Home to one of the world’s most important financial centers, the United Kingdom is now seeing new startups pop up in areas such as insurtech, edtech, and alternative finance. It’s too early to know how Brexit will affect the United Kingdom in the long run. Regardless, many employers are still interested in hiring people based in the country. The United Kingdom’s impressive education system and diversity make it one of the most appealing countries to find top talent.
An employer of record (EOR) in the United Kingdom (UK) allows companies without a local entity to hire full-time workers in minutes. An EOR acts as the legal employer on paper and helps businesses manage payroll, statutory benefits, employment contracts, taxes, and other HR processes.
In the UK, you cannot hire employees without either establishing an entity in the country, or using a PEO or EOR service.
If you’re planning to bring your business to the United Kingdom, hiring talented employees based in London and other parts of the country is crucial. This means you will need to develop a solid understanding of complex labor laws as well as the UK’s economy, or partner with an EOR service provider that has local experts.
This article breaks down everything employers need to know about PEO and employer-of-record services in the UK, including what companies need to offer in their compensation and benefits packages.
PEO and EOR are often used interchangeably but they are different, especially in the United Kingdom. Oftentimes people say PEO when they actually mean an EOR service or an umbrella company.
The main purpose of a PEO is to provide companies that have established an entity in the UK cost effective HR services, like payroll and benefits administration.
Partnering with a PEO means:
Setting up an entity, which can take months
Hiring new employees in a short amount of time
Helping manage employee responsibilities
PEO services are not fully responsible for maintaining compliance. Employers enter into a co-employment with the PEO, which comes with additional risks.
To use a PEO service, companies still need to hire local labor experts, open a British bank account, and complete all of the necessary government forms and registrations.
If you already have an entity or subsidiary in the UK, using a PEO service can be a good option. However, if you don’t, seeking the services of an employer-of-record (EOR) service in the UK is likely going to be a better choice.
If your business is still growing or you’re looking to test the British labor market, an employer-of-record service can help you streamline the HR, hiring, and compliance process.
EOR services like Via:
Manage all HR related tasks
Acts as its own entity to free parent companies from legal issues, including compliance
Hires, onboards, and pays new employees without you having to wait to open an entity
EOR services also help your expansion by:
Onboarding candidates in a new location: To hire the best international talent, you need to be able to hire anywhere in the world. However, you will need to do so compliantly which can be expensive without an EOR service.
Testing out a new area for global expansion: Setting up an entity can be expensive. If you’re just trying to test out new locations, use an EOR service that can help you bypass the months it takes to set up a local entity.
Getting started quickly in a hyper-growth environment: Start-ups are fast moving. If you don’t act quickly enough, you may lose out on lucrative business opportunities. An EOR can help you scale your company up quickly.
Capital city: London
Largest city by population: London
Currency: Pound sterling (GBP)
Population: 67.22 million
UK GDP: 2.708 trillion (USD)
Payroll frequency: Monthly
Federal Minimum wage: National minimum wage in the United Kingdom is dependent on the age of the employee
21-23 years: 9.18 GBP/hour
18-20 years: 6.83 GBP/hour
Under 18: 4.81 GBP/hour
Apprentices: 4.81 GBP/hour
The UK has 8 public bank holidays for England, Wales, and Scotland. Northern Ireland has 2 additional holidays: St. Patrick’s Day and Orangemen’s day.
New Year’s Day
Early May bank holiday
Platinum Jubilee bank holiday
Summer bank holiday
In addition to these paid holidays, full-time employees are entitled to 28 days of annual leave. UK employers may offer additional leave as agreed upon by the employer and employee in the employment contract.
In the UK, employees can receive up to 28 weeks of statutory sick pay, paid at a fixed rate of 99.28 GBP per week. Employers may give their employees more sick pay at a rate higher than what is mandated by the employment contract.
If the employee is sick for longer than 1 week, they must provide a medical note.
New mothers can take 1 year of statutory maternity leave. This can be taken as 26 weeks of ordinary leave and 26 weeks of additional maternity leave, if necessary.
New fathers are entitled to 1-2 weeks of paid paternity leave, which begins after the child’s birth. They receive this pay as either 156.66 GBP or 90% of their average weekly earnings (whichever is lower).
Parents that adopt a child or give birth via a surrogate can receive up to 50 weeks of parental leave in the year following the child’s birth. Like many European countries, this leave is split between the two parents.
Any other form of paid leave must be stipulated in the employment contract, but in general UK employers offer the following:
Bereavement leave in the case of the death of an immediate family member is 3 days.
Employers that receive a summons for jury duty are allowed to take Jury leave, which is usually unpaid.
Payroll taxes in the UK are split between the employer and employee for their National Insurance Contribution (the UK social security system).
Employers typically contribute around 13.8%, while employees contribute 12%.
Payroll contributions towards social security are for:
Maternity, paternity, and parental leave
Corporate income taxes in the UK are a flat 19%.
Employment Rights Act 1996
National Minimum Wage Act 1998
Part-time Workers (Prevention of Less Favorable Treatment) Regulations 2000
Equality Act 2010
Agency Workers Regulations 2010
The UK strongly protects against any type of discrimination in the hiring process, so making sure that you do not use any language that falls into protected areas is crucial during recruiting, hiring, and employment
Employees are not allowed to work over 48 hours in 1 week
Employees are to be paid a minimum wage, and the wage that they are paid is dependent upon their age
No matter the job or position, employers must provide their employees with a written employment contract within the first 2 months of employment
Employees are entitled to paid time off, social security, maternity and paternity leave, and sick leave
Employment contracts Employment contracts are a requirement in the UK. You must provide your employee an overview of what they are hired to do during the recruiting process. Within the first 2 months, you must give them a detailed employment contract that outlines their job responsibilities, salary, and benefits. Employment contracts should be written in English.
Employees already receive a large amount of benefits through the country’s social security, so adding supplemental benefits like dental insurance and private healthcare is a plus and will garner interest from hard-to-recruit candidates.
If you partner with Via, we provide your company bullet-proof employment contracts that comply with British laws and protect your business’s IP, or intellectual property.
Common employee rights and protections in the UK include:
Written employment contracts
Safe and clean working environment
Protection against unfair dismissal
Protection of personal data and information
Business transfer protection
In the UK, there is no limit to the number or amount of penalties associated with misclassification of employees. Fines and penalties will be determined on a case-by-case basis.
In the UK, there are no statutory provisions for probation periods that employers must follow. Normally, probation periods are outlined in the employment contract and last 3-6 months.
The standard work week in the UK is Monday-Friday from 9 a.m.-5 p.m. Employees are not allowed to work over 40 hours without being paid overtime.
Anything over 40 hours is considered overtime, and employees are not allowed to work more than 48 hours in 1 working week. There is no standard overtime pay. An employer should request in writing if they need an employee to work overtime, on holidays or the weekend.
The termination process will vary based on the employment contract, as well as the reason for dismissal. Dismissals can be deemed fair or unfair.
The notice for termination must be clearly outlined in the employment contract.
The legal notice period mandated by the British government depends on how long you have been with the company:
1 week for employment between 1 month-2 years
1 week of additional notice for each year of service between 2-12 years
If an employee engages in gross misconduct, employers have the right to terminate the contract without notice.
Like the minimum wage, severance is dependent upon the age of the employee being let go.
Severance pay breaks down as follows:
½ weeks pay for each full year of service for employees under 22
1 week pay for each full year of service for employees between 22-41
1 ½ weeks of pay for each full year of service for employees over the age of 41
The length of service for severance pay is capped at 20 years, while the weekly pay for severance is capped at 571 GBP.
Hiring talented employees in the UK can be challenging without using a PEO or EOR service like Via.
Becoming a legal employer in the UK requires you to have a strong legal team and in-depth knowledge about labor laws. To maintain compliance with benefits and payroll, you will need to hire an outsourced payroll service or build your own HR team after establishing a subsidiary or entity.
For companies who hope to hire a large number of British employees, opening an entity with an HR team makes sense. Most of the time, however, using a third-party EOR service like Via is the easiest move.
Opening a British subsidiary requires you to pay employees internally and have your own HR team. Both of these steps will be time consuming and costly.
However, the process of opening an entity takes months, since you will need on-the-ground experts who can assist with opening a new bank account, finding an office, and registering with local government institutions. For this reason, companies looking to get started hiring local British talent as soon as possible can streamline the process by partnering with an EOR service like Via who already has an established British entity.
For companies that want to build a large team in the UK and have their own entities, using a United Kingdom PEO solution service is one option.
PEO companies act as co-employers and manage the HR process. However, they do not accept nearly as much legal responsibility for the entity in the country. If any compliance issues arise, the PEO service will likely pass these problems over to the parent company.
When using an EOR service like Via, you do not need to open a bank account or take legal responsibility for complying with British labor laws. Via takes care of that paperwork for you, including navigating local laws and paying employees in the UK’s official currency.
If you’re looking to hire 1 British engineer in London or a whole team of marketers based in Glasgow, using an EOR service expedites the process. Global EOR services help major corporations looking to scale up operations in the United Kingdom, as well as scaling startups, SMBs, and other entrepreneur-led businesses.
Many companies want to hire within the UK but do not have the in-depth knowledge of beginning the process compliantly and how to hire global talent. Via makes hiring employees and building your global team seamless. Via helps you manage local HR processes for direct employment such as work visas & permits, benefits, payroll, background checks, and more. Our team of local labor lawyers and on-the-ground experts ensure that your company remains compliant while expanding abroad. As your global employer-of-record/entity in the UK, Via assumes responsibility for employment liability, so that you can focus on what matters: recruiting and managing your team.
With Via’s transparent pricing, you can pay full-time employees or contractors in the UK with no hidden set-up fees, no foreign exchange or transaction fees, and no minimums–start with 1 employee and scale up at your own pace.