Companies in the UK must offer a specific set of employee benefits to remain compliant with UK labor laws. This is especially important for foreign employers of remote UK workers who may not be familiar with common benefits in the UK.

To compete for top UK talent, businesses should offer a more competitive benefits package that goes beyond the basic requirements. Remote’s guide on hiring remote workers in the UK covers a variety of topics on UK employment, payroll, benefits, and labor laws. In this article, we will examine a variety of statutory, standard, and premium benefits in the UK.

Employees and workers (two distinct terms) are entitled to statutory benefits in the UK. Employees meet the traditional definition of full-time workers and sign employment contracts with their employers. Workers operate in a gray area between contractors and employees. Some companies that have attempted to classify workers as contractors have run into trouble under UK laws.

For more information on employers and workers, view Remote’s introduction to UK labor laws. Remote helps businesses avoid classification troubles with an employer of record solution that guarantees full compliance with all UK labor laws.

Benefits to offer employees in the UK

Remote’s guide on hiring employees in the UK provides a high-level overview of UK payment processes, benefits expectations, and UK labor laws. In this guide, we will cover how to pay remote workers in the UK in greater detail.

Paying remote workers in the UK is functionally straightforward, but the process does involve a few legal hurdles. To ensure your employees, workers, and contractors receive their pay without interruption, start here.

Can foreign businesses pay remote workers in the UK directly?

To pay employees in the UK, a company based outside the country must either set up a local legal entity or employ their foriegn workers through an employer of record, like Remote. Companies can also pay their workers as contractors: however, this approach is only valid if the relationship is legitimately a contractor relationship. Otherwise, the company could be subject to penalties and fines.

What payslip deductions are employers of UK workers required to make?

Employers of remote UK workers must deduct social contributions and taxes from employee payslips. Much like in the US, these contributions cover things like social security programs and unemployment benefits. Employers must also deduct a percentage of pay to help fund the NHS, the UK’s universal healthcare service, as well as mandatory contributions to pension schemes.

How much do companies and employees pay for pension schemes and retirement plans in the UK?

Employers must contribute a minimum of 3% of each individual employee’s pay to a pension scheme. Employees must contribute at least 5% of their own pay to a pension scheme, which employers must show on the employees’ payslips.

Employers in the UK are required by law to contribute at least the minimum amount to employee pension funds. Employees are usually enrolled automatically to contribute a percentage of their pay as well. While employees may opt out of contributions, companies are not allowed to encourage, intimidate, or otherwise convince employees to opt out of pension contributions.

What information is required on UK payslips?

Companies employing UK workers are required by law to provide payslips with itemized information regarding deductions, hourly rates, and other key information. Payslips should detail any deductions, including pension deductions; taxes; fees for social contributions; and payment information.

Payment information must include a complete and accurate assessment of the amount paid, hours worked, and hourly rate. When employees receive overtime pay, employers can either break down hours worked into regular hours and overtime hours or display all hours worked at the average hourly rate for the duration of the payment period.

Employers in the UK are not required by the government to pay overtime rates. However, employers may not require employees to average more than 48 hours of work per week in most cases. Workers in the UK are also not entitled to special wage rates for working on public holidays.

While overtime is not required by law, many employers in the UK do provide overtime pay for employees who work beyond 40 hours per week. Companies that choose to offer overtime pay must outline the rules and limitations of their overtime offerings within their employment contracts.

In some cases, workers may agree in writing to work more than 48 hours per week on average. If they choose to do so, they must be allowed to cancel that commitment by providing one week’s notice.

You can use Remote to onboard, manage, and pay contractors around the world in one click. Remote's Contractor Management product makes it easy for companies to pay contractors in the UK in your own local currency.

How do IR35 rules affect contractors in the UK?

IR35 rules prevent companies from taking advantage of a tax loophole to classify workers operating in an employment-like relationship as contractors.

In the UK, contractors sometimes work through personal service companies, or PVCs. PVCs are third parties that hire contractors then sell those contractors' services to companies. The UK government recently identified a loophole through which companies were hiring contractors through PVCs when those contractors should have been classified as employees.

To remedy the situation, the UK government put new IR35 rules into effect. Where previously contractors were responsible for managing their classification status with PVCs, new rules now require companies hiring contractors to verify that any PVC intermediaries are valid and that the relationship between contractor and company would not constitute that of an employer-employee relationship in the absence of the PVC.

IR35 rules are a tricky area of UK employment law, even for experienced companies. Remote helps insulate companies from issues that could arise from misclassification and helps businesses remain compliant and protected under UK law.

What currencies can you use to pay UK employees?

UK employees must receive their pay in pounds. Companies in the US cannot pay their remote UK employees in dollars. To provide consistent payment, most companies set the employee salary in pounds in the employment contract, then absorb (or gain, depending on changes in currency values) the difference.

What is the difference between workers, contractors, and employees in the UK?

Workers and employees are distinct from one another in the UK, as we cover in our article on UK labor laws. Workers exist in a gray area between employees and contractors. Companies paying workers as contractors may run into legal trouble, as Uber and other gig-based companies have in the UK. Remote can help companies clarify worker and employee relationships in the UK and pay their teams appropriately.

What is included in UK employment contracts?

All full-time employees in the UK must sign employment contracts per the Employment Rights Act 1996. These contracts protect workers from unscrupulous employers, but they also protect employers by outlining every detail of the employment relationship. Mandatory contracts ensure employees cannot claim they did not receive a promised benefit or were hired into the wrong role.

Employment contracts include a variety of details, such as:

Pension contribution minimums (for both employee and employer)

Note that most details are mandatory, while some (such as performance expectations and company rules) may vary from one company to another.

Pay your remote employees in the UK with Remote

The UK has a thriving and diverse pool of talented workers in a variety of competitive industries. Remote helps businesses all over the world pay their UK employees in complete compliance with all UK laws while providing a first-class experience for their remote teams.

With our employer of record solution, we can help companies employ top talent in the UK without opening a local legal entity or paying a percentage of the employee’s salary to a third party. We offer a full EOR solution for a low flat rate — no hidden fees, no long-term commitments. To learn more about our employer of record and contractor payments solutions, reach out to sales@remote.com.

How to pay remote workers in the UK

Labor laws in the UK, while similar to those in the US, maintain a few important distinctions international employers need to understand. Employers looking to hire employees in the UK should research UK labor laws before moving forward with a new hire, continuing to employ a worker who moves to the UK, or converting a UK contractor into an employee.

What is the difference between an employee and a worker in the UK?

UK labor laws differentiate between “employees” and “workers.” 

Employees in the UK meet all the standard qualifications traditionally associated with full-time workers. Under UK law, anyone who works hours set by an employer, in a location determined by an employer, using methods determined by an employer, or in an otherwise dependent relationship is considered an employee.

In the UK, full-time employees must sign an employment contract with their employers. These employment contracts outline the details of things like benefits, productivity expectations, pension contributions, and other important details. Anything not in the contract is not considered to be part of the agreement between the parties.

Workers are a little fuzzier. In the UK, the term “worker” does not include contractors, but it does include some people who fall between the definitions of employees and contractors. Gig economy companies like Uber are currently fighting against court rulings classifying their drivers as workers, for example.

Workers are entitled to many of the benefits employees receive, including paid holidays, a minimum wage, reasonable breaks, pension contributions, and other rights.

What are the rules on contract workers in the UK?

Self-employed contractors remain independent. Just like contractors anywhere else, UK contractors set their own rates and hours and are not beholden to rules set for them by any employers.

Companies working with UK contractors must be extremely clear about intellectual property rights. Because the UK does not have a work-for-hire concept in the same way the US does, IP rights can sometimes default to creators over clients (in this case, contractors over companies). Because of this, employing workers as employees is often safer than entering into contractor agreements. Remote’s employer of record solution offers the strongest IP protections for employers in the industry.

In the past, some contractors and companies attempted to avoid employee classifications by using personal service companies, or PSCs, as go-betweens. New rules have largely eliminated this loophole by shifting the responsibility of classification corrections from the workers to the employers.

Before the IR35 law changed, a person working as a contractor behind a PSC was responsible for ensuring that relationship was proper and correct. Today, employers are responsible for ensuring that anyone working behind a PSC is doing so correctly and should not be classified as an employee. If the relationship between the contractor and employer would be the same with or without the presence of the PSC as a third party, IR35 applies.

As an employer of record, Remote eliminates this confusion by allowing companies to hire remote workers in the UK as full-time employees with complete legal compliance.

Yes. UK law guarantees the right for employees to join unions and prohibits employers from discriminating against employees for union membership. Unions and companies working with unions must follow the rules set by the Trade Union and Labour Relations (Consolidation) Act 1992.

How do you terminate an employee in the UK?

Employees in the UK typically do not have special protections against termination until they reach their second year of employment. Employers may usually terminate employees at will during the first two years of employment, outside of protected cases of discrimination including race, philosophical and religious beliefs, and gender.

After two years, employers must provide a “potentially fair reason” to terminate an employee with cause. While this definition sounds broad, UK courts can be strict in their interpretation of the law. Potentially fair reasons must pertain to personal conduct, ability to perform the work required, or other factors that substantially impact the employer-employee relationship.

Employees fired for negligence may be let go immediately depending on the circumstances. For example, an employee whose behavior endangers others is not guaranteed advance notice of termination.

Employees fired for other reasons are entitled to advance notice of termination. Notice periods cover a broad range:

One week if the employee has worked longer than one month for the employer

One week for every year of continuous employment from 5-11 years

Three months’ notice after 12 years of employment

Companies may not give employees more than 12 weeks’ notice. Many companies choose to give notice by sending terminated employees home and continuing to pay those employees for the duration of the notice period without requiring the employees to come into work.

Many businesses choose to keep employees on probationary periods for the first few months. When terminating an employee during a probationary period, companies are not required to provide advance notice as long as they serve the termination in writing. 

Are terminated employees in the UK entitled to severance pay?

The UK government does not mandate severance pay for employees. However, employees with two years of continuous employment are entitled to “unfair dismissal rights,” by which employees can claim they were let go improperly. If the court finds in favor of the employee, the company may be required to pay one year’s wages to the employee as a penalty, up to a limit of £86,444.

Companies may (and often do) use severance pay as part of a termination agreement to avoid a grievance. In this situation, employees must receive independent legal advice for the agreement to be valid. Remote can support companies during this process.

What work visas do employees need to work in the UK?

Work visas in the UK vary by purpose and qualification. Many of these visas operate based on a points system to determine the qualification level of the applicant.

Citizens of the European Economic Area (EEA) do not always need visas. Citizens of other parts of the world, including the US, almost always do. 

Types of common worker visas include, but are not limited to:

Tier 2 General Visas, for workers with UK job offers

If you would like help managing your employees’ visas, contact Remote to learn more.

Labor laws in the UK continue to evolve in the wake of Brexit, GDPR, the COVID-19 pandemic response, and other important events. Companies hiring remote workers in the UK may discover the rules have changed if they have done business in the country in the past.

Remote makes labor laws in the UK simple. Our employer of record solution keeps businesses in complete compliance with all applicable local labor laws while providing the best-in-class experience for UK remote workers. Contact us today to learn more about our UK employer of record solution.

Vittoria Bilello

Articles published on Remote by Vittoria Bilello