Global Payroll and Benefits — 6 min
Looking to hire an employee in the United Kingdom? Is one of your existing team members planning to move to the UK? Whatever your situation, this guide on hiring employees in the UK can help you get familiar with the basics of UK employment law, payroll practices, common benefits, and more.
Related: United Kingdom Country Explorer
Labor laws in the UK can be tricky to navigate, especially for employers with just a few employees. Understanding the differences between “workers” and “employees,” for example, may not be intuitive to someone who has not managed a team in the UK before. As the premier employer of record for international talent, Remote helps businesses of all sizes hire workers in the UK in full compliance with all applicable labor laws.
To keep your company compliant, start with our helpful guide on hiring employees in the UK.
Related: What are labor laws like in the UK?
The UK applies different rules to “workers,” “employees,” and “self-employed contractors.”
Self-employed contractors are exactly what they sound like. Just like in the US, contractors work independently from the companies requesting their services. Companies in the UK are not required to provide benefits to contractors. To avoid misclassification issues, however, employers must be careful not to overstep their boundaries. Telling a contractor when or how to work, providing equipment or office space, and a number of other actions can all indicate an employer relationship and get companies into trouble.
To convert a contractor into an employee, UK employers must draft an employment contract clarifying the employment arrangement.
The term “worker” in the UK includes employees and a number of other people who fall in between the definition of contractors and employees. Uber drivers, for example, won a case in the UK Supreme Court in 2018 to be classified as workers. Workers receive some benefits under UK law, though not as many as full-time employees. Statutory benefits for UK workers include:
“Employees” in the UK are people who enter into a formalized employment contract with a company. Employees are entitled to the full range of benefits and protections under UK law.
UK businesses must be explicit in the assignment of intellectual property rights when working with contractors, as UK employment law often defaults such rights to the contractor. There is no “work for hire” concept in the UK.
Because of this, many foreign employers of remote UK workers choose an employment relationship over a contractor one. Remote’s EOR solution provides the industry’s strongest IP protections for employers in the UK.
The UK provides the usual protections from discrimination based on race, age, gender, religion, and other protected qualities. In 2020, an employment tribunal also ruled on veganism as a protected philosophical belief under the Equality Act.
According to the Employment Rights Act 1996, all UK employers must provide their employees with a written contract outlining the details of the employment relationship. These contracts must include details such as job titles and descriptions, employment starting date, salary and payment schedule, pension plans, company rules, termination policies, and other important information.
Employers in the UK are required to carry liability insurance to protect against claims from workers. This insurance covers businesses in the event that an employee brings a grievance or case for compensation.
Work visas in the UK cover several types of visitation and employment purposes. Many visas work on a points system in which applicants earn points for meeting different visa requirements.
Citizens of the European Economic Area, or EEA, often do not need to apply for visas at all, while people coming into the UK from the US and other non-EEA regions must apply for the visa appropriate for their situation.
Examples of work visas in the UK include:
If you are not sure which visa your UK employees need, contact Remote and our global operations team can assist you.
UK labor laws will continue to apply as usual in the wake of Brexit. Employers of UK residents who ask their employees to travel should make sure all workers have updated passports. Any immigrants from other EU countries who worked in the UK prior to Brexit should double-check their immigration and visa status to avoid getting into trouble.
As of 2020, the UK still needs to come to agreements with several countries, so requirements may vary dramatically from one case to the next.
Yes. Employers are responsible for the secure collection, maintenance, and disposal of employee data under the rules of GDPR.
Related: How to pay remote workers in the UK
Foreign companies employing workers in the UK must either pay their foreign employees through their UK legal entities or employ their workers through an employer of record, like Remote. Because creating a legal entity is a time-consuming and expensive process, most businesses (especially small- and medium-sized businesses) choose to work with an EOR.
Like in the US, employers in the UK deduct taxes and social contributions from employee checks prior to disbursing funds. Fees for the UK’s government-provided healthcare are also deducted from employee pay.
Employees in the UK have a right to an itemized payslip detailing all deductions, taxes, fees, and correct payment information. Variations in payment rates based on time worked (such as overtime rates) must be broken down into subtypes by hours or shown as a single comprehensive total. These payslips can be delivered either by mail or electronically (or both, if desired).
Most companies pay their UK employees monthly, not biweekly.
Companies must pay their UK workers in pounds (GBP). Businesses based in the US cannot pay their remote workers in the UK in dollars.
The UK does not mandate overtime pay for workers. Although a 40-hour workweek is the norm, employers are permitted to require employees to work longer hours, provided they provide wages for the hours worked and provided the employee does not average more than 48 hours worked per week. UK workers are not entitled to overtime pay for working on public holidays.
Employers who choose to offer overtime (as many do) may do so. UK employers offering overtime must outline the rules for overtime pay in their employment contracts.
Workers are allowed to work more than 48 hours per week if they sign an agreement stating their intention to do so. They may cancel their commitment to the additional hours at any time by giving their employer at least one week’s notice.
IR35 rules in the UK are designed to prevent companies and self-employed contractors from engaging in the use of a specific tax loophole. These rules come into play when contractors “work” for a third party, called a personal service company or PSC, who then contracts with an entity to provide the contractor’s services to the employer. If the relationship between the employer and the contractor would be the same with or without the third party, IR35 rules apply.
The IR35 rules changed in 2020 to shift the responsibility for correct classification from the contractor to the employer. Now, employers must ensure that any contractors working through a PSC have a valid reason for working in that arrangement. In some cases, contractors who were contracting through PSCs may now be considered employees of the companies retaining their services.
The UK government does not outline many statutory benefits for employees beyond paid leave. However, employers typically offer comprehensive benefits packages similar to those seen at US companies, especially when pursuing top talent for difficult-to-fill roles. Remote can help employers of UK workers customize benefits packages to match their needs.
Workers in the UK are entitled to a statutory minimum of 28 leave days per year. Twenty of these days are paid time off, while the other eight come from national holidays. Employers often choose to provide more than 28 leave days as a perk to attract top talent.
UK law mandates that employers allow employees to roll over a maximum of eight days per year into the next year. Companies are allowed to allow employees to roll over more time if they desire. Employees who are unable to take their statutory PTO because they take a different kind of leave during the year, such as long-term sick leave or maternity leave, can carry over 20 days instead of eight.
Employees are entitled to a payout of unused paid time off if they leave, but only the balance of leave accrued during the current year.
Employers of UK workers are allowed to offer unlimited time off, but they must track how much leave employees take for official records and to ensure their UK employees take enough time off.
The UK has a specific set of laws regarding long-term sick leave independent of those governing short-term illness leave. This leave is called statutory sick pay. Employees who claim sick leave that extends beyond one week must provide their employers with a “fit note,” a document from a medical professional outlining the reason for the absence and the conditions under which the employee may return.
Workers on long-term sick leave receive £95.85 per week, paid by the employer, for a period of up to 28 weeks. Workers can receive more than this amount if an employment contract dictates, but not less. Employees who remain ill after 28 weeks and whose employers do not provide additional sick leave can apply for alternative forms of assistance.
Workers continue to accrue regular paid time off while they are away from work on statutory sick leave.
All pregnant employees are entitled to 52 weeks of maternity leave in the UK from the date they become employees. There is no mandatory minimum amount of time a person must work for an employer before being allowed to take maternity leave.
Employers are responsible for paying maternity leave, and payment amounts vary based on time spent on leave and normal wages.
Maternity leave in the UK is split into two parts: 26 weeks of ordinary leave and 26 weeks of additional leave. Pregnant employees also have a right to take PTO for antenatal care. Employees must provide at least eight weeks’ notice to employers if they want to change the date they plan to return to work.
Partners of pregnant employees, including non-male partners, may qualify for paternity leave. To do so, the partner must be the father, the partner of the person giving birth, the person adopting the child, or the child’s intended parent if planning to care for the child after a surrogacy. It is important to note that employees may become ineligible for paternity leave if they have taken time off from work to attend adoption appointments.
Paternity leave in the UK cannot begin before the birth of the child and must be used within the first year of the child’s birth. Employees may take one to two consecutive weeks of paternity leave.
Unlike maternity leave, taking paternity leave requires employees to have worked for their employer for at least 26 continuous weeks before the qualifying week, which is the 15th week before the child’s due date.
The UK also allows shared parental leave in many circumstances. Shared leave must be used within the first year of the child’s birth. Up to 50 weeks can be shared, with up to 37 weeks paid. Shared parental leave may be taken in blocks, all at once, together as a couple, or separately.
Although the UK government provides health insurance to residents, many employers still choose to offer private health insurance as an additional perk to attract top talent. Some employers offer plans directly, while others give their workers the option of an additional stipend to use to select their own plans.
UK employers may choose to offer employees vision insurance, dental insurance, fertility support, disability support, and other types of insurance outside that which is typically covered by the NHS or private health plans. Some insurance plans are more common than others.
Employers in the UK are obligated to fund pension schemes with mandatory contribution rates and minimums for qualifying workers. For details, see below.
Workers in the UK have access to a variety of retirement plans, many of which fall under the umbrella of pension schemes. Pension schemes include company plans, personal investments, and others.
Workers are usually enrolled automatically in company pension schemes. Companies cannot intimidate, encourage, or otherwise try to convince employees to opt out.
To be enrolled automatically, employees must be workers (not contractors), between the ages of 22 and 66, earning at least £10,000 per year. Employees not enrolled automatically can opt in.
Employers may postpone automatic enrollment of an employee by up to three months. To do so, the employer must notify the worker within six weeks and one day from the date the employee becomes eligible for enrollment. Postponement notices must contain specific language and reasoning to be valid.
Employers must provide information on pension enrollment to a pensions regulator, who can issue significant fines and penalties when companies do not follow proper procedures. Employers must also submit a declaration of compliance within five months of auto-enrolling a new employee. Remote handles these compliance duties for employers of UK workers.
Employee contributions to pension schemes are pre-tax contributions. Employers must contribute a minimum of 3% of total employee earnings, while employees must contribute at least 5%.
Private pension schemes fall into two primary categories: defined contribution schemes and defined benefit schemes.
Defined contribution schemes are pensions that grow based on how much money a person puts in. Sometimes referred to as personal pensions or “money purchase” pension schemes, defined contribution pension schemes combine contributions made by employees and employers into a single pot. UK workers can typically withdraw 25% of a defined contribution scheme without paying taxes after waiting for an appropriate period of time.
Defined benefit schemes are typically employer-provided pensions that employers arrange for their workers. These are sometimes referred to as “final salary” or “career average” pension schemes. Defined benefit schemes are not based on how much employees or employers contribute but on a set of fund-specific rules, like how long an employee has worked for the employer, the employee’s salary, etc. Defined benefit pension schemes pay out a set amount each year upon retirement.
While employees do not have many protections against termination for their first two years, they gain a new set of rights after two years of employment. To terminate an employee after two years in an employment relationship, employers must provide a “potentially fair reason” related to conduct, capability, or another substantial factor. Keep in mind that the UK has a limited definition of what these factors may be.
Employees not fired for cause are entitled to receive advance written notice of their termination.
The minimum notice periods are:
Note that companies are usually prohibited from giving employees more than 12 weeks of notice regarding termination.
The UK does not mandate severance pay for terminated workers (beyond those made redundant or laid off for financial reasons). However, employers often choose to provide severance packages.
Employees with at least two years of continuous service for an employer in the UK are entitled to “unfair dismissal rights.” Employers seeking to terminate employees who have at least two years of service must provide legally fair reasoning for the termination. Failure to do so could allow unfairly terminated employees to sue successfully for lost wages amounting to the lesser of one year’s earnings or £86,444.
When using severance pay as part of an agreement to ensure an employee does not bring a grievance against the company, the employee must receive independent legal advice. Companies working with Remote receive support and guidance from Remote’s legal team during this process.
Although foreign employers of UK workers are not required to use probationary periods, most choose to do so. Probationary periods in the UK typically last from 30 days to a few months. Employers can terminate an employee during a probationary period immediately, without a waiting period for advance notice, provided the employer notifies the employee in writing.
Noncompete agreements are valid and enforceable in the UK, but employers should be cautious in their wording of such contracts. All post-termination restrictions in the UK are limited to 12 months.
Employees who fail to meet performance management criteria may be terminated with a mutually accepted severance package prior to the end of the probationary period. This practice can be an effective way to part ways with an underperforming employee without opening up the company to a lawsuit. Generally, the content of settlement discussions is not permitted as evidence in employment lawsuits unless the employee alleges gross misconduct, such as discrimination based on race, age, gender, etc.
Rewarding and disciplining employees for performance reasons is a common practice the world over. Performance management in the UK requires employers to follow a few specific rules, however.
Employers in the UK generally cannot terminate employees for a single instance of poor performance. To terminate an employee for performance-based reasons, employers must provide clear documentation of written warnings and attempts to support the employee, usually through reasonable accommodations or an improvement plan. For instances of gross negligence, this requirement may be waived, but these cases are rare.
Employees who improve after a performance plan only to relapse after the probationary period may be put on longer probationary periods for repeated issues. UK employment courts may frown upon improvement plans of a year or more for a first offense, but employees put on multiple plans can be required to show improvement for a longer period of time.
Outside of protected disability accommodations, employers in the UK do not have to accommodate workers who struggle to perform the basic duties of their jobs. Many managers may feel obligated to provide older employees, less tech-savvy employees, and other non-protected people with lighter workloads. However, doing so could open the door to other problems, including lawsuits from other employees who feel they are being managed more strictly than their peers.
Navigating UK employment law is no small feat. As the best employer of record solution for the UK, Remote helps businesses of all sizes to work with top UK talent while remaining compliant with all applicable laws.
Remote provides a first-class experience for your UK employees while handling payroll, benefits, taxes, and compliance for a low flat rate. Contact us today to learn more about our UK employer of record solution.
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