The United Kingdom has a highly developed economy that offers extensive opportunities for growth, along with a skilled workforce to help your company grow. The country is also a major global hub and can expose your business to a broader consumer base.
However, hiring in the UK isn’t always an easy task. There are a lot of hidden costs and mandatory rules or regulations you’ll need to know to legally hire employees and avoid noncompliance.
Engaging an employer of record can help keep you in line with the complicated logistics of recruiting skilled workers in the United Kingdom. EORs can also streamline the entire process, giving you more time to develop your team and business strategy.
Are you looking to tap into the diverse economy of the United Kingdom? This guide will tell you everything you need to know when hiring in the UK.
Reasons to Hire in the UK
Access to One of the World’s Largest Economies
The United Kingdom is a major global economic power, and hiring in the UK can help German companies build a presence in one of the world’s most robust markets. As of 2022, the United Kingdom had the 6th largest economy in the world in terms of GDP and this can expose your organization to a diverse range of potential consumers and industries.
The country is also home to a major global financial hub in London, providing access to investment opportunities. Additionally, the UK ranked as the 8th easiest country to do business in, meaning its regulatory incentives and taxation platform are designed to help you grow your business.
Skilled Workforce
German companies hiring in the UK can also benefit from the country’s large and skilled workforce. The United Kingdom has one of the best education systems in the world and ranked second globally for education in 2023. The UK also has many world-renowned schools, such as the University of Oxford.
Workers in the UK are known to be versatile and have notable strengths in industries like finance, healthcare, engineering, business, and more. Cities like London and Manchester are major European tech hubs and home to a number of skilled potential employees.
Strategic Location
Hiring UK workers can also help German companies reach new areas because of the country’s location and cultural similarities. Given their close geographic proximity, workers in either country can quickly and efficiently communicate important information.
The UK is also home to many major global transportation routes and is a part of several major international trade agreements. This helps support the movement of goods and can help you access other important markets around the world.
Understanding Local Employment Laws in the United Kingdom
Hiring in the UK can help your company rapidly expand and reach new markets, but there are also important local employment laws that a legal employer will need to know before beginning the process.
For example, did you know that if a legal employer doesn’t comply with the United Kingdom’s local labor laws, you could face noncompliance penalties? By contacting an employer of record like Borderless, you can legally hire new workers from almost anywhere in the world.
With the right approach, you can remain compliant with all employment laws.
Employment Contracts
An employment agreement is required to compliantly hire workers in the United Kingdom due to the Employment Rights Act. Employment contracts need to have a principal statement that should clearly define the terms of employment. The principal statement must include:
- Your company’s name
- The employee’s name
- Job title
- A description of the job’s responsibilities
- Start date
- Compensation and working hours
- Holiday entitlements
- Where the employee will be working
- End date (if applicable)
- Benefits and termination
When hiring in the UK, there are a few major types of employment agreements that can be used:
- Full-time contracts: These are the standard type of employment contract and do not have a specified end date. Employees work in exchange for wages on a permanent basis and are entitled to certain benefits, job protections and time off.
- Part-time contracts: These agreements restrict the number of hours an employee can work in a week. Workers are entitled to certain benefits and perks.
- Fixed-term contracts: These agreements are temporary and have a set end date in the contract. The agreement can be extended or converted into a full-time position.
Contractor vs. Employee
As a German company hiring in the United Kingdom, it’s your responsibility to make sure your employees are classified correctly, as failure to do so could result in significant financial penalties.
A person is classified as an employee if they have a contract. An employee typically works on a permanent basis and is entitled to certain benefits, such as a minimum wage, statutory sick leave, paid time off, protections against unfair dismissal, and more.
A worker is someone who has a contract or other arrangement to perform labor for a monetary reward. Workers don’t have as many employment rights as employees but still receive some benefits like a minimum wage due to local laws.
Contractors in the UK are hired to complete a specific project for a certain amount of time. Contractors manage their own work without supervision from the employer and are not entitled to any benefits. Additionally, independent contractors must handle their own income tax and social security contributions.
UK labor and employment laws can be difficult to navigate as an international company. Finding an employer of record can help you remain compliant with all legal requirements set by the UK government and beyond.
Costs of Hiring UK Skilled Workers for a Legal Employer
In addition to the country’s local labor laws, there are a few other associated costs that your company will be responsible for when hiring in the United Kingdom. These include employee salaries, benefits, leave entitlements, and more.
Wages
Workers in the United Kingdom are entitled to a statutory minimum wage, and the mandated amount will depend on the employee’s age, however, skilled workers will likely receive more. The minimum hourly rates are:
- Under 18 years old: £5.28
- 18 to 20: £7.49
- 21 and 22: £10.18
- 23 and over: £10.42
Overtime
In the United Kingdom, employers are not required to pay workers for overtime. However, it’s important to know that your employee’s average wage for the total hours worked cannot fall below the national minimum wage.
Overtime provisions will be specified in the employment contract and employees only need to work overtime if it's outlined in their contract, and they are not allowed to exceed 48 working hours in a week.
Payroll
When hiring in the UK, you’ll also need to set up a payroll system to ensure your workers receive compensation. It is your responsibility to handle all tax deductions, social security contributions, and to make sure your employees get paid on time.
Employees in the United Kingdom get paid monthly, usually between the 25th and 30th of each month. Employers are not legally required to pay a 13th or 14th month bonus like some other European countries, though employers typically provide bonus payments or supplementary benefits to remain competitive.
Corporation taxes are generally around 25% for the financial year depending on your company’s earnings. As an employer, you are responsible for withholding the following from each employee’s pay:
- 3% as a contribution to the Pension Fund
- 15.05% for the National Insurance Rate
- £60 for Employer Liability Insurance
- 0.5% for the Monthly Apprentice Levy
Additionally, employees are responsible for contributing another 5% at minimum of their earnings to the Pension Fund.
The income tax brackets in the UK are:
- 0%: incomes up to £12,570
- 20%: incomes up to £50,270
- 40% incomes up to £125,140
- 45%: incomes over £125,140
Termination and Severance
UK workers also have certain job protections, and the country does not have at-will employment. This means that employers must give adequate notice to the worker before terminating an employment agreement and the notice period depends on the employee’s tenure with your company.
- 1 week’s notice is required if employed between one month and 2 years.
- An additional week’s notice is required for every year between 2 and 12 years of employment.
- 12 week’s notice is required for employees with 12 or more years of service.
Additionally, an employer can choose to provide payment instead of notice.
There are no local laws or legal requirements for the minimum length of an employee’s probationary period. During this time, either party can end the employment agreement without providing notice or being liable for damages. Generally speaking, probation periods in the UK don’t exceed 6 months and should be defined in the employment contract.
Employers can end an agreement if they have an adequate reason for termination. When hiring in the UK, there are six potential reasons you can legally dismiss a worker:
- Failing to perform the duties or responsibilities of the job
- Redundancy
- Misconduct
- Employee retirement
- Statutory illegality or breach of a statutory restriction
- Other substantial reasons, such as the expiry of a contract or conflict of interest
Employees who have worked for your company for more than two years are entitled to severance pay called statutory redundancy pay. Dismissed workers may receive:
- Half a week’s pay for each full year the employee worked below the age of 22
- One week’s pay for each year the employee worked between 22 and 41
- One and a half week’s pay for each year the employee worked over 41
It’s important to know that the length of service is capped at 20 years and workers are not entitled to severance pay if the employer offers to keep them on, or if the employer offers a suitable alternative and the employee refuses.
Time Off
Leave entitlement is another major statutory benefit for workers in the United Kingdom. Almost all workers are eligible for up to 5.6 weeks of paid vacation per year, which includes agency workers, workers with irregular hours, and workers on zero-hour contracts. Part-time employees are entitled to paid time off based on their amount of hours worked.
New mothers are eligible to take up to 52 weeks of statutory maternity leave, with the first 26 weeks as ordinary maternity leave and the remaining 26 weeks as additional leave. Mothers also must take at least 2 weeks off after childbirth. New fathers can take one or two weeks of paid paternity leave. Additionally, new parents can take up to 18 weeks of unpaid parental leave per child.
United Kingdom workers are also entitled to 28 days of sick leave throughout the year. There is no federal obligation for bereavement leave, though generally, most companies will provide three to five days for employees.
The UK has 8 national holidays:
- New Year’s Day (January 1)
- Good Friday
- Easter Monday
- Early May Bank Holiday
- Late May Bank Holiday
- August Bank Holiday
- Christmas Day (December 25)
- Boxing Day (December 26)
Additional public holidays can vary between England, Wales, Ireland, and Scotland.
Benefits
In addition to paid time off and other types of leave, UK workers are entitled to statutory benefits, such as pension contributions.
Many employers hiring in the United Kingdom choose to offer other supplementary benefits packages, which can help with recruiting and retaining top talent. Some common additional benefits include health insurance, fitness allowances, and flexible working arrangements.
How To Legally Hire in the United Kingdom
As an employer, it's no secret that there are many legal responsibilities that must be followed when hiring employees. Especially for a global employer with remote workers that may reside outside of your local country.
Navigating the United Kingdom’s local labor laws and regulations can be challenging for a German company. Failure to comply with some of the complicated rules can lead to potential financial damages or other strict punishments, so it’s important to know what you’re doing when hiring in the UK.
German companies who want to expand into the UK have two options to compliantly hire skilled talent. Your company can either set up a legal entity or engage an employer of record to handle all the requirements for you.
EOR Services for Legally Hiring in the United Kingdom
Employer of record services can offer a number of benefits, especially if you are a German company looking to hire in the UK. From the hiring process and payroll compliance, an employer of record like Borderless can help you every step of the way.
Setting Up a Local Entity
One of the ways you can legally hire skilled workers in the United Kingdom is to set up your own legal entity. You will have to register your business, and you’ll be responsible for handling all aspects of the hiring and onboarding process. This means your company will need to set up a proper payroll system to pay employees, withhold the appropriate amount of taxes, contribute to social security programs, and follow all termination procedures.
You will also need to stay up to date with any changes to employment rules and regulations. Setting up your own local entity can be complicated, time-consuming, and expensive. You will need to register your business with the Home Office, provide all the necessary documents, and provide evidence of financial stability, among other steps.
Employer of Record (EOR) in the UK
To skip the complicated process of setting up a local entity, you can partner with an employer of record. Your employer of record acts as the local entity in the country you want to hire from and takes care of all aspects of the hiring process. An EOR offers several benefits to your company and can handle:
- Employee payroll
- Contracts and documentation
- Employee benefits
- Time off requirements
- Termination and severance
Your EOR also stays up to date on changing employment policies and provides extensive expertise to help you remain compliant at all stages. EORs in the UK provide a more cost-effective way to recruit top talent, and you won’t need to worry about the complicated logistics of international employment law. Additionally, you’ll be able to quickly build a presence in key global markets.
Professional Employer Organization in the UK
Alternatively, a professional employer organization can also help you compliantly hire in the UK. A PEO is a co-employer that can connect you with top talent from the country you want to hire from. PEOs can also handle complicated HR functions and provide your company with benefits packages that are nearly equal to some of the largest corporations in the world, and at much more affordable rates than smaller businesses would otherwise get.
PEOs can also share liability with you, so you may not be held responsible for any errors during the payroll or termination process. PEOs provide many benefits for companies and can help you grow sustainably in new markets.
Partner with Borderless
Borderless is an Employer of Record Service (EOR) that provides an extensive range of services, including payroll, HR compliance advice, and more. We can also help your company access a wider pool of talent, support emerging economies, improve your workforce diversity, and provide more sustainable working arrangements. Book a demo today to see how we can help you grow in over 170 countries.
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.
