The United Kingdom is known as a wealthy and educated region, but it’s currently facing some significant market challenges that can impact businesses in various ways. These challenges are making it much more difficult to attract and retain talent.
The United Kingdom’s labour shortage is a major issue, and several different factors contribute to the lack of available skilled UK citizens. These factors include the aftermath of a global pandemic, Brexit and many others.
However, while labour shortages can be costly for UK employers, hiring remote workers can help companies improve productivity and build a presence in other global markets. In fact, the UK has specific laws in place to promote remote work, such as the Flexible Working Bill.
This article will take a deeper look into the UK’s labour shortage and some of the important remote working laws employers should know about.
What is Happening in the UK?
The United Kingdom is known for having one of the world’s largest economies, ranking sixth globally in 2023 in terms of GDP. The region has strengths in industries such as manufacturing, finance, healthcare, and more.
The United Kingdom also has the second-best education system in the world. This provides companies the chance to access a wide range of skilled workers from England, Wales, Scotland, and Northern Ireland.
Despite the region’s wealth and highly educated workforce, companies are experiencing a labour shortage in the UK. As of January 2023, approximately 11.5% of UK businesses have been impacted by worker shortages, and industries such as the food service sector have been hit particularly hard.
The Shortage Occupation List provides information about occupations that lack an adequate amount of skilled workers, and positions from nearly every industry are included. This can impact the sponsorship process for remote working arrangements, salary negotiations, and required fees to apply for the appropriate qualifications.
How Does a Labour Shortage Impact Businesses?
A shortage occurs when the number of vacant positions in a country is higher than the number of available workers. The UK labour shortage persists even with record highs in employment rates, as there are still roughly one million job vacancies in the region. Worker shortages can impact the economy and companies in several significant ways.
Challenges in Recruitment
Having a smaller talent pool of skilled workers to choose from can make recruiting the right candidate for the position significantly more difficult. This can lead to an extended recruitment and hiring cycle, which can increase UK employer costs and add extra responsibilities for your other employees.
Companies may also have difficulty attracting employees because of increased competition from other organizations to hire workers. This can even potentially lead to hiring candidates that your company may not have considered otherwise.
Increased Labour Costs
The UK labour shortage can impact your company’s economic growth by increasing the required employer costs. With mass vacancies and rapid inflation following the pandemic, companies will need to provide higher wages and more comprehensive benefits packages to remain competitive when attracting new hires or retaining existing employees.
This is particularly experienced during a labour shortage because the market’s demand for workers becomes much more intense, meaning potential employees have more leverage when negotiating salaries.
Productivity Losses
When a company has difficulty recruiting talent to fill important roles, existing employees may experience an increased workload. Employers who are overworked may experience signs of burnout, which is when your workers experience a state of mental and physical exhaustion.
Burnout can contribute to decreased productivity among your staff, reduced quality of work, higher turnover rates, and potential delays in projects.
Why is There a Labour Shortage in the United Kingdom?
The impact of the UK workforce shortage has been felt by various types of workers and several important economic sectors. This includes rising rates of economic inactivity – the average working-age UK citizen who is not currently employed or actively trying to find a job.
Overall, the shortage of available workers in the UK is a complicated issue with several contributing factors.
COVID-19 Pandemic
The COVID-19 pandemic is one of the major causes of the current labour shortage in the United Kingdom. The pandemic drastically changed how businesses operate and had a significant impact on labour markets, resulting in a sharp reduction of workers in all industries. This includes employees who wish to pursue a different career path or look for a job that pays better or offers more employment security.
The pandemic also helped cause great resignation, which was a period when unprecedented numbers of employees voluntarily quit their jobs and re-evaluated what they expected from employers. For example, roughly 32% of workers credited the lack of work-life balance as the primary reason for leaving, while 44% left to find a better salary.
Stay-at-home orders and other advancements to technology have also contributed to changes in work patterns, such as remote work in the United Kingdom becoming the norm. In fact, more than 33% of UK workers would quit if they had to return to the office on a permanent basis, illustrating the demand from employees who request flexible working options
This contributes to the UK’s labour shortage because the demand for workers has recovered since the pandemic, though the supply of available workers has not.
Mass Retirements
The aging workforce in the UK is another major factor contributing to the labour shortage. Much of the United Kingdom’s labour force is made up of older individuals, and this contributes to the workforce shortage because there are not enough younger workers to properly fill vacant positions.
There has also been a rise in early retirements among the UK’s workforce. In Britain, the retirement age is 66. However, since COVID began, more and more workers have been retiring in their 50s and early 60s. Additionally, many workers voluntarily chose not to return to work after being furloughed at the beginning of the pandemic.
Other impacts can include previously full-time employees switching to part-time or advocating for more remote positions. Several factors can contribute to this, including a robust pension system and the ability to experiment with alternative working arrangements.
Since the end of 2019, the British workforce lost 408,000 working-age people, and 313,000 were aged over 50.
Skill Gap
Labour shortages in the UK due to early retirement impact certain industries such as healthcare, construction, agriculture, and hospitality in significant ways. Skilled workers retiring from the workforce can lead to a skills gap, which refers to the difference between the skills that an employer needs and the skills that younger workers actually have.
Brexit
The decision for the UK to leave the European Union has impacted the British labour shortage significantly. In 2016, the people of the UK voted in favour of leaving the EU and on January 31, 2020, the region officially withdrew.
As a consequence of this decision, there were significant changes to legislation and immigration policy. European Union citizens lost the right to free movement, which allowed them to legally work in Britain without needing a work visa or other formal documentation. This has made it much more difficult for international workers to fill job vacancies, particularly in lower-income sectors.
To successfully apply for a visa, international workers will need to:
- Have received a job offer from an approved company
- Be able to speak English at a minimum threshold
- Meet minimum salary requirements based on the average rate for the position
- Have educational credentials (only for certain jobs)
It is estimated that there are roughly 333,000 fewer workers in the UK as a result of Brexit. In 2021, many British companies cited the lack of EU applicants as one of the primary reasons they were not able to fill job vacancies. This includes nearly half of businesses in the transport and storage sector, 40% of businesses in administration, 39% of education businesses, and 36% of arts and recreation companies.
How Can Remote Work Help?
Since the pandemic, remote work in the UK has become an increasingly popular practice among companies. This allows workers to do their jobs from a different location than a traditional office, providing greater flexibility for your employees and a more sustainable working environment. It even allows for the practice of letting certain duties performed overseas be adopted by the company.
Hiring remote workers can also help a company combat the UK labour shortage. Almost a third of business owners have hired fully remote staff in response to labour shortages. Recruiting employees remotely from another country can give you access to a wider talent pool of young, skilled workers from around the world, and you won’t need to worry about complicated Brexit immigration policies.
Employees who work remotely from another country than the UK can provide several benefits for a company:
- Improved Productivity: Employees who work from home tend to experience fewer distractions and have a more comfortable and customizable working space. Remote employees are 35% to 40% more productive than employees who primarily work on-site.
- Increased Performance: Remote employees not only get more done, they also tend to perform better in flexible working arrangements. The greater control over the working environment helps ensure a better quality of work.
- Boosted Employee Morale: Remote work arrangements eliminate the need to commute to an office and promote a better work-life balance for employees. Providing greater flexibility to your workers can boost employee morale, which can also help your company attract top talent and retain your existing skilled workers.
Remote work in the UK is especially attractive for certain demographics, such as younger parents and employees with health concerns. However, it’s worth noting that not all positions can be performed remotely. For example, construction workers and employees in the food service industry must be present on the job site.
UK Remote Working Laws and Regulations
Even before the pandemic, remote work for UK workers was rising in popularity. Between January and December 2019, around 12% of the United Kingdom’s workforce worked at least one day from home over the previous week.
Work-from-home numbers have remained higher than pre-pandemic levels. To gain a deeper understanding of how to hire employees, companies will need to know some of the major rules and regulations regarding remote work in the UK.
It’s important to know that an employer cannot impose a work-from-home arrangement on an employee unless it's a clear requirement of the employment contract.
Remote workers in the UK must be classified properly to avoid potential consequences, such as back pay and other financial damages. There are also several important questions a remote worker should consider before beginning.
Additionally, all employees have the legal right to request flexible work after at least 26 weeks of consecutive work for the same employer, though the rules may vary between England, Wales, Northern Ireland, and Scotland.
Flexible Working Bill
The Flexible Working Bill in the UK helps uphold employment rights for a company’s remote workers. Starting in spring 2025, employees will be able to make at least two flexible working requests in one year, and employers must respond to the request within two months. Other legislation states that employees can make a flexible working request on the first day of employment.
This rule gives employees more control over when and where they work. Requests for greater flexibility can only be denied for certain operational reasons. Operational reasons include:
- Incurring extra costs that will impact the business
- The required work cannot be reorganized
- The company cannot recruit people to fulfill work obligations
- Remote working will have an impact on the quality of work
- Remote working will have a negative impact on employee performance
- The company’s ability to meet the necessary market demands will be affected
- The required working times are not busy enough
- The business is planning structural changes
Employers must consult with an employee if a flexible working arrangement is denied, and employees are not required to present how remote working could impact the employer. This helps give remote employees in the UK more rights when it comes to work-from-home positions, which is an additional benefit for remote workers.
It’s vital for companies to remain compliant with the UK’s new labour laws, and partnering with an employer of record (EOR) can help you follow all the required steps to avoid penalties.
Local Labour Laws
UK companies who are going to hire internationally and have employees working from another country also need to follow the local rules and regulations. Hiring internationally can help you grow your company, but companies will need to have good business sense and remain compliant with the laws in the employee’s country. This can include payroll, income tax deductions, required employee benefits, and more.
Health and Safety
Employers are responsible for maintaining employee health and safety, even for remote workers in the UK. Health and safety measures can include:
- Helping your employees find a safe environment to work
- Having regular communication with your remote staff
- Providing the necessary equipment to your employees
- Employers must also ensure that their remote UK workers don’t work more than 48 hours a week.
Other Important Considerations
Companies hiring remote workers in the United Kingdom will also have to ensure a few other conditions are met to remain compliant. In addition to setting up a proper payroll system to handle any and all applicable UK tax per employee.
Your workers will also require a UK bank account to work in the region. Non-residents will need certain documentation to open up a bank account in the United Kingdom, including proof of identity, proof of address, and more.
Employers must also provide a valid UK contract for remote employees. British employment contracts can be used to hire permanent staff or for temporary working arrangements, such as fixed-term contracts or recruiting independent contractors.
Companies must withhold all taxes in the UK for each employee, along with their own corporation tax. Depending on the size and profitability of the business, British corporation taxes are usually around 25%.
How Can Borderless Help?
Borderless is an employer of record that offers a range of useful services to simplify the hiring process. We can handle international payroll, tax deductions, benefits administration, and onboarding for your global hires, allowing business leaders to focus on growth and strategy instead of worrying about complex local labour laws.
An employer of record like Borderless can also ensure that all your employees are classified properly and can provide guidance to help your company navigate the UK’s labour shortage. EORs will handle employment contracts and terms for employees working remotely from another country other than the United Kingdom.
With our expertise, companies can seamlessly hire new workers from 170+ countries to fill vacant positions.
Speak with us today to learn more about how we can help you, or visit our Insights page if you want to learn more about managing your global team, popular employee benefits, and how to hire international staff.
Disclaimer: Borderless does not provide legal services or legal advice to anyone. This includes customers, contractors, employees, partners, and the general public. We are not lawyers or paralegals. Please read our full disclaimer here.
