Top five employment considerations for early-stage and spin-out biotech companies

In this second article of our three-part series - Thinking early: key legal points for early-stage biotech companies - we cover the employment considerations. A workforce is the backbone of an organisation. Finding and retaining the best talent is integral to the success of a new company. This article sets out our top five dos and don’ts for early-stage biotechs to consider from an employment perspective. 

1. Implement incentives for attracting and retaining talent 

Early-stage biotech companies often face a significant challenge when trying to match the competitive salaries offered by larger, more established life sciences companies. With more limited cash flow and tighter budgets, offering competitive base pay may not be feasible. Equity incentives such as share options or growth shares can provide an appealing alternative, allowing companies to attract high-calibre talent by offering them the ability to participate in the future success of the business. Equity incentives not only help align employee interests with the company’s long-term goals but also foster a sense of ownership and commitment. When structured correctly, equity schemes can be tax-efficient and scalable, making them particularly well-suited to startups navigating early growth phases. Companies should ensure that any equity arrangements are clearly documented and that those intended to be tax-favoured (e.g., Enterprise Management Incentive (also known as EMI) or Company Share Option Plans (also known as CSOP)) comply with the applicable requirements to enable employees to enjoy the tax benefits. 

Offering other unique benefits can set a company apart from others and assist with attracting top talent. For example, offering an innovative working environment, flexible working arrangements, health and wellness support such as for fertility which is often unavailable through most health insurance providers, enhanced family friendly leave policies and/or unlimited holiday allowances. Since the COVID-19 pandemic, candidates place a higher value on comprehensive benefits that improve their work-life balance.

2. Consider employment status when embracing creative working models

Biotech companies and spin-outs often engage scientific advisors and consultants on a flexible basis, particularly during early-stage development when specialist input is needed but full-time roles may not be viable. For both tax and employment purposes it is essential to correctly determine the status of these individuals as employees, workers, or self-employed contractors as each category carries distinct legal rights and tax implications. 

From an employment perspective, there can be significant merit in utilising different working arrangements. Short-term expert input can be harnessed by offering freelance or project-based contracts to skilled professionals, who may be based in the UK or overseas. Other arrangements such as internships, apprenticeships, part-time work and job sharing can also be utilised to get the delicate balance right between having enough staff to support growth, whilst not committing to a large workforce that is unsustainable at the start up stage. 

From a tax perspective, misclassification can expose companies to significant liabilities, especially under the UK’s off-payroll working rules (often referred to as the IR35 regime). Broadly, if a contractor’s working arrangements have certain ‘indicators’ of employment such that the individual is a ‘deemed’ employee, the company will be responsible for PAYE tax and National Insurance contributions. HMRC’s Check Employment Status for Tax (CEST) tool can sometimes help assess status, but it must be used carefully and supported by clear contractual terms and working practices. For example, scientific advisors who are integrated into the team, subject to supervision, and lack genuine autonomy are likely to be viewed as employees for tax purposes, even if labelled as contractors. Getting this right from the outset is critical, not only to avoid unwanted tax implications, but also to ensure compliance with employment law and maintain trust with key contributors.

3. Protect business interests early

Early stage companies within the life sciences sector should ensure that their valuable business and research interests are protected from day one. The importance of securing IP assignments from consultants and IP will be discussed in detail in the next article in this series. Having clear and comprehensive template contracts for engaging employees and consultants that contain appropriate and robust intellectual property, confidentiality and restrictive covenant provisions can provide a company with reassurance as they invest in their business venture, be it R&D, product development or the provision of other innovative pharmaceutical services. 

Leaver provisions in equity schemes are another vital tool for protecting a biotech’s commercial interests. These provisions distinguish between “good” and “bad” leavers, typically based on the circumstances of an individual’s departure, and determine what happens to their equity on exit. For example, a “bad” leaver may forfeit their whole incentive entitlement, ensuring that equity remains with those contributing to the company’s success. Clear, enforceable leaver terms not only safeguard the cap table but can also protect innovations by incentivising those leaving to abide by restrictive IP or confidentiality covenants whilst inspiring long-term commitment among key personnel.

4. Global mobility

Global mobility and strategically tapping into overseas talent can give biotech and early-stage spinout companies a competitive edge. Companies in this sector thrive on cutting-edge innovation, which often demands specialised expertise that is not always readily available. By harnessing a global network, companies can access diverse skill sets, foster cross-border collaboration, and accelerate scientific breakthroughs. Moreover, inclusive immigration policies and agile mobility frameworks can attract top-tier researchers and entrepreneurs, and signal a commitment to global excellence—key ingredients for scaling successfully in a fast-evolving industry. Ensuring equity incentive arrangements work well for employees in different jurisdictions requires careful consideration. Given the increasing mobility of global talent and the growing trend of UK companies pursuing US listings, it is also becoming increasingly common for UK companies to look towards US equity incentive norms which tend to be more incentive-holder friendly (see our article).

5. Evolving people practices 

In the dynamic landscape of biotech and early-stage spinout companies in this sector, evolving people practices is critical to ensuring sustainable growth and successful exit strategies. As businesses scale up, or prepare for acquisition, having robust employment policies, procedures, and HR best practices in place can help mitigate risk, attract top talent, and maintain compliance with complex regulatory frameworks. Proactively aligning people strategies with business objectives fosters a resilient culture, streamlines due diligence processes, and enhances investor confidence—ultimately positioning a company for long-term success or a smooth transition during exit events. Whilst companies will understandably be provisioning their workforce based on current business needs, one eye should be kept on the horizon to maintain a healthy talent pipeline that can continue to contribute to company growth and success. 

Conclusion

To thrive in a competitive and fast-evolving sector, early-stage biotech and spinout companies must adopt forward-thinking people strategies that balance innovation, compliance, and long-term value creation. From equity incentives and flexible working models to global talent mobility and robust HR frameworks, investing in the right people practices early on lays the foundation for sustainable growth and successful exit outcomes.