Payroll and Benefits Guide United Kingdom
Last updated: Jul 03, 2025
Contribution
| Employer Payroll Contributions | |
| 3.00% | Workplace Pension (applied on income between £520 and £4,189 per month) |
| 0.5% | Apprenticeship Levy (applied on large enterprises) |
| 13.80% | National Insurance (NI) (for income above £417 per month) |
|
17.30%
|
Total Employers Cost
|
|
Employee Payroll Contributions
|
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| 5.00% | Workplace pension (applied on income between £520 and £4,189 per month) |
|
10.00%
|
National Insurance (NI) (for income between £1,408 and £4,189 per month)
|
|
2.00%
|
National Insurance (NI) (for income above £4,189 per month)
|
| 17.00% | Total Employee Cost |
| Income Tax | Annual |
| 0% | Up to 12,571 GBP |
| 20% | 12,571 to 50,270 GBP |
| 40% | 50,270 to 125,140 GBP |
| 45% | Over 125,140 GBP |
* Most employees fall under category A. For other categories, please visit the NI website.
** It is compulsory for employers to have a liability insurance policy in place with coverage of at least £5 million from an authorised insurer, to covers legal fees and costs in the event that a worker is injured or becomes ill due to their work.
Employer taxes
Employee taxes
Minimum Wage
General
The national minimum wage in the United Kingdom depends on the age of the employee, with rates updated annually each April. Effective from 1st April 2024:
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Employees aged 21 and over receive a minimum wage of £11.44
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Employees aged 18–20 receive a minimum wage of £8.60
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Employees aged 16–17 receive a minimum wage of £6.40
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Apprentices receive a minimum wage of £6.40
MINIMUM WAGE (PER MONTH)
Payroll
Payroll Cycle
In the United Kingdom, the payroll frequency is typically monthly, with salary payments made between the 25th and 30th of each month.
13th Salary
In the United Kingdom, there are no statutory provisions for 13th-month salary payments.
Working Hours
General
The standard working week consists of 40 hours and cannot exceed a maximum of 48 hours averaged over 17 weeks. Employers can ask workers to opt out of the 48 hour limit.
Overtime
The law focuses on limiting the total hours worked for health and safety reasons, including overtime:
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Maximum Weekly Limit: Workers generally cannot be required to work more than an average of 48 hours per week.
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Averaging Period: This average is typically calculated over a 17-week period. This means an employee can work more than 48 hours in one week, as long as the average remains below the limit.
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Opt-Out: An employee who is over 18 can voluntarily “opt out” of the 48-hour limit by signing a written agreement. This agreement can be cancelled by the employee at any time, usually with seven days’ notice.
Overtime Pay and Compensation
The UK is distinct in that there is no statutory minimum premium for overtime.
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No Statutory Overtime Rate: There is no legal requirement for an employer to pay a higher rate (e.g., 150% or 200%) for hours worked beyond the standard contract hours.
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Contractual Requirement: Payment for overtime (including the rate) is entirely dependent on the employment contract or any Collective Bargaining Agreement (trade union agreement).
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If the contract specifies a rate (e.g., time and a half), the employer is legally obligated to pay that rate.
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National Minimum Wage (NMW): Regardless of the contract, the employee’s average hourly pay for all hours worked (including overtime) must not fall below the legally mandated National Minimum Wage (NMW) or National Living Wage (NLW).
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Compensation Method: Compensation can be offered as:
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Pay: At the standard rate, or a higher rate if agreed contractually.
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Time Off In Lieu (TOIL): Equivalent paid time off instead of extra pay, provided this is agreed upon.
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Holiday Pay Calculation
Regular Overtime: If an employee regularly receives overtime pay, commission, or bonuses, this pay must be included when calculating their statutory holiday pay to ensure the employee is not financially discouraged from taking annual leave.
Leave
Annual Leave (vacation)
Full-time workers in the UK are entitled to 5.6 weeks of paid annual leave (28 days) per year. Employers may choose whether public holidays are included within the 28 days or provided in addition.
The annual leave year is set by the employer; if not specified, it defaults to the worker’s start date anniversary.
Carryover of unused leave depends on employer policy. Under the Working Time Regulations, up to 1.6 weeks may be carried over if permitted. The remaining 4 weeks generally cannot be carried over unless the worker was unable to take leave due to long-term sickness or statutory leave.
Where allowed by policy, employees may carry over untaken leave, and employers must ensure workers have a reasonable opportunity to take their statutory entitlement. Employers may determine when leave can be taken with appropriate notice.
Negative leave balances and unlimited leave policies are permitted if set out in the employer’s policy.
Upon termination, payment must be made for any accrued but untaken statutory leave.
Public Holidays
When a holiday falls on a weekend, workers must be given a day off in lieu – it is common to give off the next working day.
| Date | Day | Holiday | Notes |
|---|---|---|---|
| 1 January 2026 | Thursday | New Year’s Day | Standard holiday |
| 3 April 2026 | Friday | Good Friday | Standard holiday |
| 6 April 2026 | Monday | Easter Monday | Standard holiday |
| 4 May 2026 | Monday | Early May Bank Holiday | Standard holiday |
| 25 May 2026 | Monday | Spring Bank Holiday | Standard holiday |
| 31 August 2026 | Monday | Summer Bank Holiday | Standard holiday |
| 25 December 2026 | Friday | Christmas Day | Standard holiday |
| 28 December 2026 | Monday | Boxing Day (Substitute Day) | Standard holiday |
Sick Days
Employees can receive up to 28 weeks of Statutory Sick Pay (SSP), paid at the statutory weekly rate (currently £116.75 per week, subject to annual revision).
SSP will be payable from day 1 of sickness absence. The previous three-day waiting period will be removed, and the lower earnings threshold will no longer apply. This means more employees will be eligible for SSP.
If sick leave lasts more than seven consecutive days, including non-working days, the employee must provide a GP “fit note.”
Employees may also receive enhanced contractual sick pay if offered by their employer. After SSP entitlement ends, workers who remain unfit for work may be eligible to apply for government benefits such as Employment and Support Allowance (ESA) or Personal Independence Payment (PIP).
Redundancies
The maximum protective award for failing to properly consult during large-scale redundancies has increased from 90 days’ pay to 180 days’ pay, significantly increasing financial exposure in cases of non-compliance
Maternity Leave
In the United Kingdom, eligible employees are entitled to 52 weeks of maternity leave, comprising 26 weeks of Ordinary Maternity Leave and 26 weeks of Additional Maternity Leave.
Employees do not need to take the full period; however, they must take a minimum of 2 weeks after childbirth, or 4 weeks if they work in a factory, as required by law.
Statutory Maternity Pay (SMP) is payable for up to 39 weeks, with 90% of average weekly earnings for the first 6 weeks, followed by £184.03 per week (2024/25 rate) or 90% of average weekly earnings (whichever is lower) for the remaining 33 weeks.
Paternity Leave
Employees are entitled to up to 2 weeks of statutory paternity leave, which must be taken after the child’s birth and within 52 weeks of birth. Leave is taken in 1-week blocks, and since April 2024, the 2 weeks may be taken together or separately at different times. Paternity leave cannot be taken before the birth.
Statutory Paternity Pay is £184.03 per week (2024/25 rate) or 90% of average weekly earnings, whichever is lower. Paternity leave will become a day 1 right. The previous service requirements of 26 weeks or one year will no longer apply.
For adoption, the secondary adopter may take up to 2 weeks’ statutory paternity leave and pay if they meet the same 26-week service rule. Couples may choose who takes adoption leave and who takes paternity leave. Statutory adoption pay is based on average earnings in the 8 weeks before leave, so unpaid fostering periods may reduce eligibility for adoption pay.
Adoption Leave
Employed adopters are entitled to statutory adoption leave and may also receive statutory or enhanced adoption pay. Employers may offer more generous terms but not less than the statutory minimum.
Adopters may take up to 52 weeks’ statutory adoption leave. The main adopter is entitled to paid time off for up to 5 adoption appointments, while the secondary adopter may take up to 2 unpaid appointments. Adoption leave may start on the day the child is placed or up to 14 days before placement. There is no minimum service requirement for adoption leave, but evidence of the adoption is required.
Prospective adopters must inform their employer within 7 days of being matched, or as soon as reasonably practicable. Employees returning after 26 weeks or less are entitled to return to the same job. Those returning after additional leave must be offered the same or a suitable alternative role.
Statutory Adoption Pay (SAP) is payable for 39 weeks, provided the employee has 26 weeks’ continuous service by the end of the matching week. SAP is paid at 90% of average weekly earnings for 6 weeks, followed by £184.03 per week (2024/25 rate) or 90% of earnings, whichever is lower, for the remaining 33 weeks.
SAP is paid only to the nominated adopter taking adoption leave. The other partner may take Statutory Paternity Leave (Adoption) if eligible.
Shared Parental Leave
Parents may qualify for Shared Parental Leave (SPL) following birth or adoption, allowing them to share up to 50 weeks of leave and 37 weeks of Statutory Shared Parental Pay (ShPP). ShPP is paid at £184.03 per week (2024/25) or 90% of average weekly earnings, whichever is lower. SPL must be taken within 52 weeks of the child’s birth or placement, and can be taken in continuous or discontinuous blocks if both employer and employee agree.
Unpaid Parental Leave
Parents may also be entitled to unpaid parental leave for each child (including adopted children) until the child turns 18. Each parent may take up to 4 weeks per year, with a lifetime entitlement of 18 weeks per child. Leave is normally taken in full weeks unless otherwise agreed with the employer or where the child has a disability. Unpaid parental leave will become a day 1 right. The previous service requirements of 26 weeks or one year will no longer apply.
Other Leave
Depending on the employment contract, employees may receive additional leave as agreed between employer and employee. Statutory entitlements include:
Carer’s Leave: Employees may take 1 week of unpaid leave per year to arrange care for a dependent with long-term needs. Notice must be twice the length of leave requested + one day, unless impractical.
Jury Service Leave: Employees are entitled to unpaid, job-protected leave to attend jury service. They must provide a jury summons. Courts reimburse a fixed allowance; employers may choose to top up.
Public Duties Leave: Employees may take reasonable unpaid time off to perform specified public duties (e.g., magistrate, local councillor, school governor).
Parental Bereavement Leave: Parents who lose a child under 18 or experience stillbirth after 24 weeks may take 2 weeks’ leave, paid at £184.03 per week or 90% of average earnings, whichever is lower.
Bereavement Leave: Employees now have the right to take up to 52 weeks of unpaid leave if their partner, who is the mother or primary adopter of a child, passes away.
Study/Exam Leave: Statutory study leave applies only to 16–17-year-olds who need training to achieve basic qualifications. For adults, study leave is discretionary unless the employer chooses to provide it.
Marriage Leave: No statutory right; entirely employer-defined.
Home Moving Leave: No statutory right; entirely employer-defined.
Fair Work Agency
A new regulatory body, the Fair Work Agency, has been established to strengthen enforcement of employment rights. The agency will proactively monitor compliance and may conduct inspections without waiting for complaints
PAID MATERNITY LEAVE (DAYS)
Termination
Recent changes effective from April 2026
The Employment Rights Act 2025 – Key changes
Unfair dismissal: The qualifying period will be reduced from two years to six months (in which it is possible to dismiss an employee without them being able to claim unfair dismissal)
Flexible working: Employers will need to have “reasonable” grounds for refusing a flexible working request and must consult with the employee before refusing.
“Day one” rights: Employees will have the right to sick pay and paternity leave from their first day of employment.
“Fire and rehire”: The practice of firing employees and rehiring them on worse terms will be banned, with some exceptions for when a business cannot survive.
Termination Process
The termination process depends on the employment contract and applicable collective agreement, but must comply with UK statutory rules. Under the Employment Rights Act 1996, dismissals must be for a fair reason (such as conduct, capability, redundancy, statutory restriction, or another substantial reason) and follow a fair procedure; otherwise, they may be deemed unfair or wrongful.
| Salary payment interval / date | Final payment on termination | Bank account/payment-method requirement |
|---|---|---|
| The employment contract must state the interval at which wages will be paid. | All wages and sums owed (including accrued holiday) must be paid no later than the usual payday for the final pay period. | Wages must be paid in money. Payment into a bank account is usually the method, but the law does not mandate only bank-account payment for all employees. |
Notice Period
In the United Kingdom, notice periods are outlined with the employment contract or the statutory minimum, whichever is longer.
For redundancy the statutory notice period is at least 1 week’s notice if an employee has been employed for between one month and 2 years, and 1 week’s notice for each year of service above 2 years up to a limit of 12 weeks’ notice.
In the case of gross misconduct, a dismissal without notice is possible. Employers can pay in lieu of notice.
Severance Pay
Statutory severance is required only in redundancy situations and applies to employees with at least two years of continuous service. The amount depends on age at the time of redundancy:
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Half a week’s pay for each full year worked under the age of 22
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One week’s pay for each full year worked between ages 22 and 41
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One and a half weeks’ pay for each full year worked over the age of 41
Length of service is capped at 20 years.
For 2024/25, the statutory weekly pay cap is £700, and the maximum redundancy payment is £21,000 (updated each April).
Severance is not required for standard dismissals, capability cases, or conduct terminations.
Probation Period
There are no statutory provisions for probation periods in the United Kingdom; these are outlined in the employee’s employment contract. Commonly, probation periods last between three and six months.
Minimal Statutory Termination Costs
Notice periods:
1 weeks notice if employed between one month and two years
1 week’s notice for each year if employed between 2 and 12 years
12 weeks’ notice if employed for 12 years or more
Severance
This Depends if the workers contract outlines any specifics in relation to a termination but most of the time, severance owed is at the clients discretion, we always suggest a starting point of an additional 3 months salary because it often stops the worker from taking the case to the tribunal to get more money-this only applies if the work is over two years.
Disclaimer: Over 2 or more years of service The Employee is protected from unfair dismissal as they have 2 or more years of service with the Client.
Common Benefits
- Annual Leave – common to give at least 28 working days off per year.
- Sick pay – pay regular salary during the first three days of sickness and pay above the SSP rate for further sickness.
- Paternity Leave – Full payment for the two week leave period or additional paid leave (some companies even offer up to 3-6 months paid paternity).
- Special Leave – additional leave policies for:
- Marriage Leave – 1 to 2 weeks paid is common
- Study/Exam Leave – 1 week paid per exam period is common
- House Moving leave – 1 to 2 days paid is common
- Bereavement Leave – 3 to 5 days paid is common for close family with additional unpaid leave if needed, 1 day paid to attend the funeral of non immediate family.
- Sabbatical/Career break – 6 months to 1 year unpaid is common after a certain length of service has passed.
Pension – enhanced contribution to NEST pension e.g. 4 or 5% contribution instead of 3%. Some companies might also choose to offer a private pension plan. - Healthcare – private insurance is common. Costs can vary with a common range between 700 to 1,500 GBP per year for individual cover and 2,500 per year for family cover. Some employers will offer plans in which the worker can include their spouse/partner/children at their own expense (deducted through payroll).
- Dental Insurance – 70%-100% paid by the company.
- Vision Insurance – 70%-100% paid by the company.
- Interest Free Loans – Provide employees with an interest free loan of up to £10,000 in any tax year – a benefit often used to allow employees to buy an annual or seasonal travel card (usually cheaper than buying daily, weekly, or monthly tickets).
- Life insurance – Life insurance cost varies depending on the worker and scope of insurance.
- Meal allowance: 5 to 10 GBP per day.
- Work-from-home allowance, 50 to 100 GBP monthly.
- Cycle to Work Scheme – Government initiative in which employers must sign up to a provider for that offers employees an opportunity to obtain bikes and accessories tax free.
- Car Benefits – companies might offer Electric Car or Company Car Schemes or a fixed monthly Car Allowance (600 to 800 GBP per month is common).
- Wellness Benefits – such as gym memberships or fitness products. Around 70 GBP per month is common.
Immigration
If employers want to hire workers from outside the UK, they must ensure the worker applies for the correct visa and that the employer holds a valid sponsor licence, which is required for most sponsored routes (e.g., Skilled Worker). A sponsor licence generally takes up to 8 weeks to process, with optional priority services available.
Since 1 January 2021, free movement between the UK and EU has ended. All non-UK nationals are subject to the same immigration system. EU, EEA and Swiss citizens who were resident in the UK before 31 December 2020 could apply to the EU Settlement Scheme, with late applications permitted only in limited circumstances.
Most foreign nationals may visit the UK for up to 6 months without a visa for tourism, family visits, short courses, or certain business activities, but working or paid engagements are restricted.
For longer stays, applicants must use the UK’s points-based immigration system, meeting eligibility criteria such as sponsorship, skill level, salary threshold or professional recognition. Several routes (e.g., Global Talent or High Potential Individual) allow entry without employer sponsorship.
Irish citizens do not require a visa or work permit to live and work in the UK, as their rights remain protected under the Common Travel Area. For most non-Irish, non-UK nationals, a confirmed job offer from a licensed sponsor is required unless applying under a route that does not require sponsorship (such as Global Talent or Youth Mobility).
The UK offers a range of short- and long-term work visas with differing eligibility requirements based on skills, salary, occupation type, and whether dependants will accompany the applicant.
The most requested long-term work visas in the UK include:
- Skilled Worker – Allows individuals to work in an eligible occupation for a licensed sponsor. A confirmed job offer, minimum salary threshold and sponsorship certificate are required. Visa validity is up to 5 years.
- Intra-company – Transfer or Graduate Trainee – Replaces the former Intra-Company Transfer routes. Used for overseas employees transferred to a UK branch or trainees on structured programmes. Eligible occupations and salary thresholds apply, and stay length varies by route.
- Health and Care Worker – For qualified health professionals taking eligible roles with the NHS, NHS suppliers or adult social care providers. Requires sponsorship and minimum salary, offers lower fees and exemption from the Immigration Health Surcharge. Valid for up to 5 years before renewal.
A ‘certificate of sponsorship’ from the Home Office, approved by an employer, is also a prerequisite for all these visas. The process takes between 3-8 weeks, and the costs associated with applying for the right to work in the UK differs depending on the type of visa or permit but are usually made up of an application fee, a healthcare surcharge, and a minimum amount of money as initial settlement/support.
The UK government has announced the implementation of a new visa scheme for ‘high potential individuals’ to allow people from top universities to work in the UK for 2 years – or 3 years if they hold a PhD – and to switch to other long-term employment visas at the end of this period if they meet certain requirements. The scheme is open to all eligible graduates, regardless of nationality, and a prior job offer is not required.
If you are looking to hire in the UK, check out the employer of record in the UK.
VAT
General
The standard rate of VAT in the United Kingdom is 20.00%.
Stay up to date on payroll & employment law changes
Version History
Increase to Minimum Wage
Minimum wages have increased.
Questions & Answers
See how Papaya can help you automate your global payroll or EoR whilst staying 100% compliant with local labor laws
Public Holidays Calendar
| Date | Day | Holiday | Notes |
|---|---|---|---|
| 1 January 2026 | Thursday | New Year’s Day | Standard holiday |
| 3 April 2026 | Friday | Good Friday | Standard holiday |
| 6 April 2026 | Monday | Easter Monday | Standard holiday |
| 4 May 2026 | Monday | Early May Bank Holiday | Standard holiday |
| 25 May 2026 | Monday | Spring Bank Holiday | Standard holiday |
| 31 August 2026 | Monday | Summer Bank Holiday | Standard holiday |
| 25 December 2026 | Friday | Christmas Day | Standard holiday |
| 28 December 2026 | Monday | Boxing Day (Substitute Day) | Standard holiday |
What are the basic considerations for classifying someone as a contractor or an employee?
The basic differences between a contractor and an employee are in levels of control. An employer has more control over an employee, including directing how and where the work is done, not just the finished product. An employee cannot sub-contract the work to another person. A contractor is independent and (usually) self-employed, bearing the risk of profit or loss.
If you have doubts about how someone at your company should be classified, speak to a local expert. Fines for misclassification can be substantial, even if it occurred unintentionally.
Employees in the UK aren’t entitled to 28+8 days of holiday
UK workers are entitled to 20 days annual leave + 8 days for public holidays (which can also be agreed to be used on other dates). You can find a full explanation on the UK Government website – https://www.gov.uk/holiday-entitlement-rights.
Running a business and considering Papaya Global as a solution for my business in the UK –
What is the lift needed, if any, in order to enable employees to enjoy benefits such as Cycle to Work, Electric Vehicle, etc? Is Papaya Global integrated with whatever necessary to enable this?
It depends which type of employment model is used. If they are using a Payroll model then this should be possible. If it is an EoR set up then it is usually not possible to engage with these types of benefits, instead the client can offer a monthly allowance which the worker can use to find benefits directly.