Canadian companies looking to tap into international markets should look into the United Kingdom. Canada and the United Kingdom have a long and strong relationship with similar views on international initiatives. So, overall, it makes sense for Canadian companies to expand into the United Kingdom.
However, it’s easier said than done. Hiring skilled workers in the U.K. can be done easily with an Employer of Record (EOR). With local legal expertise, an EOR in the U.K. will guarantee compliance in all aspects of employment.
For Canadian employers looking to hire in England, Scotland, Wales, and Northern Ireland, here’s your guide.
Why Hire in the United Kingdom?
Many global companies look to do business in the United Kingdom and for good reason. The U.K. is one of the easiest markets to do business in; it has a large population of skilled workers and many economic powerhouses throughout.
London, of course, is the economic hub of the U.K. and is one of the world’s largest tech startup hubs. In fact, London is home to 80 unicorns as well as tech companies that are worth more than one billion dollars.
In addition to being an ideal city for startups, London is also the global center of FinTech. The U.K.’s FinTech industry has more than 1,500 firms — and that amount is expected to double in the next five to ten years.
Aside from London, cities like Manchester, Glasgow, and Birmingham are becoming bustling economic centers in their own right.
Universities and educational institutions in the United Kingdom are respected on an international level, so the workforce coming out of the U.K. is well-educated and highly skilled.
Overall, hiring in the United Kingdom has many benefits for Canadian companies. The U.K. has a long history of innovation and a bustling economy, and it’s showing no signs of slowing down. The highly-educated and skilled workforce makes it an incredibly attractive place for Canadian companies looking to expand into international markets.
Challenges of Hiring in the United Kingdom
Despite the copious amounts of benefits Canadian employers may experience when hiring from the United Kingdom, there may be some challenges as well.
The Implications of Brexit
One of the biggest challenges employers may face is Brexit. Brexit greatly impacted trade, right-to-work entitlements, taxes, and other compliance considerations.
While Brexit has not directly impacted Canada, it does create extra due diligence for Canadian employers looking to hire skilled workers in the U.K.
Canadian companies hiring employees in the United Kingdom need to ensure that they have the correct visas and right-to-work entitlements. Many residents in the U.K. are EU citizens, and if they do not have settled status. If they do not have settled status, then they are unable to work legally in the U.K. Simply put, employees need to be residents of the U.K. and not of the European Union if hired through a UK-based entity.
Cost of Hiring Skilled Workers in the UK
With the strong economy in the U.K. come high prices. Overall, the cost of hiring an employee in the United Kingdom may be pricey, but especially more so in London. London is one of the most expensive cities in the world, so hiring an employee will cost more money than anywhere else. As a Canadian company looking to hire in England, keep the cost of living in London in mind.
Tax Obligations
The United Kingdom has a complex tax system. This is primarily due to the fact that their legal system and social security system was created bit by bit over a long period of time. However, these complexities can be overcome easily by working with an Employer of Record. An EOR in the U.K. will help navigate the complex tax laws to ensure that hiring in the U.K. is a seamless process.
Labor Laws in the United Kingdom
Labor laws vary from country to country, and of course, the United Kingdom has vastly different labor laws than Canada. So, when hiring skilled workers in the U.K., keep these differences in mind.
Employment Contracts
Based on the Employment Rights Act 1996, employment contracts are required by all employers hiring in the United Kingdom. However, an employment contract in the U.K. is commonly referred to as a Written Statement of Employment Particulars. It is a two part document, which includes a Principal Statement and a wider, more general written statement. Employers must give employees a Principal Statement, which must include the following:
- Employer's name
- Employee’s name
- Job title
- Job description
- Start date
- Compensation
- Payroll cycle
- Work hours
- Holiday allowance and if this includes public holidays
The additional document must include information surrounding broad terms of the employment. This information must outline information regarding pension, collective agreements, training, and supplemental benefits.
Terminating an Employee
Unlike many countries, employees in the United Kingdom are not provided with special protections against termination until their second year of employment.
This means that employers can terminate their employees for any reason they like, aside from specific protected cases. These protected cases include discrimination against race, religion, and gender. After two years, however, employees can only be terminated with cause.
Employees are entitled to a notice period. Notice periods in the U.K. are broad. They start from one week and are not to exceed three months. Sometimes, employers choose to send the terminated employee home for the duration of the notice period. In this case, employees are still paid but are not required to work.
Another key regulation that employers hiring in the U.K. need to be aware of is severance pay, locally called statutory redundancy pay. Severance pay in the U.K. is not legally mandated. However, some companies choose to offer it.
Payroll in the United Kingdom
The National Living Wage increases each year by April 1st. As of April 2023, the general National Living Wage is GBP 10.90 per hour. Anyone above the age of 22 years old is entitled to the National Living Wage. Below 22 years of age, the National Living Wage varies:
- 21 to 22 years old: GBP 10.18
- 18 to 20 years old: GBP 7.49
- 16 to 17 years old: GBP 5.28
- Apprentice rate: GBP 5.28
Canadian companies looking to hire in England, Scotland, Wales, or Northern Ireland must meet these minimum salaries. However, depending on where the employee lives, employers may consider offering higher salaries.
The United Kingdom has no mandatory bonuses, but many employers choose to offer them. It’s important to note that when an employer provides an employee with a bonus — cash or non-cash — it must be reported to Her Majesty’s Revenue and Customs (HMRC).
In addition to paying employees a living wage and reporting bonuses, employers also need to cover the statutory benefits for their local workforce. Employers are required to pay 13.8% towards social security. This covers the local pension scheme, national insurance, and additional social security provisions. They must also withhold income tax from the total pay and remit it to the UK government.
Employee vs. Worker
One of the more significant factors to be aware of when hiring in the U.K. is knowing the difference between an employee, worker, and contractor.
Worker Definition
The term “worker” in the United Kingdom refers to employees and other people who are not quite employees, but not quite contractors.
Someone is classified as a worker if they have a contract, receive monetary compensation and are not self-employed.
A worker can be a full-time employee, part-time employee, short-term worker, piece worker, or agency worker. In addition, those who work in the gig economy are classified as workers as opposed to independent contractors.
Workers are entitled to paid holidays, a minimum wage, protections against unlawful termination, paid leave, pension contributions, and rest days.
Contractor Definition
Just like anywhere else, independent contractors are, well, independent. Contractors in the U.K. set their own hours, and rates, and do not participate in a subordinate employee-employer relationship.
What is IR35?
IR35 is a set of rules in the U.K. that is designed to avoid companies and self-employed independent contractors from taking part in a tax loophole. IR35 comes into play when independent contractors work for a client, but through a third-party company, called a Personal Service Company (PSC). Basically, it’s to ensure employee classification and taxes are properly filed.
How to Hire Employees in the United Kingdom
There are a couple of ways that Canadian companies can hire in the United Kingdom: by setting up their own foreign subsidiary, hiring an independent contractor, or working with an Employer of Record (EOR). An EOR in the U.K. will make hiring abroad an efficient and pleasant experience.
Setting up a Foreign Subsidiary
A foreign subsidiary is a legally independent business entity that’s set up in a foreign country. Establishing a local entity independently takes copious amounts of time, money, and resources. Doing so also requires expertise and advanced knowledge of the United Kingdom’s complex labor laws, tax regulations, and employee protections.
Basically, independently establishing a foreign subsidiary in the U.K. comes with mountains of paperwork and requires unlimited resources. Unless you have time, legal advice, and financial means, it’s best to consider other ways to hire in England, Scotland, Wales, and Northern Ireland.
Hiring Independent Contractors
Hiring independent contractors, overall, is an efficient process. Independent international workers are not on an employer’s payroll and are required to deal with taxes on their own. Because of this, employers don’t need to administer benefits, like paid vacation, or contributing to social security. However, in the U.K., employers may experience challenges surrounding Intellectual Property Rights and IR35.
Hiring an independent contractor requires a contract signed by both the employer and the contractor. Independent contractors are paid via an invoice through a payment method of their choice — this could be a wire transfer, a global banking service, such as Wise, or a global payroll platform, like Borderless. However, hiring independent contractors often comes with the risk of misclassification.
Working with an Employer of Record or Professional Employer Organization
Working with an Employer of Record (EOR) is the simplest and most efficient way to hire skilled workers in the U.K. It is an ideal platform for companies looking to hire, manage, and pay employees across the world. An EOR acts as the legal employer where you want to hire and takes care of all the necessary administrative work.
Contracts compliant with local employment laws
An Employer of Record service provider makes sure that employment contracts — or as they’re called in the U.K., Principal Statements — are compliant. EORs in the U.K. guarantee that the employment contracts include all the necessary information, such as job titles, roles, and compensation.
Documentation
EOR services also ensure that all documentation from the employee is correct and submitted. This includes visas, banking information, employment agreement, and more. Properly documenting your local workforce in the UK prevents compliance risks whether you are onboarding remote workers, international contractors, or both.
Insurance and benefits
An Employer of Record service deals with all mandatory benefits required for legal employment. Also, EORs, like Borderless, offer attractive global benefits. This includes medical, dental, vision and life insurance, as well as retirement savings plans.
Vacation and public holidays
Navigating public holidays and vacation for employees in the United Kingdom can get complicated. The majority of employees in the U.K. are entitled to 5.6 weeks of paid holiday each year. This includes agency workers, contract workers, and those who work irregular hours.
The United Kingdom has eight public holidays, however, regional public holidays vary. By working with an EOR, navigating and tracking vacation allowances and public holidays across the U.K. is easy.
Social security and tax obligations
Canadian employers hiring in the U.K. need to be aware that they are required to pay social security contributions. Remaining compliant with social security in the U.K. can be complicated, but thankfully, an EOR takes care of it.
Paying employees
Borderless takes care of payroll for your employees in the United Kingdom. This way, paying employees in the correct currency is efficient, secure, and timely.
Overall, working with an EOR comes with many benefits. Using an EOR to hire employees in the United Kingdom will minimize costs, mitigate risks, and make hiring abroad a fast and efficient process.
Considerations for Employers
While having an efficient hiring process and remaining compliant is essential when it comes to hiring skilled workers in the U.K., there are other considerations employers should keep in mind.
Time Zones
The time difference between Canada and the United Kingdom is significant. At a minimum, from Halifax to the U.K. is four hours. At its maximum, from Vancouver to the U.K., is eight hours. When it comes time to hire employees in England, Scotland, Wales, and Northern Ireland, being aware of these time differences is paramount. With this drastic time difference, it may be wise for employers to adopt non-linear workdays and encourage asynchronous communication.
Compensation Packages
When offering compensation packages, it’s important to consider your employee’s residence. For example, if your employee lives in London, you need to be aware of the London Living Wage.
The London Living Wage is different from the National Living Wage. Where the National Living Wage currently stands at GBP 10.90 per hour, the London Living Wage is GBP 11.95 per hour. The cost of living in London is far higher than anywhere else in the U.K., which is why the London Living Wage is in place.
In addition to the base salary, employers should consider offering robust compensation packages. Many employers choose to offer transportation stipends, remote working allowances, or coworking passes. This helps mitigate some of the employee’s daily costs.
Flexible Working Bill
As of July 2023, the U.K. passed the Employment Relations Bill, also referred to as the Flexible Working Bill. This means that from Spring 2025, employees will be able to make two flexible working requests each year.
Current frameworks allow employees to make flexible working requests after six months of employment, but the new bill would allow employees to do this from their first day on the job.
Work With Borderless
When it comes to hiring an employee in the United Kingdom, there are numerous elements to consider. From complex labor laws and location-based pay, to properly classifying workers and employees, maintaining compliance can be challenging.
But with an EOR, it doesn’t have to be. An EOR, like Borderless, helps with all the necessary administrative tasks to guarantee compliance. Request a demo today.
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.
