Global Payroll and Benefits — 6 min
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.
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.
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.
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.
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.
To pay contractors in the UK, companies usually choose to use a payments processing tool. Remote offers a free contractor management tool that allows companies to pay contractors in the UK with no extra fees. Contractors can upload their invoices directly to Remote, and companies can approve and pay with a single click.
You can pay contractors in the UK directly in whatever currency you choose. Most contractors in the UK prefer to be paid in pounds.
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.
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.
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.
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:
Note that most details are mandatory, while some (such as performance expectations and company rules) may vary from one company to another.
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 [email protected].
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