Differences between US and UK employer costs
To successfully expand a business to the United Kingdom, it is crucial to understand the differences between employer costs in both the US and the UK. This article provides an in-depth comparison of critical variations in employee and employer costs, including social security costs, healthcare, pensions, and other common benefits.
Social Security Costs
In the UK, employers must pay National Insurance contributions to fund social security programs like state pensions and unemployment benefits. The contribution rate varies based on the employee’s earnings, with higher earners paying a higher rate.
On the other hand, in the US, employers must pay into the Federal Insurance Contributions Act (FICA) system, which funds Social Security and Medicare programs. Employers must withhold Social Security and Medicare taxes from their employees’ paychecks and make matching contributions to the system. The employer contribution rate for Social Security is currently 6.2% on earnings up to $160,200, and the employer contribution rate for Medicare is 1.45% on all earnings, and an additional 0.90% on earnings above $200,000 per annum.
Healthcare
Regarding Healthcare in the UK, this is publicly funded through the National Health Service (NHS), and most individuals receive healthcare through the NHS. Private health insurance is available and covers a range of services, including consultations, tests, treatments, and surgery. Employers may offer private health insurance as a benefit to provide faster access to healthcare and more control over treatment options. The cost of private health insurance varies depending on the provider, level of cover, and number of employees covered. As a rough estimate, private health insurance can cost between £1,000 and £2,000 per employee per year.
However the US healthcare system is a lot different, as healthcare is primarily provided through private insurance plans, which are often offered as a benefit by employers. The average cost of employer-sponsored health insurance for a family of four in 2022 was $22,463, according to the Kaiser Family Foundation.
Pensions
Regarding pensions in the UK, employers are required to provide employees with a workplace pension scheme, which requires both the employer and employee to make contributions. The minimum employer contribution rate is currently 3% of the employee’s earnings, and the employee must also contribute a minimum of 5% of their earnings.
In the US, employers are not required to provide employees with a pension plan. However, many employers offer 401(k) plans, which are retirement savings plans that allow employees to contribute a portion of their earnings on a tax-deferred basis. The average employer contribution to a 401(k) plan was 4% of an employee’s salary, according to Vanguard.
Other Common Benefits
As well as social security costs, healthcare, and pensions, employers in both the UK and the US may offer other typical benefits to employees. In the UK, this may include holiday pay, sick pay, and maternity/paternity leave. In the US, this may include paid time off, disability insurance, and life insurance.
The cost of these benefits varies depending on the employer and the specific benefit. In the UK, employers are required to provide at least 28 days of paid annual leave, which equates to 12.07% of an employee’s annual salary. In the US, the average number of paid vacation days offered by employers is 10 days per year, according to the Bureau of Labor Statistics.
Understanding the differences between US and UK employer costs is critical for US companies looking to expand their business operations to the UK. Social security costs, healthcare, pensions, and other common benefits vary significantly between the two nations, and it’s essential to comprehend these differences to allow you to assess the financial viability of expanding to the UK.
Download our full guide to employing in the UK, or speak to one of our expert team based in the UK to find out more about how we can help you with our UK Employer of Record Services.
Scott Winter
HR Director
