Hire and Pay in the UK – A Guide for International Success

Expanding to other countries usually requires an organization to develop their workforce in that region first. This begs the question; how do you hire and pay in the United Kingdom? When it comes to international hiring, things aren’t always as easy as they seem. Complexities with local regulations and requirements create a unique set of challenges for each country of expansion. Whether navigating employment laws or maintaining annual compliance, it’s important to have realistic expectations when preparing to hire and pay in the United Kingdom.

Getting started with international hiring can be challenging in any new country, but there are a host of complex regulations and requirements you’ll need to consider when preparing to hire and pay in the United Kingdom. Due to the complexity of international hiring, we have created a comprehensive guide that will help you navigate these various challenges.

The United Kingdom boasts a diverse workforce with a wide range of skill sets available for growing companies. When building a team internationally, organizations will need to decide the best, most efficient and cost-effective route to establish their workforce in the United Kingdom. Regardless of the employment classification you choose, the worker will need to comply with the guidelines of the designated classification. This is especially significant for the UK, as these titles dictate the employees’ rights and responsibilities within an employment contract.

When preparing to hire and pay in The United Kingdom, businesses need to decide if they want to take a DIY approach and do everything themselves or leverage external resources and outsource to an expert. While there are many options for each opportunity, it’s important to recognize the pros and cons of both paths.

DIY Hire and Pay in the United Kingdom – Contractors

Let’s start by discussing how a company can hire and pay independent contractors in the United Kingdom. This course of action has the most potential for errors, which can lead to expensive fines and penalties. In general, independent contractors need to qualify under the specific employment laws for the country, which usually uses the following guidelines:

• The contractor is allowed to work for multiple companies at the same time. They cannot be restricted to only working for your business.
• The contractor is responsible for managing and controlling their working status and schedule. The business can’t give them specific hours of operation.
• The contractors are usually project-based or are required to work shorter periods of time. If they extend their time with a company, it could put the business at risk of being classified as an employee.

U.S.-based companies paying international contractors should have contractors fill out an which certifies their foreign status in the eyes of the U.S. government. Although this step will resolve tax compliance, the business will still need to abide by the United Kingdom’s employment law. If a worker is classified as an independent contractor but doesn’t follow the guidelines listed above, the worker can file suit for benefits, overtime and more. If all the guidelines are met, hiring an independent contractor in the United Kingdom can be an efficient method of employment.

DIY Hire and Pay in the United Kingdom – Employees

If you are planning to hire and pay in the United Kingdom for full- or part-time employees, you will need to establish a legal entity within that country. Setting up a legal entity is typically a time-consuming and costly endeavor, which can take anywhere from three to six months to complete. This is because the business will need to abide by all the setup requirements, which includes things like setting up the proper bank accounts and tax information.

Working with an expert is highly recommended during this process, as it will be important that the structure isn’t inefficient or costly to maintain. As the foundation of an operation in a country, legal entities can impact every aspect of a business, including finance, accounting, IT, and other supply chain functions.

There are generally three components to incorporating in the United Kingdom:

1. Incorporation & Registration
   • Prepare entity registration documents
   • Prepare local entity articles of incorporation
   • Advise on corporate governance structure – local director/shareholders requirements
   • Apply for and obtain business license and entity registration approval
   • Apply for and obtain tax ID
   • Register the newly incorporated entity to be a local employer
2. Post Incorporation
   • Payroll setup
   • Statutory benefits and social security registration
   • Data protection registration
   • Accounting setup, including bookkeeping and reporting
   • Local bank account setup
   • Local indirect tax – VAT | GST | HST
3. Corporate Annual Compliance
   • Preparation of group consolidated accounts and financial statements under IFRS, US GAAP, or other local GAAP and statutory audit support
   • Tax, payroll, and statutory returns
   • Handling of correspondence and other administrative duties

Outsource to a PEO Provider

If you want to hire and pay in the United Kingdom without the burden of DIY, consider using a Professional Employer Organization (PEO), sometimes referred to as an Employer of Record (EOR). This option creates a partnership where a PEO leases employees to a business while leveraging its own legal entity and operations in each country of operation. Many businesses choose this route because the global PEO reduces risk and liabilities abroad, while also enabling the business to manage all day-to-day responsibilities for their international workforce.

Put differently, the PEO manages the administrative burdens related to HR, payroll, benefits administration and more, which in turn allows the business to focus on other important growth initiatives. Because PEOs use their existing legal entity network for hiring and taxes, companies can hire much faster without sacrificing compliance. Here are a few of the administrative services a PEO provides:

• Fast international hiring
• Global payroll
• In-country compliance
• Reduced risks with international contractors
• Global talent acquisition
• HR technology for international workforces
• Compliant employment contracts

Employment Contracts

When operating in the United Kingdom, both employers and employees must adhere to the terms of the employment contract, which must include specific employment conditions, rights, responsibilities, and duties. These terms must be followed until the end of the contract, which can be triggered by an employee’s notice or an employer’s dismissal. It is the employer’s obligation to make clear what aspects of the contract are legally binding. Fixed-term employment contracts and collective agreements should also be taken into consideration, depending on the hiring specifications.

If an employee has an issue with the employer, they must try to resolve the problem informally. If the issue is not resolved, employees can then  . If the issue persists, it will be sent to an employment tribunal. In these cases, the tribunal may award up to four weeks’ pay if there’s a problem with the contract.

Employee Terminations

The UK has very strict policies when it comes to dismissing employees. A fair dismissal requires a clear reason for the termination, as well as information on how the employer acted during the dismissal process. Any problems during this process could result in the employee taking the case to the employment tribunal.

If an employee is the subject of a if resolved in an employment tribunal. In these instances, the employer will only have to pay what it would have cost to keep the employee during the notice period. However, it can lead to more serious problems if the employee claims breaches in the contract, which could result in up to £25,000 in fines. These costs could be even higher if the employee takes the employer to court, instead of resolving the issue with the tribunal.

Payroll Requirements

When it comes to payroll in the United Kingdom, there are many legal requirements to keep your business compliant. If your business is operating PAYE (Pay As You Earn) as part of the payroll, certain tasks need to be completed during each tax month. These timeframes run from the 6^th of one month to the 5^th of the next.

Businesses are required to record their payroll each pay period. Each time an employee is paid, the employer must:

• Record their pay – including salary, wages, or any other pay.
• Calculate deductions from their pay, like tax and National Insurance.
• Calculate the employer’s National Insurance contribution that you’ll need to pay on their earnings above £184 a week.
• Produce pay slips for each employee (you can use different software if yours does not have this feature).
• Report their pay and deductions to HM Revenue and Commissions (HMRC) in a Full Payment Submission (FPS).

If you’re an employer and provide expenses or benefits to employees or directors, you might need to tell HM Revenue and Customs (HMRC) and pay tax and National Insurance on them.

Hiring Requirements

There is a broad range of hiring requirements businesses need to consider before hiring and paying in the UK. A person’s employment status provides guidance for both the employee’s rights as well as the employer’s responsibilities. In the United Kingdom, there are five main types of employment status:

• Worker
• Employee
• Self-employed/contractor
• Director
• Office Holder

Employers have an obligation to make sure the people they hire have the right to work in the UK, run a criminal background check if necessary, and check if they need to be put into a workplace pension. After this is complete, then the employer and employee must agree to the employment contract and salary. When this is all settled, the business must then report to the HMRC about the new employee to ensure proper records are kept. Misclassifying an employee can lead to serious consequences for the employer.