Hire and pay employees in the United Kingdom (UK)

Employer of Record (EOR) vs. entity

Whether you should establish your own entity or hire UK employees through an EOR is entirely dependent on your company’s resources, size, and expansion plans. Here are some key differences to keep in mind: 

• Legal entity in the UK. You’ll need to register with the local authorities and the PAYE scheme, find out if you’re automatically registered for Corporation Tax or not, and consult with local experts to ensure you’re in compliance with UK tax and labor laws.
• UK EOR. An EOR is a third-party service that operates as an employer on a company’s behalf—so you don’t need to set up your own entity. In addition to allowing you to hire full-time UK employees, EORs handle all the legal requirements for complying with UK laws for payroll, contracts, and benefits. They can also calculate and withhold taxes, onboard and manage employees, and run payroll.

If you’re choosing between getting an EOR or setting up your own entity, here are some pros and cons:

With an EOR selected, you can start the onboarding process by gathering your employee’s information (like their name, date of birth, address, start date, national insurance number, and existing tax code) plus their total pay and tax contributions for the year so far.

Learn the steps involved in hiring through an EOR in the UK in our guide. With Rippling, you can hire and onboard UK employees in 90 seconds.

Classifying UK workers: employees vs. contractors

If you’re hiring your first, full-time employee in the UK, it’s crucial to classify them correctly—His Majesty’s Revenue and Customs (HMRC) takes worker misclassification very seriously, and the penalties can be harsh.

Here are some of the ways UK law differentiates between employees and contractors:

Read our classification guide for more information on classifying your employees and maintaining compliance with UK labor laws.

Work permits for UK employees

Can your new hire legally work in the UK? It’s best to get this question answered before moving forward with the rest of the hiring process to avoid any legal headaches.

Post-Brexit, anyone who isn’t a UK citizen must have a work permit to legally work in the United Kingdom (including all EU citizens, except for Irish citizens). With that being said, the UK visa system is complicated and the permit type someone needs to obtain largely depends on their industry and job requirements.

Below are some of the work visa types available in the UK:

• Skilled Worker visa (the new name for the T2 visa)
• Seasonal worker visa
• Creative worker visa
• International Agreement visa
• Government Authorised Exchange visa
• EU Settlement Scheme visa (for citizens of the EU, Switzerland, Norway, Iceland, or Liechtenstein only)

For a comprehensive list of UK work visas–and details about the application process—read our guide to work permits in the UK.

New hire onboarding checklist

Now that you’ve made sure that your employee is legally allowed to work in the UK, you can continue with onboarding! A top-tier onboarding experience is a months-long process, but it’s well worth it, as it lays the foundation for a successful employment relationship early on.

Here are some things you should be thinking about during each stage of onboarding:

Before their first day

• Collect the necessary documents (national identity card, national insurance number, passport, etc.).
• Get consent and run a background check.
• Register the new employee with the HMRC.
• Send an offer letter (more on that in the next section).
• Enroll them in benefits.
• Order and configure their devices.
• Send a welcome email.

On Day 1

• Make sure their workspace is ready.
• Schedule their orientation.
• Have a get-to-know-you event.
• Give them an office tour.

During their first 90 days

• Provide them with role-specific training. 
• Assign work and help them set goals. 
• Offer regular feedback. 
• Encourage the employee to provide feedback.

See our guide on new hire onboarding in the UK for the full, new hire checklist. 

What to include in an offer letter in the UK

As mentioned above, the offer letter is an important piece of the onboarding puzzle—it can set the tone for your employment relationship before day one. Making sure your offer letters are legally compliant can save you resources and time (especially as it relates to legal disputes). 

Here’s a summary of what to include in an offer letter (also known as a “contract of employment”) in the UK:

• Position, job description, and date of commencement
• Conditions and warranties
• Compensation and benefits (salary, workplace pension scheme, vacation, etc.)
• Confidentiality agreements
• Termination policy

For the full primer on legally compliant offer letters in the UK, check out our guide. 

NDAs and confidentiality agreements in the UK

A non-disclosure agreement (NDA) or confidentiality agreement is used to protect sensitive information about your business. It prohibits the parties involved from sharing proprietary or confidential information with third parties. NDAs are considered legally enforceable in the UK, as long as they’re being used for legitimate business purposes—and not as “gagging clauses” that prevent employees from reporting serious concerns.

In the UK, an NDA can be used to protect the following kinds of information:

• Trade secrets and proprietary information 
• Customer information 
• Intellectual property 
• Financial information 
• Employee data

Read our guide to NDAs in the UK to learn about the different kinds of NDAs, how long they’re valid for, and much more.

Running background checks on UK employees

Unlike in some countries, background checks are legally required in the UK—so if you’re thinking of skipping this part of the onboarding process, don’t! In 2008, the UK government passed the Employment Background Check Act which requires criminal record checks, reference checks, and, in some cases, credit checks before you can onboard a new employee. 

Not only will a background check help you verify your new hire’s qualifications; it’ll protect your company from potential threats and criminal behavior. Here are the types of background screenings you can run on UK employees: 

Learn more about the different types of background screenings you’re allowed to conduct, illegal background checks, and common mistakes to avoid in our guide to background checks in the UK.

Paying employees in the UK

Once you know whether you’re using an EOR or establishing your own entity, you can select a payroll solution. There are two types of international payroll solutions: global payroll processors and global payroll aggregators. Check out our guide for more information. 

Here are the next steps after you’ve selected your payroll solution:

• Determine your employee’s employment status.
• Collect their information for payroll, including name, date of birth, start date, national insurance number, how often they’ll be paid, national insurance category, and more.
• Set the currency they’ll be paid in. You’re required to pay your British employees in GBP. 
• Run payroll. 
• File taxes with the HMRC.

The exact amount it costs to run payroll in the UK depends on many factors including how many employees you have, how you need your payroll to be managed, and the features you’d like your service to have.

Need more details? Check out our guide to running payroll for UK employees.

Mandatory employee benefits in the UK

Employee benefits in the UK differ greatly from those in the US, so it’s important to understand what’s mandatory before finalizing your employment contract. Here are some of the mandatory benefits employers have to provide in the UK: 

• Workplace pension. You are required to automatically enroll employees in workplace pensions if they meet the following criteria: They’re between the ages of 22 and 66. They can be classified as a “worker.” And they’re earning a minimum of £10,000 per year.
• Statutory sick pay. As the employer, you’re required to provide Statutory Sick Pay (SSP) to employees who are too ill to work. You have to pay them a minimum of £109.40 per week for up to 28 weeks.
• Statutory maternity leave. The UK affords mothers up to 52 weeks of maternity leave. This is divided into 39 weeks Ordinary Maternity Leave plus 13 weeks Additional Maternity Leave. During their maternity leave, women are also entitled to statutory maternity pay for up to 39 weeks.
• Annual holiday leave. Employers are required to provide employees with at least 5.6 weeks of holiday leave per calendar year.

For a full walkthrough of employee benefits in the UK, read our comprehensive guide. 

Managing remote employees’ computers and apps

Managing your employees’ devices remotely can be challenging—especially if they’re based in the UK, and you’re not. There’s a lot to keep track of: shipping equipment, configuring devices, and retrieving them when employees leave. 

With Rippling’s mobile device management, you can fully manage company devices by:

• Setting permissions and configuring apps
• Automatically installing secure OS updates and detecting cyber threats 
• Wiping devices remotely and shipping them

Read about setting up and managing remote employee devices overseas in our guide.

Protecting company IP in the UK

Sharing sensitive company information with new employees may feel risky. Your intellectual property (IP) helps you maintain a competitive edge, so it’s important to properly protect your trademarks, patents, trade secrets, and so on. But, IP laws in the UK are known for being hard to master, especially post-Brexit. 

Depending on the kind of intellectual property you’re trying to protect, you can choose from four types of IP protection—and yes, you can use more than one type.

In the UK, IP rights can cover the following:

• Trademarks 
• Designs 
• Web copy, literary works, film, photography, music 
• Inventions

Keep in mind, just because you’ve protected your IP in the European Union, doesn’t mean you’ll be protected in the UK. 

Learn more about IP protections in our guide on IP ownership and rights in the UK.

Complying with UK labor laws

As you move through the onboarding process, you want to be sure you’re in compliance with UK labor and employment laws at every step. Otherwise, the penalties can be harsh, including hundreds of thousands of GBP in fines and potential jail time. 

Be mindful of the following regulations when hiring in the UK:

• The UK has a National Minimum Wage and a National Living Wage. There are two categories of statutory minimum wage that employees can be paid. The National Living Wage is paid to employees ages 23 and up. And the National Minimum Wage is paid to employees ages 22 and younger. 
• There is no at-will employment in the UK. You must provide a reason for dismissing employees, and all employees are entitled to a written notice of their dismissal. They can only be dismissed immediately without notice if they engage in gross misconduct. 
• Employees have the right to unionize. UK employees can join one or more trade unions, including those that their employer doesn’t negotiate with.

Looking for more information? Check out our primer on UK labor and employment laws.

Terminating employees in the UK

Termination policies likely aren’t at the forefront of your mind. Despite being early on in the hiring process, it’s still best practice to be prepared for the unexpected.

Because the UK doesn’t recognize at-will employment (as mentioned above), it is important to ensure that all terminations are compliant with UK legislation. The reason for the termination will determine the type of termination. Below are examples of the different ways an employer can let an employee go:

• Termination during the probationary period.  Typically, probationary periods in the UK last for six months, but the exact terms need to be defined in the contract of employment. This gives employers (and employees) a chance to determine if the new hire is a good fit for the company and role. 
• Termination after the probationary period. Employees must be given a valid reason for the termination, such as continuous poor performance or misconduct. Failure to follow a fair and statutory termination process could result in an automatically unfair dismissal and the employee could be due compensation or need to be reinstated in their role. Employers need to implement a performance improvement plan (PIP) first before terminating an employee if the reason for the termination is poor performance and a disciplinary process will need to be followed if the reason is related to issues with misconduct.
• Termination with cause. Employees can be immediately terminated for serious misconduct such as violence, theft, pathological neglect of their duties, and sexual harassment. The burden of proof, however, is on the employer in these instances.

• Termination due to redundancy. Employees can be made redundant if the company is experiencing financial difficulties or restructuring the organisation and the employees’ roles are no longer required. Depending on the employees’ length of service, a formal workforce reduction process (consultation process) will need to be followed and the employees may be due additional redundancy pay. 
• Mutual separation agreement. A mutual separation agreement is an agreement under which an employer and an employee mutually end their employment relationship on agreed terms. Typically, it is an agreement for an employee to waive their right to make future claims or take legal action against the employer, usually in exchange for a separation package or a waiver of restrictive covenants such as a non-compete. Mutual separation agreements may also include post-employment restrictions such as non-disclosure or non-disparagement agreements.

For more details on statutory redundancy, notice periods, and termination policies, read our guide on UK terminations.

Disclaimer: Rippling and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any related activities or transactions.