Andy,
Like an awful lot of people in this game it sounds as though you have jumped into the industry with little or no knowledge of your obligations as an employer.
Government legislation, health & Safety etc all need sorting before you take the massive step of employing anyone, yes I know, the tax man etc, will tell you that its not that difficult to take on staff, and it is not really, but keeping on top of all the required legislation really is difficult.
As the economy worsens, contractors will have to change their employee's terms and conditions, less hours, moving to different jobs and even letting people go, their staff will obviously not be at all happy with some of these neccesary changes. Those contractors who have employment documents, procedures that they have gathered off sites like this or the internet are quite likely to come a cropper when these staff threaten legal action.
Before starting this contract you should have recieved in writting details of his terms and conditions so you had an idea of your obligations.
The above is meant, not to put you down, but merely to inform.
I am out of the office all day wednesday, but if you would like some help, feel free to call me Thursday afternoon, and I will try to help.
Regards,
Rob