Hiring in the UK—And Where EOR Might Fit In

The United Kingdom (UK) is an excellent choice for business expansion, offering a $3.3 trillion economy and access to 68 million consumers, with trade links to Europe and Commonwealth nations. Its 25% corporate tax rate, R&D incentives, and fast company setup create a welcoming environment. Cities like London and Cambridge drive innovation in tech and finance, supported by a skilled, diverse workforce from world-class universities and flexible labor laws. Companies looking to expand their business to the UK using EOR can tap into this potential without establishing a full entity.

Hiring in the UK involves navigating a dynamic labor market shaped by flexible regulations, a skilled workforce, and post-Brexit compliance requirements. This is where Employer of Record UK services help streamline the process for foreign companies. Keep reading to learn more.

UK Hiring Overview

Registering a Company in the UK

When setting up a legal entity in the UK, you must register with His Majesty’s Revenue and Customs (HMRC) to comply with tax and employment laws. If you’re hiring employees, you’ll also need to enroll in the Pay As You Earn (PAYE) scheme, which is how you report payroll taxes and National Insurance Contributions (NIC) to HMRC. Here’s why this matters:

• HMRC Registration: You register your company to get a Unique Taxpayer Reference (UTR) and set up for taxes like Corporation Tax (19% for profits under £50,000 in 2025, 25% above £250,000. This ensures you’re compliant for all business taxes. ‍
• PAYE Scheme: PAYE is mandatory if you have employees. You deduct Income Tax and NIC (15% employer contribution on earnings above £5,000/year in 2025) from salaries and pay these to HMRC monthly or quarterly. For example, if you pay an employee £30,000/year, you’ll owe ~£3,750 in employer NIC. Not registering risks fines up to £3,000/month for late PAYE submissions. ‍
• Compliance: HMRC registration also covers obligations like VAT (20% standard rate, if applicable) and ensures you’re set up to issue pay slips, which are legally required.

Understanding UK Taxes and Contributions

Employer Obligations: Income Tax and NIC via PAYE

Employers in the UK must manage payroll taxes through the Pay As You Earn (PAYE) system, which involves deducting Income Tax and National Insurance Contributions (NIC) from employees’ salaries and paying these to His Majesty’s Revenue and Customs (HMRC). This is a critical part of UK payroll and tax compliance EOR providers support.

• Income Tax: Employers deduct Income Tax based on employees’ earnings and tax codes. The basic rate in 2025 is 20% on income between £12,571 and £50,270, with higher rates (40% above £50,270, 45% above £125,140). For example, an employee earning £30,000/year pays ~£3,486 in Income Tax, which you deduct and send to HMRC. ‍
• National Insurance Contributions (NIC): Both employees and employers pay NIC. Employees pay 8% on earnings between £12,570 and £50,270, and 2% above that (2025 rates). Employers pay 15% on earnings above £5,000/year per employee (increased from 13.8% in November 2024). For an employee earning £30,000, you’d pay ~£3,750 in employer NIC (£30,000 - £5,000 = £25,000 x 15%). ‍
• PAYE System: You calculate these deductions monthly or quarterly, report them to HMRC via Real Time Information (RTI) submissions, and issue pay slips. Late or incorrect submissions can lead to fines of £100-£3,000/month.

Employment Allowance: Increased to £10,500 in 2025

The Employment Allowance helps small businesses offset their employer NIC costs. In 2025, it’s increased to £10,500 (from £5,000 in 2024), and eligibility has expanded to more businesses. This means you can reduce your annual NIC bill by up to £10,500. For example, if your total employer NIC for the year is £12,000, you’d only pay £1,500 after the allowance. Businesses with NIC liabilities under £100,000/year typically qualify, but you can’t claim if you’re a single-director company with no other employees. This allowance is a significant cost-saver, especially for startups hiring in the UK.

Class 1A NIC on Benefits and Termination Awards

Class 1A NIC applies to taxable benefits and certain termination payments, also at 15% in 2025. Here’s how it works:

• Benefits: If you provide taxable benefits—like a company car, phone, or private health insurance—you pay Class 1A NIC on their value. For example, if a benefit is worth £5,000, you owe £750 (15%) to HMRC, reported annually via a P11D form. ‍
• Termination Awards: Payments over £30,000 on termination (e.g., redundancy pay, settlement agreements) are subject to Class 1A NIC. So, if you pay an employee £40,000 on termination, the amount above £30,000 (£10,000) is taxed at 15%, costing you £1,500 extra. This ensures employers account for the tax impact of generous exit packages or benefits.  

Navigating UK Work Visas

Compliance with UK work laws for foreign businesses includes verifying that employees have the legal right to work. This is particularly relevant when you hire employees in the UK without entity by partnering with an EOR, which helps ensure right-to-work checks and visa sponsorships are properly managed.

Key Visas for Employers

Skilled Worker Visa (Post-Brexit):

This visa replaced the Tier 2 General visa in 2020 and is for skilled non-UK workers (RQF Level 3 or above, equivalent to A-levels) sponsored by a licensed UK employer. The minimum salary threshold is £38,700 per year or the job’s “going rate”. For example, if the going rate for a programmer is £49,400 (50th percentile in 2024), you’d need to pay that instead. This threshold may rise in 2025—some sources note a planned increase to £38,700 for family visas was paused for review in June 2025, hinting at potential adjustments for work visas too. Lower thresholds apply for new entrants at £30,960, or for roles on the Immigration Salary List. Employers must issue a Certificate of Sponsorship (CoS) and ensure compliance, or risk visa refusal.

Global Business Mobility Visa:

Launched in 2022, this visa is for overseas businesses sending employees to the UK, replacing routes like the Intra-Company Transfer visa. It includes options like the Senior or Specialist Worker visa (up to 5 years) and the UK Expansion Worker visa. Applicants need a CoS and must meet specific criteria, such as working for an overseas employer. The salary threshold is lower than the Skilled Worker visa—e.g., £48,500 for Senior or Specialist Workers, with some allowances included. However, it doesn’t lead to settlement, and some roles (e.g., CAD technicians) became ineligible in 2024 due to skill level changes.

Onboarding New Hires in the UK

Key Steps for Onboarding

UK employee onboarding for non-UK companies involves collecting right-to-work documents, registering with HMRC, and issuing legally required contracts. An Employer of Record UK services provider streamlines these steps, ensuring you remain compliant without a physical presence in the UK.

• Collect Documents: Gather essential documents like a passport (to verify identity) and the employee’s National Insurance number (needed for payroll and tax purposes). Since Biometric Residence Permits expired on December 31, 2024, employees now use eVisas, which you can check via the Home Office online service with a share code. ‍
• Run Background Checks: Conduct right-to-work checks to confirm eligibility to work in the UK, avoiding fines of up to £20,000 per illegal worker. You may also run criminal record checks (via the Disclosure and Barring Service, DBS) if the role requires it, costing £18-£38. ‍
• Register with HMRC: If you’re setting up a legal entity, register with HMRC for Pay As You Earn (PAYE) to handle payroll taxes. This must be done before paying employees, but not more than two months prior. Alternatively, an EOR can manage this for you. ‍
• Send an Offer Letter: Provide a formal offer letter outlining the job role, salary (at least £12.21/hour for 21+ in 2025), start date, and key terms. This sets expectations and serves as a precursor to the written contract.

Compliance: Written Contract per the Employment Rights Act 1996

The Employment Rights Act 1996 requires employers to provide a written statement of particulars (a contract) on or before the first day of employment. This contract must detail:

• Salary: Specify the employee’s pay, e.g., £25,396.80/year for a 40-hour week at the minimum wage (£12.21/hour, 21+, 2025), and payment frequency (typically monthly, 25th-30th). ‍
• Hours: State standard working hours, e.g., 40 hours/week, max 48 hours averaged over 17 weeks (opt-out possible). ‍
• Termination Policies: Include notice periods (1 week per year of service, up to 12 weeks for redundancy) and grounds for dismissal.
  Failure to provide this contract can lead to tribunal claims, costing £1,000-£4,000 in penalties.

Payment of Salary: Payroll and Compliance

Salaries in GBP and Pay Frequency

In the UK, salaries must be paid in British Pounds (GBP), the official currency. Payments are typically made monthly, often between the 25th and 30th of each month, though some employers may pay weekly or biweekly depending on the contract. For example, an employee earning £30,000/year would receive ~£2,500/month (before deductions) if paid monthly. This consistency helps employees plan finances and aligns with HMRC reporting requirements.

Minimum Wage in 2025

The UK minimum wage as of April 2025 is £12.21/hour for workers aged 21 and over. For a standard 40-hour workweek, this equates to:

• £12.21 x 40 hours = £488.40/week.
• £488.40 x 52 weeks = £25,396.80/year.
  This applies to most workers, including full-time, part-time, and casual staff. Younger workers have lower rates: £10.00/hour (18-20) and £7.55/hour (under 18 and apprentices). Paying below this risks fines of up to £20,000 per worker and back pay for the shortfall.

Payroll Duties

Employers must handle several payroll tasks to stay compliant with UK regulations, reporting to HMRC via the Pay As You Earn (PAYE) system. These duties include:

• Record Salary/Bonuses: Track all payments, including base salary, overtime, and bonuses. For example, if an employee earns £25,396.80/year plus a £2,000 bonus, you record £27,396.80 as their total pay for the year. ‍
• Calculate Deductions:  ‍
  • Income Tax: Deduct based on tax codes—e.g., 20% on earnings between £12,571 and £50,270. For £27,396.80, the taxable amount is £14,825.80 (£27,396.80 - £12,571), so tax is ~£2,965. ‍
  • National Insurance Contributions (NIC): Employees pay 8% on earnings between £12,570 and £50,270; employers pay 15% on earnings above £5,000/year. For £27,396.80, employer NIC is ~£3,359.52 (£27,396.80 - £5,000 x 15%). ‍
  • Pensions: Employers contribute a minimum of 3% to a workplace pension (e.g., NEST) on earnings above £6,240/year. For £27,396.80, this is ~£630 (£27,396.80 - £6,240 x 3%). ‍
  • Issue Pay slips Each Tax Month: The UK tax month runs from the 6th of one month to the 5th of the next. You must issue pay slips each tax month, detailing gross pay, deductions, and net pay, either electronically or on paper. Late or missing pay slips can lead to employee complaints and tribunal claims costing £1,000-£4,000.

For companies seeking a UK remote employee payroll solution, an EOR can handle everything from calculating deductions to issuing compliant pay slips. This helps international firms navigate complex tax codes and avoid penalties.

Vacation and Leave Entitlements

Statutory Annual Leave

UK law guarantees full-time workers 28 days of paid annual leave per year, which equates to 5.6 weeks, including 8 public holidays (e.g., Christmas Day, Boxing Day, and New Year’s Day). This applies to employees working a standard 5-day week. For part-time workers, leave is prorated based on their hours—e.g., a 3-day/week employee gets 16.8 days. This leave ensures workers have adequate rest, and employers must provide it even if public holidays aren’t taken off (you can include them in the 28 days or offer them as extra days, depending on the contract). Failing to provide this leave can lead to tribunal claims, costing £1,000-£4,000.

Employer Flexibility

Employers have some control over when leave is taken, provided they give sufficient notice. For example, if an employee requests a week off, you can refuse and suggest alternative dates, but you must give notice equal to the leave requested—e.g., 7 days’ notice for a 7-day request. You can also require employees to take leave at specific times, like during a company shutdown over Christmas, with the same notice period. Additionally, unused leave can be paid out upon termination at the employee’s daily rate. However, paying in lieu of leave during employment is generally not allowed unless the employee is on a fixed-term contract.

Other Leave Entitlements

Beyond annual leave, UK employees are entitled to additional statutory leave types:

• Statutory Sick Pay (SSP): Employees who are sick for 4+ consecutive days (including non-working days) can receive SSP for up to 28 weeks. The minimum rate in 2025 is £109.40/week, paid by the employer, though you can offer more through an enhanced sick pay scheme. Employees must earn at least £123/week to qualify, and you can require a doctor’s note for absences over 7 days. ‍
• Paternity Leave: Eligible employees (e.g., fathers, partners) get 2 weeks of paid paternity leave at the statutory rate of £184.03/week (typically adjusted annually). This must be taken within 56 days of the child’s birth or adoption, and employees need 26 weeks’ continuous service by the 15th week before the due date to qualify.

An EOR ensures full compliance with UK hiring requirements for foreign employers—including proper handling of statutory leave, sick pay, and paternity benefits, which are non-negotiable under UK labor law.

Benefits for UK Employees

Mandatory Benefits: Employer Pension Contribution

Employers in the UK are required to enroll eligible employees into a workplace pension scheme and contribute a minimum of 3% of their qualifying earnings (earnings between £6,240 and £50,270 in 2025). This is often done through providers like NEST (National Employment Savings Trust). Employees contribute 5%, making a total of 8%, and auto-enrollment applies to workers aged 22-66 earning over £10,000/year. Failing to comply can lead to fines from The Pensions Regulator, starting at £400 and escalating to £10,000/day for larger firms.

Class 1A NIC on Benefits and Termination Awards

Class 1A National Insurance Contributions (NIC) apply at 15% to taxable benefits and certain termination payments:

• Benefits: Taxable benefits like company phones, cars, or private health insurance incur Class 1A NIC. For example, if you provide a company phone valued at £1,000/year, you’ll pay £150 (15%) in Class 1A NIC, reported annually via a P11D form. Small benefits under £50 (e.g., a gift card) are exempt if they’re not cash or vouchers. ‍
• Termination Awards: Payments over £30,000 on termination (e.g., redundancy pay, settlement agreements) are subject to Class 1A NIC. For a £40,000 termination payment, the amount above £30,000 (£10,000) is taxed at 15%, costing you £1,500. This ensures employers account for tax on generous exit packages.

Optional Benefits

While not mandatory, offering additional benefits can help attract and retain talent. Some common optional benefits include:

• Enhanced Sick Pay: Statutory Sick Pay (SSP) is £109.40/week for up to 28 weeks, but you can offer more—e.g., full pay for the first 4 weeks of illness, then 50% for 8 weeks, to support employee recovery. ‍
• Extended Paternity Leave: Statutory paternity leave is 2 weeks at £184.03/week, but you can extend this to 3-6 months, either paid or unpaid, to support work-life balance. ‍
• Bereavement Leave: There’s no statutory entitlement, but offering 3-5 days of paid leave for the death of a close family member (e.g., parent, spouse) is standard practice. This shows compassion and boosts morale.

Working with an EOR also supports management of pension auto-enrollment and Class 1A NIC, all while aligning with UK EOR for global expansion strategies.

Termination Processes and Requirements

Fair Dismissal Rules

To terminate an employee fairly in the UK, you must follow specific rules to avoid legal challenges:

• Notice Periods: The statutory notice period is 1 week for each year of service, with a minimum of 1 week and a maximum of 12 weeks. For redundancy, the notice period is also 1 week per year of service, up to 12 weeks. Contracts may specify longer periods—e.g., 1 month—but statutory minimums apply if not specified. ‍
• Pay in Lieu of Notice (PILON): Instead of notice, you can pay the employee for the notice period and end their employment immediately. For 5 weeks’ notice at £500/week (e.g., £26,000/year salary), you’d pay £2,500. ‍
• Severance: There’s no statutory severance unless the termination is due to redundancy. In redundancy cases, employees with 2+ years of service are entitled to statutory redundancy pay: 0.5 weeks’ pay per year of service (ages 22-40), 1 week per year (41+), capped at 20 years and £643/week.  

Final Payments

When an employee leaves, you must ensure all final payments are made and comply with the Employment Rights Act 1996:

• Outstanding Salary: Pay any unpaid wages up to the termination date.  ‍
• Accrued Leave: Pay for unused annual leave (28 days/year for full-time). ‍
• Compliance with Employment Rights Act 1996: The Act requires you to provide a written contract detailing termination policies (e.g., notice periods) and ensure fair procedures. You must also pay all owed amounts promptly—late payments can lead to tribunal claims costing £1,000-£4,000.

Employee Protections

Employees gain protections against unfair dismissal, but only after a qualifying period:

• Unfair Dismissal Rights: Employees can claim unfair dismissal after 2 years of continuous service (e.g., if terminated without a fair reason like misconduct or redundancy, or without proper procedure). However, 2025 proposals may reduce this to 9 months, increasing risk for employers. Compensation for unfair dismissal can be up to £115,115 or one year’s salary, whichever is lower. ‍
• Exceptions: Employees can claim unfair dismissal from day one for discriminatory reasons (e.g., race, gender) or protected activities (e.g., whistleblowing).

Whether you're looking to set up business in the UK without entity or need help with outsourced HR in the UK for global teams, an EOR handles the admin so you can focus on building your team and growing your revenue. From onboarding to exit, an EOR ensures UK employment compliance for foreign companies at every stage. Contact Knit to learn more.