Employing in the UK - An employment guide
Everything you need to know about employing in the UK
Employing in the UK
What to expect
Are you considering employing in the UK? While it may not be as complex as in some Middle Eastern or Latin American countries, there are a comprehensive set of minimum rights and laws that must be followed.
These laws are likely to be significantly different from what you may be familiar with in in your country. As a result, it is important to ensure that you have a good understanding of the UK’s legal framework before hiring employees there.
In this guide, we provide you with a comprehensive overview of what you need to know when it comes to employing someone in the UK. We cover everything from contracts of employment, to annual leave entitlements, maternity and paternity rights, pay, and taxation.
Employing in the UK
Onboarding UK Employees
Time taken to onboard
UK Employment Contract
Prior to their first day of employment, employees in the UK must be provided with a written statement that outlines certain key terms and conditions. This is a legal requirement that must be fulfilled to ensure compliance with UK employment law.
An employment contract cannot override an employee’s minimum legal rights. If any terms of the employment contract seek to do so – such as paying an employee less than the minimum wage – the employee has the right to take legal action through an Employment Tribunal to enforce their legal rights. This is a vital protection that ensures employees are treated fairly and equitably in the workplace.
We highly recommend including termination arrangements such as garden leave and payment in lieu of notice, as well as confidentiality terms, in your employment contract. These provisions are already included in our standard template, which we suggest using as a starting point to ensure that your contract meets UK legal requirements and provides adequate protection for both you and your employees.
Employment Type
Direct employment under an employment contract is the most common working arrangement in the UK. In this arrangement, employees provide their services personally, and you, as the employer, control the work they do.
Employees in the UK have a range of legal protections, including the right not to be unfairly dismissed, paid holiday entitlements, statutory sick pay, and national minimum wage requirements. Additionally, family-friendly rights such as maternity and paternity leave and pay are also legally guaranteed.
In the UK, employers are required to deduct tax and national insurance contributions from employees’ pay before it is paid to them. This is done through the Pay As You Earn (PAYE) system. Additionally, employers are required to provide an auto-enrolment pension scheme to their employees. These legal requirements ensure that employees have access to a pension plan and that their tax obligations are met in a timely and efficient manner.
Employing in the UK
Termination of Employment UK
Termination Requirements
If you have employed a person for at least two years (continuously), they are entitled not to be unfairly dismissed.
In the UK, there are certain circumstances where the standard two-year rule for employment termination does not apply. For example, if an employee has blown the whistle on perceived legal wrongdoing, the rule may not be applicable. It’s important to proceed with caution when ending arrangements with staff, even if they have less than two years of service, as employees and workers can still bring certain claims, including discrimination claims, regardless of length of service.
To avoid such claims and prevent unfair dismissal, it’s crucial to carefully consider and document the reasons for any terminations and to ensure compliance with all relevant UK employment laws and regulations:
A dismissal must be for a fair reason prescribed by law (redundancy, poor performance, misconduct, ill health, etc.).
The reason must justify dismissal.
You must follow a fair process (which can be quite onerous).
You must also ensure you give staff the correct period of notice of dismissal (unless they are guilty of gross misconduct).
We have a wealth of experience in terminating employment contracts, and can provide you with expert guidance and support to ensure that any dismissal is carried out in compliance with UK employment laws and regulations. Our team can assist you in every step of the process, from planning the dismissal to handling any potential disputes that may arise. Trust us to help you navigate the complexities of employment termination in the UK. Get in touch with Employer of Record UK today.
Notice periods
Employees are entitled to minimum notice periods prescribed by law, which are:
1 week for under 2 years of service
1 week for every year of service from 2 – 12 years
12 weeks for those with 12+ years of service
These are the minimum notice periods you have to provide the employee. You can provide longer periods of notice in their employment contract if you wish.
When hiring a UK employee, it’s important to note that under UK employment law, the minimum notice period an employee is required to give their employer is only one week after completing their first month of employment. However, we advise US companies to consider including a longer notice period in the employment contract, especially for senior or specialized roles. This can help ensure a seamless transition and provide more time to find a suitable replacement during the employee’s notice period.
Our team can provide guidance on how to draft employment contracts that meet your needs and comply with all applicable UK employment laws and regulations.
Reduction in Force Severance Pay
Unlike the US where redundancy payments aren’t madatory, in the UK, all employees who are terminated due to redundancy are entitled to severance pay. Severance pay is calculated as follows.
0.5 weeks pay for each year of service where the employee was below the age of 22
1 weeks pay for each year of service where the employee was between 22 to 40 of age
1.5 weeks pay for each year of employment where the employee was 41 and over
Employers must make deductions for tax and national insurance from the employee’s pay before payment is made to them through a Pay As You Earn (PAYE) system. They must also provide an auto-enrolment pension scheme.
The first £30,000 of the redundancy payment is tax-free.
Employing in the UK
Payroll Tax in the UK
Employees Income Tax
| Gross Annual Income | Tax Rate % |
|---|---|
| Up to £12,570 | 0% |
| £12,571 - £50,270 | 20% |
| £50,270 - £150,000 | 40% |
| £150,000+ | 45% |
Cost of employing someone in the UK
The employer cost is generally estimated at 18.55% of the employee salary.
Employer National Insurance (Social Security) – 15.05%
Workplace Pension – 3.00%
Apprentice Levy Tax – 0.5%
Paying Employees
Employers are required by law to pay their employees at least the national minimum wage, which varies based on the employee’s age and status. The minimum wage also applies to overseas workers who are working in the UK for short periods, such as those who are spending their summer holidays in the country.
Similarly, UK employers are responsible for ensuring that their employees who are temporarily working abroad, such as those spending their summer holidays overseas, are also paid the minimum wage.
As a UK Employer Of Record service provider, we ensure that all employees are paid on time, with payments typically made on the last working day of every month. Employers and employees can also agree on whether overtime should be paid, though it is not a requirement as long as the employee’s hourly rate meets the national minimum wage.
Are you looking for a fully-managed payroll and tax service? Take a look at how we can help with our dedicated EOR services in the UK.
Employing in the UK
UK Statutory Leave
If you are employing in the UK it is essential to understand what statutory leave entitlements your employee is entitled to:
Pregnant employees are entitled to 52 weeks of leave, of which the first 39 weeks are paid. Mothers can start their maternity leave 11 weeks before the baby is due. The employee will receive 90% of their salary during the first 6 weeks, and the employer will be responsible for this pay. The next 33 weeks are paid at £156.66 a week or 90% of the employee’s average weekly earnings (whichever is lower). The final 13 weeks as unpaid leave.
Employees are entitled to up to 2 weeks of paid paternity leave. Employees can opt to take only 1 week if they wish. The leave must be taken in one block. The employee will receive £156.66, or 90% of their average weekly earnings (whichever is lower) during this period, and the employer will be responsible for this pay.
Employees are entitled to up to 2 weeks of paid paternity leave. Employees can opt to take only 1 week if they wish. The leave must be taken in one block. The employee will receive £156.66, or 90% of their average weekly earnings (whichever is lower) during this period, and the employer will be responsible for this pay.
Employees are entitled to up to 2 weeks of paid paternity leave. Employees can opt to take only 1 week if they wish. The leave must be taken in one block. The employee will receive £156.66, or 90% of their average weekly earnings (whichever is lower) during this period, and the employer will be responsible for this pay.
Employing in the UK
UK Employment Benefits
UK Pension
All employers in the UK, regardless of size, are required to automatically enroll eligible workers into a pension scheme and pay minimum pension contributions of 3% of qualifying earnings for these workers. This is commonly referred to as “auto-enrollment.” Higher-earning individuals may typically expect to be offered more than the minimum employer contributions as part of their employment offer.
The employee is required to pay a minimum of 5% of their salary into the auto enrolment pension scheme.
UK Healthcare
Healthcare in the UK is provided by the National Health Service (NHS), a publicly funded system that provides medical services to all UK residents free of charge at the point of use. This means that if you need to see a doctor, visit a hospital or receive emergency medical care, you won’t have to pay anything upfront. However, as the NHS is funded through taxes paid by UK residents, wait times for non-emergency care can sometimes be longer.
In the US, healthcare is mostly provided through private insurance companies, with some individuals also qualifying for government-funded programs like Medicare and Medicaid. Unlike in the UK, many Americans have to pay for medical services out of pocket, or pay a premium for insurance coverage that covers some or all of their healthcare costs.
Due to the differences in the healthcare systems, many UK companies offer private healthcare options to their employees to ensure they can access medical services quickly and easily. Private healthcare plans in the UK can provide faster access to medical treatment than the NHS, and may also offer more personalized care, such as the ability to choose a specific specialist. However, these policies may come with restrictions on covering pre-existing conditions, and premiums are subject to Benefit in Kind taxation.
EOR UK help you navigate these differences and provide guidance on the best healthcare options for your UK-based employees.
Contact us today if you are thinking about employing in the UK and we would be happy to help.
Additional Information
Data Protection
It is important to comply with data protection laws in the UK. Employer of Record UK UK ensure that employees sign a privacy notice that outlines how and why their personal data will be used in accordance with the General Data Protection Regulation (GDPR). Employers are required to provide certain information to data subjects regarding the processing of their personal data. This information is included in our privacy notice, which employees must read and sign. By using our PEO services, US companies can be assured that their employees’ personal data is being handled in compliance with UK data protection laws.
Confidentially
Your employee may have access to personal information about you or your business. Protecting that information is crucial. We include clear confidentiality terms in the employment contract.
You may also wish to include security and social media requirements, (e.g. not tweeting their whereabouts when with you).
You can also have procedures to monitor staff conduct and usage of any IT equipment that you give them access to, subject to data protection and privacy laws.
