The United Kingdom serves as a magnet for businesses who are looking to hire employees in the UK and expand their operations. The UK is not only considered a highly globalized country, but it is also an independent and highly developed economy having close international trade ties with the EU.
However, every country has its own set of corporate laws that are essential to follow when it comes to business expansion. U.K. labor law comprises various acts and regulations, including the Employment Rights Act 1996 and the Equality Act 2010. Because of the complexity of employment laws in the U.K, hiring employees in the UK becomes a little complex for companies who are willing to expand globally without any legal establishment.
Since setting up a legal entity in a foreign country like the UK and going through all the legal and administrative procedures of the country can be a very complex process, having an employment solution like the Employer of Record (EOR) service can simplify things in a compliant and cost-effective manner.
Let’s talk about some of the labor regulations that are mandatory to follow for any company looking to expand its operations globally.
Labor Laws in the UK
Working Hours
The typical working week (including overtime) cannot exceed 48 hours, with a minimum of 40 hours over 5 days a week. However, employees can choose to work beyond the limits voluntarily. Normal working hours are 8 am-4 pm or 9 am-5 pm from Monday-Friday.
Overtime
Overtime for employees is only permissible if the contract of the employee permits it. As per law, no individual can be forced to work for more than 48 hours (including overtime hours) averaged over 17 weeks.
There is no premium rate for the work done during overtime but employers should ensure that they pay for the employee’s overtime work should not fall below the national minimum wage.
National Minimum Wage
All employees are entitled to a statutory minimum wage in the UK which depends upon the age/apprenticeship as below:
- National Living Wage – for employees aged 23 and over
- National Minimum Wage – for employees who are at least school-leaving age (16-18)
As of April 2021, these minimum wage rates apply
- Apprentice – £4.81
- Under 18 – £4.81
- 18 – 20 – £6.83
- 21 – 22 – £9.18
- 23 & over – £9.20
Compensation/Bonus
It is not a common practice to provide the employee with a bonus in the UK along with salary and it completely depends on the employer. However, there are some industrial segments like engineering, R&D, science, public service, media, and technology that are awarded bonus payments. Certain roles like directors, senior managers, etc., are also likely to get bonuses.
Sick Leave
Employees who are unable to perform the work for 4 or more consecutive days and who are earning a minimum of £120 per week are entitled to a statutory sick pay (SSP) which is charged at a weekly pay rate of £96.75 for a maximum of 28 weeks.
Maternity Leave
Pregnant employees are entitled to 52 weeks of maternity leave, which are divided in two ways:
- Ordinary Maternity Leave-OML: The first 26 weeks of maternity leave.
- Additional Maternity Leave-AML: The last 26 weeks of maternity leave.
Employees may choose not to take all 52 weeks of their maternity entitlement, but it is mandatory for every new mother to take 2 weeks of leave when the baby is born. The maternity leave may be taken 11 weeks before the expected birth of the child.
Paternity Leave
Fathers can take up to 2 weeks of paid paternity leave and must ensure that the leaves are taken in one go and are taken before the end of the 56-day period from the date of childbirth.
It is mandatory for an employee to have worked for at least 26 weeks in order to be eligible for availing the paternity leave.
Annual Leaves
All full-time employees in the UK are eligible for 5.6 weeks or 28 days of paid leave each year which is commonly known as annual leave or statutory leave entitlement. Only eight days out of the 28 days can be carried over to the subsequent year and at the end of flexible work, the accrued unused leaves are paid out.
Probationary Period
For an internal movement, the standard probation period in the UK is 3 months from the date of joining. However, as a general practice, the probationary period is six months from the date of joining for all the employees.
Employment Termination
Termination or dismissal is the ending of the employment relationship/contract by the employer. In case of termination, the employer is required to provide a notice period to the employee as per either stated in the employment contract or statutory minimum requirement.
The notice period is as below:
- Between one month and 2 years – at least one week’s notice
- Between 2 years and 12 years – one week’s notice for each year
However, there can be circumstances where employees can be terminated immediately. According to the law, employers should provide the employee with the reason for dismissal within 14 days of asking them to leave.
Dismissal without notice can also be utilized in cases of gross misconduct.
Severance payment
In cases of redundancy, Severance payment is required and is statutory for employees who are under contract for a minimum of 2 years, and is totally dependent on the employee’s age and the duration of the service as below:
- For employees under 22 –1/2 a week’s pay for each full year
- For employees between 22-41 –1 week’s pay for each full year
- Employees over 41 – one and a half week’s pay
Public Holidays in the UK
There are eight public holidays in the UK:
- Good Friday
- Easter Monday
- Spring Bank Holiday
- Early May Bank Holiday
- Summer Bank Holiday
- Christmas
- Boxing Day
- New Year’s Day
Payroll & taxes in the UK
It is very essential to ensure full compliance with the local laws for payroll and taxes whenever you are either looking to hire local British workers or if you want to relocate professionals from your home country. This can be a complicated and complex process for all the foreign companies and it is generally suggested to outsource a local payroll specialist who will look after your payroll needs in the UK.
Taxation in The UK
Employee Taxation
The income tax in the UK is progressive and is dependent on the amount of salary earned and the area you are living. The standard Personal Allowance in the UK is £12,570. The rate of tax only applies to the proportion of your income that falls within that tax brand.
Income taxes are withheld and paid by the employer to Her Majesty’s Revenue and Customs (HMRC). The 2021 income tax rates are las below:
£0 – £12,570 – 0%
£12,571 – £50,270 – 20%
£50,271 – £150,000 – 40%
£150,000 and over – 45%
Social Taxes
Employers need to deduct National Insurance Contributions from their employee’s salary each month. Payments for NIC depend on the income earned by the employee and the payments are made monthly or quarterly.
Employer’s Social Security Contributions
| Income | % Contribution |
| £737.01and above | 13.8% |
Employee’s Social Security Contributions
| Income | % Contribution |
| Between £797.01 – £4,189 per month | 12% |
| Over £4,189 per month | 2% on the remaining amount |
Outsourcing employment through an EOR for hiring employees in the UK
It is very essential to look for and analyze the various options when thinking of global expansion of the business in the UK for any organization. It can be a really daunting task to open up a company as it requires a large amount of capital and completing all the paperwork as per the UK regulations. It can also be complicated to hire the employees as per the local labor law along with the management of the employee’s payroll.
All such complexities can be handled by the employment outsourcing services through an Employer of Record (EOR). An EOR is fully responsible for managing the employee’s payroll as well as takes all the legal liabilities related to the employment on its shoulders. NNRoad can take care of all the growing needs of your business and will ensure that the payroll system stays compliant to the labor regulations in the UK, while you can stay fully focused on developing the revenue-generating activities for your business.
Conclusion
It really gets very complicated when a business is looking to expand its operations in a foreign country taking in account all the local regulations that any company should adhere to. With the help of an industry expert like NNRoad, your company can be successful in expanding globally while you can still focus on the core business activities.
