Employer of record in the UK

The United Kingdom represents an attractive market for global businesses seeking to expand their operations and tap into a highly skilled and educated workforce. However, working through the intricate web of employment regulations, tax laws, and cultural nuances can be daunting for foreign companies.

Partnering with an employer of record (EOR) service can streamline onboarding, ensure compliance with local laws, and set up payroll in the UK.

The UK at a glance

• Population: 67.5 million people.
• Working hours: 40-48 hours per week.
• Minimum hourly wage: £12.21 (April 2024).
• Tax year: 6th April to 5th April.
• Remote workers: 4.2 million people.
• Major business hubs: London, Manchester, Edinburgh, Birmingham.
• Misclassification penalties: No limit to penalty amounts.

An employer of record in the UK helps international companies access this major European market without the complexity of establishing a local entity or dealing with complex PAYE and RTI reporting requirements.

Key considerations for hiring in the UK

When expanding to the UK, companies face several unique challenges that make partnering with an employer of record in the UK essential for success.

The PAYE system and RTI reporting

The PAYE system is the foundation of UK payroll, and it requires companies to deduct income tax and National Insurance payments (NICs) from their employees' wages before they are paid. EORs use this method to ensure employees' taxes are accurately computed and paid to HM Revenue and Customs (HMRC).

EORs in the UK submit an RTI each time they pay an employee. This requires businesses to have detailed information about employees and their payments. It is important that this report be accurate and submitted on time to avoid penalties.

An employer of record in the UK handles all PAYE complexities, including real-time information (RTI) submissions, National Insurance calculations, and HMRC reporting. They ensure accurate tax deductions and timely submissions to avoid penalties while maintaining full compliance with UK tax authorities.

UK talent pool and market conditions

The UK boasts a well-educated workforce. Around 57% of young British adults hold tertiary degrees. This means you have a strong pool of qualified candidates to choose from, with many possessing excellent communication and critical thinking skills.

Your employer of record in the UK provides access to this highly educated talent pool through established recruitment networks and market expertise. They help you identify candidates with the specific skills and qualifications needed for your business while ensuring competitive positioning in the UK job market.

Cost of living and salary expectations

The UK currently faces a high cost of living crisis, which can impact salary expectations. Additionally, depending on the industry and skill set you require, there might be job market competition. Considering these factors will help you structure competitive compensation packages and influence your recruitment strategy.

With an employer of record in the UK, they provide current market salary data and help you create competitive compensation packages that address cost-of-living pressures. They guide you on industry-specific salary benchmarks and benefits that attract top talent while managing your budget effectively.

UK employer of record (EOR) vs. entity

Legal entity in the UK

To establish a legal entity in the UK, you should register a company that gives you a physical presence in the country. When hiring employees, you become responsible for: 

• Registering with authorities.

• Payroll processing and taxes (PAYE).

• Employment contracts and benefits.

• Compliance with UK employment law.

Pros

• You have complete control over operations and the workforce.
• You can build credibility and trust with UK clients and partners.

Cons

• Setting up is time-consuming and costly.
• You face complex compliance requirements and regulations.
• You must handle PAYE and RTI reporting internally.

UK employer of record (EOR)

An employer of record (EOR) in the UK is a third-party company acting as your staff's legal employer. It takes care of responsibilities such as:

• Hiring and onboarding.

• Payroll and tax administration.

• Employment contracts.

• Compliance with local laws and regulations.

Pros

• You get a quick and easy setup.
• There is a reduced administrative burden.
• You have the flexibility to test the UK market without long-term commitments.
• You access immediate PAYE and RTI compliance.
• You receive expert visa sponsorship support.

Cons

• You have less control over employee management.
• There are ongoing service costs.

Work permits in the UK

In most cases, you'll need to sponsor a visa for your foreign employee. This usually involves getting a sponsorship license and assigning it to your chosen candidate. Here are some of the frequent types used to hire employees in the UK:

Long-term work visas

• Skilled worker: The most common UK work visa designed for skilled workers with a job offer from a licensed sponsor.

• Global business mobility: For foreign employees sent to work in the UK branch of their existing company.

• Scale-up: For fast-growing businesses looking to hire skilled workers.

• High potential individual: Created for talented early-career graduates from top global universities.

• Innovator: Reserved for experienced entrepreneurs establishing innovative companies in the UK.

• Start-up visa: A work permit for early-stage entrepreneurs with a new and innovative business idea.

• Global talent: Reserved for leaders, scientists, artists, and innovators.

Temporary work visas

• Seasonal workers: People who do temporary agricultural work

• Creative worker: Individuals with specific occupations in the creative industry

• International sportsperson: Created for elite athletes and coaches.

• Minister of religion (T2): For religious roles.

• Charity worker (T2): Reserved for unpaid voluntary roles.

• Government-authorized exchange: Meant for work exchange programs.

• International agreement: For roles covered by international agreements.

Other visas

• UK ancestry: For those who have a UK-born grandparent.

• Youth mobility scheme: This scheme is for citizens of certain countries aged 18–30. They can live and work in the UK for up to two years.

Processing requirements

• Sponsorship license from UK Visas and Immigration.
• Certificate of Sponsorship (CoS) for each employee.
• English language proficiency proof.
• Minimum salary thresholds (varies by visa type).
• Skills and qualifications verification.

Your employer of record in the UK handles all visa sponsorship complexities, including obtaining sponsorship licenses, issuing Certificates of Sponsorship, and managing ongoing compliance requirements. They work with immigration specialists to ensure quick visa processing for your international talent.

Using an EOR for payroll and taxes in the UK

Payroll cycle: Monthly

13th salary: N/A

1. Employee income tax: Progressive rates from 20% to 45% (Scotland: 19% to 48%).
2. Employer National Insurance: 13.8% above £9,100 annually.
3. Employee National Insurance: 12% on earnings £12,570-£50,270, 2% above.
4. Pension contributions: Minimum 8% total (3% employer, 5% employee).

UK tax breakdown

1. Income tax: 20% basic rate, 40% higher rate, 45% additional rate.
2. National Insurance: 13.8% employer, 12%/2% employee.
3. Workplace pension: Minimum 3% employer contribution.
4. Apprenticeship levy: 0.5% of payroll for companies with £3M+ payroll.

PAYE system requirements

1. Real-time information (RTI) submission for each payment.
2. Monthly HMRC reporting and payments.
3. P45/P60 form management for employees.
4. Construction Industry Scheme (CIS) compliance, if applicable.

Your employer of record in the UK handles all PAYE calculations, RTI submissions, National Insurance payments, and HMRC compliance, ensuring accurate and timely processing while maintaining full compliance with UK tax authorities.

Minimum wage in the UK

The national minimum wage in the United Kingdom depends on the employee's age. The hourly rate for the minimum wage depends on the employee's age and whether they’re an apprentice:

• £12.21 (aged 21 and over).
• £10 (aged 18 to 20).
• £7.55 (aged under 18).
• £7.55 (apprentice rate).

An employer of record in the UK provides current wage data and helps you create competitive offers that exceed minimum wage requirements while attracting top talent in the UK's competitive job market.

EOR employment contracts in the UK

To ensure a smooth hiring process in the UK, EORs assist in preparing a thorough and legally compliant employment contract:

• Company name and address.

• Employee name and contact information.

• Date of offer.

• Job title and description.

• Reporting manager.

• Compensation and benefits.

• Pay schedule.

• Probation period.

• Work location and schedule.

• Termination and notice period.

• Holiday entitlement.

• Sickness policies.

• Pension information.

• Disciplinary and grievance procedures.

• Intellectual property rights.

• Data protection (GDPR compliance).

• Restrictive covenants.

• Governing law and jurisdiction.

UK contract requirements

• A written contract must be provided within 2 months of the start date.
• Statement of main employment terms on or before the first day.
• Probation period length must be specified (no legal limit).
• Working hours and overtime arrangements are clearly stated.
• GDPR compliance and data protection clauses are mandatory.

Your employer of record in the UK ensures all employment contracts meet local legal requirements while protecting your company's interests through proper IP clauses, GDPR compliance, and confidentiality agreements that align with UK employment law.

Mandatory employee benefits

UK employees are entitled to the following standard global benefits:

• Workplace pension: For employees aged 22 or over who earn more than £10,000 annually, the employer must automatically enroll them into a workplace pension scheme and contribute to it. The minimum contribution is 8% of their qualifying earnings, with at least 3% coming from the employer.
• Protection from discrimination: The employer must protect employees from discrimination based on age, race, gender, sexual orientation, religion, and disability.

Additional statutory benefits

• Statutory holiday pay: 5.6 weeks (28 days) annually.
• Statutory sick pay: £116.75 per week for up to 28 weeks.
• Maternity leave: Up to 52 weeks (39 weeks paid).
• Paternity leave: 1-2 weeks paid.
• Adoption leave: Up to 52 weeks (39 weeks paid).
• Flexible working rights from day one.

The employer of record in the UK ensures all employees receive mandatory benefits while managing pension auto-enrollment, holiday pay calculations, and statutory leave administration in compliance with UK employment law.

Non-disclosure agreements (NDAs)

To protect sensitive information, foreign employers can enforce various types of non-disclosure agreements (NDAs) when hiring employees in the UK. They may also put in place legally non-compete clauses after contract termination.

Both must comply with relevant UK laws, such as the Employment Rights Act 1996, the Equality Act 2010, and common law principles. Courts will assess the reasonableness of these agreements on a case-by-case basis.

Here are some types of information you can protect with an NDA:

• Trade secrets, proprietary information, and other confidential data.

• Sensitive or confidential information from clients or third parties.

• Assignment of inventions or discoveries created by employees to the employer.

Your employer of record in the UK ensures all NDAs and confidentiality agreements are properly drafted to comply with UK employment law while protecting your intellectual property.

They work with legal experts to create enforceable agreements that balance business protection with employee rights.

Paid and sick leave

Full-time and part-time workers are entitled to at least 5.6 weeks (28 days) of paid annual leave per year. Part-time workers receive a pro-rated amount based on their working hours. For example, someone working three days a week would get 16.8 days (3 x 5.6).

Employees off work due to illness can receive statutory sick pay (SSP) for four or more consecutive days, including non-working ones. The current weekly rate is £99.35, and eligibility depends on meeting certain earnings thresholds.

Other types of SSP: 

• Maternity leave: Up to 39 weeks.

• Paternity leave: One to two weeks.

• Adoption leave: Up to 39 weeks.

Public holidays in the UK

• New Year’s Day – January 1.
• Good Friday – March 29.
• Easter Monday – April 1.
• May Bank Holiday – May 6.
• Late May Bank Holiday – May 27.
• Summer Bank Holiday – August 26.
• Christmas Day – December 25.
• Boxing Day – December 26.

The employer of record in the UK manages all leave entitlements, including holiday accruals, statutory sick pay processing, maternity/paternity leave coordination, and ensures compliance with UK working time regulations.

Using an EOR to onboard new employees in the UK

Before the first day

• Employers of record (EORs) in the UK can draft and prepare legally compliant employment contracts tailored to the country's labor laws and regulations.
• EORs can assist with collecting and verifying necessary documents from the new hires, such as identification, proof of eligibility to work in the UK, and any required certifications or qualifications.
• EORs can set up the new employees in their global payroll system, ensuring accurate tax calculations, deductions, and proper compensation based on the agreed terms.
• UK EORs can guide new hires by enrolling in applicable benefits programs like health insurance, retirement plans, or other perks.

The first day

• EORs in the UK can provide a comprehensive virtual or in-person orientation to introduce the new employees to the company culture, policies, and procedures.
• EORs can assist with setting up the necessary IT infrastructure, such as company email accounts, access to relevant software, and any required hardware or equipment.
• EORs can provide access to their self-service portal and workforce operating system, guiding the new hires through the available features and functionalities.
• EORs can facilitate any required initial training sessions, directly or in coordination with the international business, to ensure the new employees are adequately prepared for their roles.

The first week

• EORs can continue to provide training and support to the new employees, addressing any questions or concerns they may have regarding their roles, responsibilities, or the company's policies and procedures.
• EORs can introduce new hires to the company's performance management system and set clear expectations and goals for their initial period.
• UK EORs can facilitate introductions and interactions with the new employees' colleagues, fostering a sense of belonging and promoting effective collaboration.
• EORs can gather feedback from the new employees and make any necessary adjustments to ensure a smooth onboarding experience.

Beyond the first week

• EORs can continue to provide HR support to the new employees, addressing any issues or concerns related to their employment, such as leave management, performance reviews, or career development opportunities.
• EORs can monitor and ensure ongoing compliance with UK labor laws and regulations, making any necessary updates or changes to employment contracts, policies, or benefits programs.
• EORs in the UK can implement strategies to foster employee engagement, such as organizing virtual or in-person team-building activities, recognition programs, or opportunities for professional development.
• EORs can gather feedback from the international businesses and their employees to identify areas for improvement and enhance their onboarding and HR services continuously.
• EORs pay the employee's wages and give them UK pay slips.

How EORs protect your company’s IP in the UK

Protecting intellectual property (IP) when hiring employees in the UK presents unique challenges. Here's how EORs can help ensure security and privacy:

• Have employees sign non-disclosure, confidentiality, and IP assignment agreements.

• Train them on IP protection and their responsibilities.

• Start using robust access controls, data security, and physical security measures.

• Monitor employee activity and audit them to detect IP breaches.

• Ensure compliance with UK IP laws and regulations.

• Follow strict exit procedures for departing employees.

• Register trademarks, patents, and designs with the UK IP Office.

• Consult with UK-based lawyers for tailored protection strategies.

Your employer of record in the UK ensures all employment contracts include comprehensive IP protection clauses, manages confidentiality agreements, and works with local legal experts to safeguard your intellectual property under the UK's robust legal framework.

How EORs ensure compliance with labor laws in the UK

Here are some essential labor laws EORs assist companies to comply with when hiring employees in the UK:

• National insurance and pensions: Register with HMRC to pay national insurance contributions and enroll eligible employees in a workplace pension scheme.

• Trade unions: Be prepared to contact trade unions and follow collective bargaining and dispute resolution procedures.

• Equality and non-discrimination: Secure equal opportunities and treatment for all employees, per the Equality Act of 2010.

• Working hours: Follow the Working Time Regulations of 1998, which limits hours and entitles employees to rest breaks and paid holidays.

• Health and safety: Comply with the Health and Safety at Work Act of 1974 by assessing risks and providing necessary training and protective gear.

• Employment rights: Respect employees' statutory rights to a written statement of terms, flexible working requests, and protection against unfair dismissal.

• Immigration: Ensure you can hire all employees legally in the UK by conducting right-to-work checks and sponsoring visas.

Your employer of record in the UK maintains expertise in all compliance areas, monitors regulatory changes, and ensures your company meets all legal obligations while building positive employee relationships in the UK's regulated environment.

Offboarding employees in the UK

• Give the required notice based on the employee's length of service.

• Pay redundancy to those with two or more years of service.

• Provide payment in lieu of notice (PILON) if the employee doesn't work the notice period.

• Follow fair dismissal procedures.

• Don't discriminate.

• Document the process.

• Allow employees to appeal your decision.

• Use settlement agreements to reduce legal risks.

Your employer of record in the UK manages all termination procedures compliantly, ensures proper notice periods, calculates redundancy payments accurately, and maintains documentation to minimize legal risks while protecting your company's reputation.

Use an EOR to start hiring in the UK today

Hiring in the UK offers access to a highly educated talent pool and serves as a gateway to European markets. However, complex employment laws and payroll considerations pose challenges for foreign entities.

Papaya Global EOR simplifies the entire employment lifecycle, ensuring compliance with local laws and automating administrative tasks. Expert guidance navigates UK regulations and best practices.

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