guide states that there is no rule of thumb in the regulations or the case law for how long after a transfer a change stops being linked to it (BIS guide, Part 3). Annual pay reviews, by contrast, should continue much as before under the new employer (BIS guide, Part 3).
An ETO reason must entail changes in the workforce. The courts have limited that to changes in the numbers employed or in the functions employees perform, and a change to the place where employees work was added in 2014 (BIS guide, Part 3). A change of workplace may therefore support an ETO reason, but only if the sole or principal reason for the change is that location move.
Contractual flexibility clauses do not escape the rule. A mobility or flexibility clause can be relied on only if the law would give effect to the variation without a transfer, and any ambiguity is generally resolved in favour of the employee (BIS guide, Part 3). Nothing in TUPE lets an employer impose a change (BIS guide, Part 3).
Even outside TUPE, changes to employment contracts are usually made by agreement between employer and employee (gov.uk, Changes to employment contracts). A change that fails both tests, TUPE and contract law, leaves the old term in place.
What this means for your plan: list every term you want to change, give each a written reason and test it against the table. A change that fits no row should wait for a redundancy process or be dropped.
Question for your adviser: for each term you intend to change, is the sole or principal reason something other than the transfer, and which row of the exceptions applies?
5. Pay, notice and holiday: the numbers to price
Short answer: Four sums decide what the staff cost you on day one and on the way out: notice, statutory redundancy pay, accrued holiday and any pay below the legal minimum. Each can be priced from documents the seller holds.
Notice
An employer who ends a contract must give at least one week's notice if the employee has worked for under two years, one week for each complete year from two to under twelve years, and 12 weeks from twelve years. The employee must give one week. The contract cannot give shorter notice than this, though notice can be waived or paid in lieu (ERA 1996 s.86).
| Continuous service on the notice date | Minimum notice from the employer |
|---|---|
| Under 2 years | 1 week |
| 2 years to under 12 years | 1 week for each complete year |
| 12 years or more | 12 weeks |
Service is counted across the transfer (ERA 1996 s.218(2)). A person who started with the seller 14 years before the sale needs 12 weeks' notice from you on day one. A person with 5 years needs 5 weeks. A person with 1 year needs 1 week. The contract may give more than these minimums, so read each written statement.
Illustrative figures: three employees on notice, each paid £500 a week. Employee A (14 years): 12 weeks × £500 = £6,000. Employee B (5 years): 5 × £500 = £2,500. Employee C (1 year): 1 × £500 = £500. Total = £9,000. Sum-check: 6,000 + 2,500 + 500 = 9,000.
Statutory redundancy pay
An employee needs two years' service to qualify, and no more than 20 years count. For each year of service the payment is half a week's pay if aged under 22, one week's pay if 22 to under 41, and one and a half weeks' pay if 41 or over (gov.uk, Redundancy pay). From 6 April 2026 a week's pay for this purpose is capped at £751 and the maximum payment is £22,530 (gov.uk, Redundancy pay).
Illustrative figures: employee A is aged 50 with 5 years' service on £600 a week. All five years fall at age 41 or over, so 5 × 1.5 = 7.5 weeks. £600 × 7.5 = £4,500. Employee B is aged 30 with 4 years' service on £800 a week. Pay is capped at £751 and all four years fall between 22 and 41, so 4 weeks × £751 = £3,004. Total = £4,500 + £3,004 = £7,504. Sum-check: 4,500 + 3,004 = 7,504.
The cap check on the maximum: 20 years × 1.5 weeks × £751 = 30 × 751 = £22,530, which matches the stated maximum. A claim for redundancy pay must be made within six months (gov.uk, Redundancy pay).
Ask the seller for each person's date of birth and start date, and compute the figure before you offer a price.
Accrued holiday
Statutory holiday is 5.6 weeks a year, capped at 28 days, and bank holidays can be counted within it (gov.uk, Holiday entitlement). For a person working five days a week the cap bites at 28 days. For a person working four days it is 5.6 × 4 = 22.4 days, and for three days 5.6 × 3 = 16.8 days.
Holiday not taken at the transfer date is part of the rights and liabilities that pass to you (TUPE reg 4(2)). Ask the seller for the holiday record of each employee for the current leave year, showing days taken and days outstanding at the proposed completion date.
Illustrative figures: 8 employees each have 6 days outstanding at completion, and daily pay is £96. Per employee: 6 × £96 = £576. For all eight: 8 × £576 = £4,608. Sum-check: 6 × 96 = 576 and 576 × 8 = 4,608. Agree in the sale agreement whether this sum reduces the price.
Minimum wage
The National Minimum Wage and National Living Wage rates from 1 April 2026 are £12.71 an hour for workers aged 21 and over, £10.85 for 18 to 20, £8.00 under 18 and £8.00 for apprentices (gov.uk, National Minimum Wage rates). Check the seller's payroll register against the rate in force for each pay period.
Illustrative figures: an employee aged 25 is paid £480 for a 40-hour week. £480 ÷ 40 = £12.00 an hour, which is £0.71 below £12.71. Weekly gap = 40 × £0.71 = £28.40. Sum-check: 12.71 − 12.00 = 0.71 and 0.71 × 40 = 28.40. Pay owed for past periods is a liability that comes with the contract (BIS guide, Part 2).
Question for your adviser: which of these sums does the draft sale agreement put on the seller, and which on you?
Sources
All pages were opened on 2026-11-06 and cited from that reading.
- Transfer of Undertakings (Protection of Employment) Regulations 2006 (SI 2006/246), regulations 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 13A, 14, 15, 16. legislation.gov.uk. Retrieved 2026-11-06. https://www.legislation.gov.uk/uksi/2006/246/contents
- Employment Rights Act 1996, sections 1, 86 and 218. legislation.gov.uk. Retrieved 2026-11-06. https://www.legislation.gov.uk/ukpga/1996/18/contents
- Employment Rights on the Transfer of an Undertaking, BIS, January 2014. Retrieved 2026-11-06. https://assets.publishing.service.gov.uk/media/5a7ca7e8ed915d7c983bc171/bis-14-502-employment-rights-on-the-transfer-of-an-undertaking.pdf
- Redundancy pay, gov.uk. Retrieved 2026-11-06. https://www.gov.uk/redundancy-your-rights/redundancy-pay
- National Minimum Wage and National Living Wage rates, gov.uk. Retrieved 2026-11-06. https://www.gov.uk/national-minimum-wage-rates
- Holiday entitlement, gov.uk. Retrieved 2026-11-06. https://www.gov.uk/holiday-entitlement-rights
- Changes to employment contracts, gov.uk. Retrieved 2026-11-06. https://www.gov.uk/employment-contracts-and-conditions/changes-to-employment-contracts