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United Kingdom — 11 min
Hiring an independent contractor can be the ideal solution if your company is not ready to hire full-time employees. This approach is often cost-effective, convenient, and fast, giving employers more flexibility.
If you’re looking for a highly skilled worker from an English-speaking country, hiring an independent contractor in the UK is an obvious choice. London is an established tech, finance, and banking hub with a huge population of talented professionals. Many UK residents with solid experience working for global organizations are actively seeking remote work. Hiring from the region can give employers fast access to highly-skilled contractors.
But, employment regulations in the UK can be complicated. Employers new to hiring in the UK may find it difficult to manage international payments and adapt to meet more complicated aspects of UK employment legislation (such as IR35).
The process of hiring independent contractors can take a significant amount of your time. Use this article to understand the relevant laws, tax and compliance practices involved in hiring and paying contractors in the UK easily.
Hiring independent contractors from the United Kingdom is a viable option even if you aren't based in the country.
In the UK, there are different types of employment statuses such as workers, employees, contractors, and directors. Companies interested in hiring a UK-based independent contractor should have an understanding of the different types of employment status as defined by Her Majesty’s Revenue and Customs (HMRC).
Independent contractors in the UK are generally self-employed individuals who have ownership of their own work and are hired for specific tasks or services. They do not have the same responsibilities and rights as employees do, such as benefits. They are also not tied to one employer and can work on different projects for several employers. In the UK, a contractor can have the employment status of a worker or an employee if they work for a client or agency.
Employees are entitled to various employment benefits including automatic enrollment in pensions, sick pay, holiday pay, and maternity leave. Companies don’t have to provide these benefits to contractors. However, some UK contractors who work remotely with a client may expect these benefits if they’re subject to a long-term contract. In this case, it might be better to convert your contractor to an employee (more on this below).
The rules governing the hiring of independent contractors in the UK compared to other countries are distinct. You need to pay special attention to various employment laws, tax and compliance practices, and a specific element of the law related to contractors known as IR35 legislation.
While drafting an employment contract between an employer and an independent contractor is not a legal requirement, it’s considered a good practice as it serves both parties. A contractor agreement clarifies work expectations and protects the contractor’s interests. A documented contract also protects the employer if the HMRC audits the business to review compliance with IR35.
Contractors in the United Kingdom pay income tax on their earnings at the same rate as employees. This includes earnings from self-employed work, irrespective of whether they are classified as “employees” under UK employment law.
Your company also may have to report income paid out to HMRC and make contributions on behalf of your employees.
Here are some key points to consider when hiring workers in the UK:
Worker classification: The law distinguishes between employees, workers, and contractors. Employees are bound by an employment contract that defines their duties, responsibilities, rights, and employment conditions. Contractors are usually self-employed, but they can be classified as a worker or an employee if they work for a company. Workers fall in a gray area between employees and contractors. They are bound by a contract to perform work or services to another party and are not self-employed. They are entitled to some employment rights such as national minimum wages, protections against unlawful discrimination, and a statutory minimum level of holiday pay.
Intellectual property: In the UK, a self-employed contractor owns the right to intellectual property (IP) even if it was commissioned by the employer, unless clarified in the contract. Failing to clarify IP ownership in your agreement with a contractor could lead to messy litigation or loss of IP. Get ahead of the issue by confirming your ownership of the work and protect your IP from the beginning.
Employee Termination: Termination in the UK is serious and requires the employer to follow proper procedure. For instance, if the employer does not submit the relevant paperwork, the business may run the risk of a court order instructing the employer to compensate the worker for the time they were terminated.
Rules and regulations in the UK are constantly evolving, especially in the aftermath of Brexit and Covid-19.
Instead of trying to manage these challenges alone, you can rely on a global contractor management platform like Remote to help you stay compliant with UK labor laws. If you’re looking to hire independent contractors in the UK, Remote can help you with the finer aspects of hiring contractors so that you can focus on growing your business.
The structure of the UK tax system in relation to employment differs from tax structures in other countries. A worker’s employment status determines their rights and the employer’s responsibilities.
An important tax legislation called the IR35 exists to combat ‘disguised unemployment.’ This refers to companies disguising employees as contractors to avoid paying minimum wage, holiday and sick pay, and other benefits.
If you are hiring a worker or contractor in the UK, you should understand how these rules impact your business. IR35 generally applies to medium and large businesses. Small businesses are exempt from the rules unless they meet two of the following criteria:
The business employs less than 50 employees.
The annual turnover is less than £10.1 million.
Gross assets are valued at less than £5.1 million.
Within the rules of IR35, the employer has to prove that a worker is hired as an independent contractor, and not as an employee. See our helpful guide to IR35 for more information.
IR35 is a law in the UK that can prevent companies from classifying workers who do the work of employees as contractors.
Before IR35, workers were responsible for determining their employment status and could classify themselves as contractors to get hired and pay less in taxes. But the introduction of the IR35 legislation shifted the responsibility of classification back to the employer.
If a company is found to be classifying contractors incorrectly and in breach of IR35, it faces fines and legal penalties. The employer is also responsible for paying back taxes and national insurance contributions that would have needed to be deducted.
The way IR35 works can cause significant issues. Many companies struggle with this aspect of UK employment law. But don’t let IR35 rules scare you away from hiring independent contractors in the UK. A global employment provider like Remote can help you manage tax compliance in the UK. Once you ensure you have an accurate IR35 status established, Remote can help you implement invoicing or any other changes necessary within the Remote platform.
If your company is US-based, remember that you have to file additional paperwork to the Internal Revenue Service (IRS) if you hire contractors in the UK. Remote’s tax compliance feature for contractor management can help you manage this process.
There are multiple options for paying your UK contractors.
Some options include international bank transfer, international money order, traditional money transfer services (Western Union), or digital payment platforms like PayPal or Wise.
To avoid delays and additional conversion fees, you can set up contractor payments using a contractor management platform. Remote’s contractor management tool can take care of payroll in full compliance with UK laws and regulations. Your contractors can simply submit invoices directly onto the Remote platform, so all you have to do is approve the payment. As a bonus, your contractor also has visibility of the process and expected payout dates.
Every company that wants to hire independent contractors in the UK should be aware of relevant employment laws and how they apply to each employment status. This is also the case for any third party companies who assist with managing remote workers in the UK.
Issues can arise when an employer incorrectly classifies a worker as a contractor when they are an employee in practice. Companies that misclassify their workers can suffer serious consequences such as fines, legal disputes, and penalties.
Both the employer and contractor can face consequences if they are found in violation of the IR35 legislation. If the contractor was previously incorrectly classified outside IR35 legislation and found liable for unpaid taxes, they can incur additional penalties. The company hiring these contractors would also need to pay back taxes.
If you want to grow your team of contractors in the UK, you must minimize your non-compliance risk. Working with a contractor management platform like Remote can help you simplify worker classification and help your business understand your local responsibilities.
Want to find out your employee miscalculation risk level? Check out our free Misclassification Risk Tool.
At some point in your business journey, you might think about converting your contractors to employees. Here are some reasons why you may want to do so:
You want your contractor to play a larger role in the business.
You want to hire the contractor for a longer period of time.
You want to offer benefits to your contractor.
Your contractor requests a change in status.
You want to save money in the long run.
You want to protect your company’s IP.
Converting contractors into employees can be an effective way to be in compliance with IR35 and other applicable tax laws in the UK. But the process of managing the transition can be complex. You have to draw a formal job offer and draft an employment contract that clearly outlines your employees’ rights, duties, and responsibilities (as well as ensuring compliance with all statutory benefits under UK labor laws).
When you’re ready to convert your independent contractors into employees, Remote makes the switch from contractor to employee seamless, allowing you to transition the relationship and manage payroll and benefits for your employee through the same platform.
The UK has some of the most protective labor laws in the world. That’s a good thing for workers. But, it can also present tax hurdles for employers who are unprepared to deal with the more complicated aspects of employment law.
But you don’t have to stress. With Remote's global HR expertise and purpose-built platform, hiring independent contractors in the United Kingdom — or anywhere in the world — becomes quick and easy. Our contractor management system can help you hire, pay, and onboard international contractors in a few clicks.
Learn more about our easy-to-use international contractor management platform and how you can manage your contractors effortlessly. If you’re ready to hire independent contractors in the UK, sign up and get started right away!
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