Employer of Record (EOR) in the United Kingdom
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An Employer of Record (EOR) plays a vital role in managing employment responsibilities in the United Kingdom (UK), including England, Scotland, Wales, and Northern Ireland. Often referred to as a Global Professional Employer Organization (Global PEO), the EOR ensures legal compliance and facilitates various aspects of employment. This includes guaranteeing that employees adhere to local labor laws and regulations, overseeing critical tasks such as payroll processing, tax compliance, benefits mandated by law, and the creation of employment contracts.
The Employer of Record (EOR) in the UK takes on several crucial responsibilities, including:
- Ensuring strict adherence to the country’s employment laws.
- Managing the intricacies of local payroll procedures.
- Handling the filing of employment-related taxes and essential documentation.
- Providing employees with accurate and timely payslips.
- Disbursing employee salary payments promptly.
Simplify your global expansion endeavors with our Global PEO services, offering a hassle-free solution without the need for establishing a legal entity. Mercans serves as your trusted Employer of Record (EOR) in the United Kingdom, guaranteeing legal compliance, intellectual property protection, and allowing your business to concentrate on its core operations. Our services facilitate seamless global mobility and work visas while enabling the recruitment of a diverse and efficient global workforce.
EOR Solutions in the United Kingdom (UK)
Employment in UK
The United Kingdom has been a driving force in Europe’s thriving startup ecosystem, which has witnessed substantial growth over the past turbulent 18 months. Supported by state-backed initiatives and robust funding, the UK’s startup sector has been on the rise, with the Future Fund playing a pivotal role in supporting equity deals. Europe, as a whole, is showcasing impressive results, with ecosystems contributing over $4 billion in value, challenging North America’s dominance. Brexit has introduced potential friction, raising questions about its impact on the startup landscape. Still, London, Berlin, and Amsterdam continue to shine in the Top 5 for their international relationships and innovation exchange. Climatetech presents a significant investment opportunity, driven by initiatives like the EU Commission’s partnership with Bill Gates and the UK government’s funding for Greentech. However, attracting diverse technical talent and streamlining visa processes remain essential for Europe’s success on the global stage.
Employees vs Independent Contractors in UK
In the UK, individuals participating in the job market are classified into three distinct categories: employees, workers, and independent contractors. While there exist statutory definitions for employees and workers, these definitions are not all-encompassing, and the current delineation has largely evolved through legal precedents. Individuals who do not fall within the employee or worker categories are considered self-employed for employment law purposes.
This differentiation in employment law holds substantial significance due to several factors:
| Aspect | Employee (Worker) | Independent Contractor (Self-Employed) |
|---|---|---|
| Legal Definition | Statutory definitions for employees and workers | No statutory definition for independent contractors |
| Implied Contractual Obligations | Yes (e.g., mutual trust and confidence) | Limited to explicit contract terms |
| Written Particulars | Entitled to written particulars of employment | Not entitled to written particulars |
| Termination Rights | Yes (right to notice, no unfair dismissal) | No (some self-employment rights apply) |
| Employment Protections | Various legal protections | Limited legal protections |
| Working Time and Minimum Wage | Covered by working time and minimum wage laws | Not covered by these laws |
| Acas Code of Practice | Applies | Does not apply |
| TUPE (Transfer of Undertakings) | Automatically transferred under certain conditions | Generally not transferred to new entity |
| Vicarious Liability | Employer is liable for actions in the course of employment | Generally not liable for actions |
| Health and Safety Duties | Employer has statutory health and safety duties | Responsibility rests with independent contractor |
| GDPR Data Handling Implications | Specific implications for employees under GDPR | Specific implications for contractors under GDPR |
Hiring and Recruitment in UK
| Steps | Hiring an Employee | Hiring an Independent Contractor |
|---|---|---|
| Business Preparedness | Ensure your business is ready to employ staff. | Ensure your business is prepared for contractor engagements. |
| Recruitment | Start the recruitment process to find the right candidate. | Select and recruit an independent contractor suitable for the project. |
| Right to Work Check | Check the right to work in the UK for the selected candidate. | Verify the right to work in the UK as part of the contract review. |
| DBS Check | Determine if a DBS check is needed based on the nature of the role. | Assess if a DBS check is necessary for specific roles or projects. |
| Workplace Pension | Check if the employee is eligible for a workplace pension and comply with auto-enrollment. | Contractors typically manage their own pensions, not required by the employer. |
| Employment Contract | Agree on terms of employment, including salary, working hours, and benefits. | Create a detailed contract outlining the project scope, payment terms, and deliverables. |
| Inform HMRC | Notify HM Revenue and Customs (HMRC) about the new employee for tax and NI purposes. | Ensure compliance with tax laws when making payments to the contractor. |
Top #5 Cities to hire remote talent in UK
When it comes to hiring remote talent in the UK, here are the top 5 cities to consider:
- Belfast: Northern Ireland’s capital takes the top spot with excellent internet download speeds, averaging 64.1mbps, ensuring smooth remote work experiences.
- Birmingham: Known as the UK’s “second city,” Birmingham secures the second position with robust internet download speeds (24.1mbps) and reliable 4G coverage.
- Nottingham: Nottingham ranks third, offering a relatively low average living cost (£890) and an average internet download speed of 62mbps.
- Manchester: Manchester claims the fourth spot, primarily due to its strong 4G signal strength (23.4mbps).
- Leicester: In fifth place, Leicester combines a low cost of living with an average internet download speed of 53.1mbps.
These cities provide favorable conditions for remote work, including reliable internet connectivity and affordability, making them attractive choices for businesses looking to hire remote talent in the UK.
Top #5 Skills on Demand
The UK government maintains a shortage occupation list, which encompasses a variety of skilled positions, including computer engineers, nurses, geoscientists, and architects. If you’re uncertain about which educational path to pursue for a successful career, consult our list of the most sought-after jobs in the UK to align your degree and course choices accordingly.
Employee Onboarding in UK
Employee onboarding in the United Kingdom typically involves several key steps to ensure a smooth transition for new hires. Firstly, it’s essential to complete all the necessary paperwork, including employment contracts and tax forms, in compliance with UK employment regulations. Next, HR teams need to introduce new employees to the company culture, policies, and procedures, which often includes anti-discrimination training, health and safety briefings, and an overview of employee benefits. Providing proper training and access to necessary tools and resources is crucial. Finally, ongoing support and clear communication are vital for successful onboarding, helping employees integrate into the workplace effectively and contribute to the organization’s success.
Background Verification in UK
Employers in the UK must conduct several essential checks on job applicants to ensure legal compliance. Firstly, it’s crucial to verify the right to work in the UK, with potential fines for not doing so. For EU citizens and their non-EU family members, settled status applications are necessary post-2020. Criminal record checks can be requested, particularly for certain roles in healthcare or childcare. Health checks are permissible only if legally required or the job demands it. These checks should be clearly communicated in offer letters, and written consent is needed for health reports from candidates’ doctors. Furthermore, employers should ensure that their checks do not discriminate, and they must adhere to data protection regulations when handling applicant information. Violations can result in prosecution.
Payroll in UK
Payroll Essentials for the UK
Registration Requirements
- Registration for Pay-As-You-Earn (PAYE): Employers in the UK must operate a PAYE scheme to collect and record Income Tax and National Insurance contributions from employee earnings. Registration is required when employing staff or subcontractors for construction work, even if only employing oneself (e.g., as the sole director of a limited company). Before registering for PAYE, the entity must be registered with Companies House.
Ongoing Compliance Requirements
- Full Payment Submission (FPS): An electronic submission to HMRC required every pay period (weekly, fortnightly, monthly, or annually). It must be sent on or before each payday and includes employee PAYE details and personal data. Failure to submit on time can lead to penalties.
- Employer Payment Summary (EPS): A monthly electronic submission due by the 19th of the following month. It reports recoverable statutory payments, CIS deductions, employment allowances, apprenticeship levy charges, and periods of nil pay.
- Remittances: Employers must pay HMRC the tax and National Insurance owed as reported on FPS and EPS from the previous month. Payment is due by the 22nd of the following month (19th if paying by check). Late payments will incur penalties and interest.
Registration Requirements
- Automatic Enrolment: Under the Pensions Act 2008, employers must automatically enroll qualifying employees into a workplace pension scheme if they employ at least one person. Employees must be classed as “workers,” aged between 22 and State Pension age, earning at least £10,000 per year, and usually working in the UK.
Ongoing Compliance Requirements
- Employers must make periodic deductions for pensions and manage employee opt-outs and re-enrollments. They are also required to complete a re-enrollment exercise every three years and file a declaration of compliance with the pensions regulator.
- Employers must adhere to statutory obligations concerning payments during maternity leave, paternity leave, sick leave, adoption leave, or shared parental leave. Each employee must have an employment contract that outlines their employment conditions, rights, responsibilities, and duties.
Registration Requirements
- Registration for Pay-As-You-Earn (PAYE): Employers in the UK must operate a PAYE scheme to collect and record Income Tax and National Insurance contributions from employee earnings. Registration is required when employing staff or subcontractors for construction work, even if only employing oneself (e.g., as the sole director of a limited company). Before registering for PAYE, the entity must be registered with Companies House.
Ongoing Compliance Requirements
- Full Payment Submission (FPS): An electronic submission to HMRC required every pay period (weekly, fortnightly, monthly, or annually). It must be sent on or before each payday and includes employee PAYE details and personal data. Failure to submit on time can lead to penalties.
- Employer Payment Summary (EPS): A monthly electronic submission due by the 19th of the following month. It reports recoverable statutory payments, CIS deductions, employment allowances, apprenticeship levy charges, and periods of nil pay.
- Remittances: Employers must pay HMRC the tax and National Insurance owed as reported on FPS and EPS from the previous month. Payment is due by the 22nd of the following month (19th if paying by check). Late payments will incur penalties and interest.
Registration Requirements
- Automatic Enrolment: Under the Pensions Act 2008, employers must automatically enroll qualifying employees into a workplace pension scheme if they employ at least one person. Employees must be classed as “workers,” aged between 22 and State Pension age, earning at least £10,000 per year, and usually working in the UK.
Ongoing Compliance Requirements
- Employers must make periodic deductions for pensions and manage employee opt-outs and re-enrollments. They are also required to complete a re-enrollment exercise every three years and file a declaration of compliance with the pensions regulator.
- Employers must adhere to statutory obligations concerning payments during maternity leave, paternity leave, sick leave, adoption leave, or shared parental leave. Each employee must have an employment contract that outlines their employment conditions, rights, responsibilities, and duties.
Payroll Requirements
Banking Requirements Related to Payroll
Payroll net payments can be made through any method and from either a UK or overseas bank account.
In the United Kingdom, Payroll Cycle, Tax Codes, and Minimum Wages are integral aspects of the General Employee Pay Regulations.
Payroll Cycle/ Payroll Period
The frequency of payroll cycles in the UK is typically determined by the company, with bi-weekly and monthly schedules being the most common. However, regardless of the chosen frequency, it is mandatory to specify it in the written statement of employment particulars. Payroll periods typically conclude with payday, which is typically set at the end of the month, often falling between the 25th and 30th or the last working day of the month.
Tax Codes
Tax codes are essential for the calculation of income tax in the UK. These codes are provided by HM Revenue and Customs (HMRC) and are based on various factors, including the individual’s earnings and any applicable tax reliefs. The tax code determines how much income tax should be deducted from an employee’s pay, ensuring that tax contributions are accurate and in compliance with UK tax regulations.
Minimum Wages
The UK enforces minimum wage regulations, and changes to these rates typically take effect on April 1st each year. As of the most recent update, employees aged 23 or older are entitled to a minimum wage of £10.42 per hour, while those aged 21 to 22 should receive at least £10.18 per hour. These minimum wage rates are designed to ensure fair compensation for workers and are subject to annual reviews and adjustments.
These components collectively form the framework for payroll management and employee compensation in the United Kingdom, ensuring that employers comply with regulations and employees receive their rightful earnings.
Statutory Filings & Contributions
| Statutory Body | Report/Declaration | Filing Frequency | Due dates | Process Definition |
|---|---|---|---|---|
| HMRC | Full Payment Submission (FPS) | Monthly | On or before the pay date each period. | In order to submit a Full Payment Submission (FPS), an entity needs access to the HMRC Portal. Once the payroll is completed, it is essential to submit the FPS on or before the pay date. This submission informs HM Revenue and Customs (HMRC) about payments made to employees and any deductions taken from their pay. It is important to note that all employees must be included in the FPS, even if their earnings are below £123.00. When submitting the FPS, you must enter the usual date that you pay your employees, regardless of whether you pay them earlier or later. For example, if you pay your employees early because their usual payday falls on a Bank Holiday, you should still enter your regular payday. |
| HMRC | Employer Payment Summary (EPS) | Monthly | By the 19th of the following PAYE month | You are required to report additional information on the FPS if it includes a new employee, if an employee leaves, if it is the last report of the tax year, or if you start paying someone a workplace pension. Furthermore, you must send an Employer Payment Summary (EPS) by the 19th of the following tax month for HMRC to apply any reductions, such as statutory pay, on the amount you owe from your FPS. If you have not paid any employees in a tax month, you should send an EPS instead of an FPS. If your payroll software cannot send EPS reports, use HMRC’s Basic PAYE Tools. |
Off-boarding
If the employee is departing within the current tax year (before the next 6 April) and the employer will not be making pension contributions, record their leaving date in the payroll system at the time of their final payment. Continue to make deductions as usual for the next Full Payment Submission (FPS). However, if the employee’s last payment occurs after the current tax year (on or after the next 6 April), do not include their leaving date in the same FPS as their final payment. Instead, add them to the first FPS of the new tax year. The employer is required to provide the employee with a P45 upon their departure.
Employment Cost in UK
As an example, let’s break down the financial components for an employee with an annual salary of 10,000 GBP in the UK:
- Gross Annual Salary (GBP 9,999.96): The gross annual salary represents the total amount the employee earns before any deductions. In this case, the employee’s gross annual salary is 9,999.96 GBP. It’s slightly less than the original salary amount due to various deductions and taxes.
- Total Annual Employer Costs (GBP 474.72): These are the costs that the employer incurs beyond the employee’s salary. They include expenses such as taxes, benefits, and other contributions made by the employer on behalf of the employee. In this case, the total annual employer costs amount to 474.72 GBP.
- Total Annual Cost (GBP 10,474.72): This figure represents the overall financial impact of employing this individual. It includes both the gross annual salary (what the employee receives) and the total annual employer costs (what the employer pays on behalf of the employee). The total annual cost is 10,474.72 GBP.
So, when you add the employee’s gross salary (9,999.96 GBP) to the total annual employer costs (474.72 GBP), you get the total annual cost (10,474.72 GBP), which represents the complete financial commitment associated with employing this individual in the UK.
Social Security Contributions in the United Kingdom
In the United Kingdom, social security payments are referred to as ‘national insurance contributions’ (NICs). NICs are payable by employees, employers, and the self-employed. Explore further →
Statutory Payments in the United Kingdom
Statutory Payments in the United Kingdom are essential provisions that ensure employees are financially supported during various life events and circumstances. These statutory payments are designed to provide financial assistance when employees are unable to work due to sickness, are expecting a child, or are adopting a child. Here are the key statutory payments in the UK:
Statutory Sick Pay (SSP)
Statutory Sick Pay is a crucial benefit for employees who are unable to work due to illness. It provides financial support when employees are too unwell to carry out their duties. Eligible employees can receive SSP for up to 28 weeks, and it is paid by their employers.
Statutory Maternity Pay (SMP)
Statutory Maternity Pay is intended to support expectant mothers during and after childbirth. Eligible employees can receive SMP for up to 39 weeks. During this period, new mothers can take time off work to recover and bond with their child while still receiving financial support from their employer.
Statutory Adoption Pay (SAP)
Statutory Adoption Pay is designed to help employees who are adopting a child. Like SMP, it provides financial assistance for up to 39 weeks, allowing adoptive parents to take time off work to care for and bond with their newly adopted child.
Shared Parental Pay (ShPP)
Shared Parental Pay is a flexible provision that allows eligible parents to share the care responsibilities of a child. Parents can choose how to divide the leave and pay between them, enabling a more balanced approach to parenting.
These statutory payments are a valuable part of the UK’s social security system, ensuring that employees are supported during significant life events. They not only provide financial assistance but also promote employee well-being and work-life balance.
National Insurance in UK
National Insurance is a fundamental component of the UK’s social security system, requiring both individuals and employers to make compulsory contributions. Explore further →
Employment Laws in UK
Employment law encompasses a body of legislation that governs the relationships between employers, employees, and trade unions in the United Kingdom. Explore further →
Employee Benefits in UK
Employers must offer a pension scheme to all employees within three months of starting work. Employees have the option to join or decline.
Explore further →
Employee Rights in the United Kingdom
Every employee in the UK is entitled to a comprehensive written employment contract before commencing work. Explore further →
Employee Termination
Leave Policy in the UK
The vast majority of individuals classified as workers are legally granted a yearly paid holiday entitlement of 5.6 weeks, often referred to as statutory leave or annual leave. Explore further →
Personal Income Tax in United Kingdom
Personal Income Tax in the United Kingdom (UK) is an essential part of the country’s revenue system, ensuring the funding of public services and government operations. Explore further →
Immigration UK
Best Employer of Record UK
Conclusion
In summary, Mercans (as your trusted Employer of Record in the United Kingdom) stands ready to provide you with bespoke solutions to meet your employment and immigration requirements in the United Kingdom. Our seasoned experts are committed to guiding you through the intricacies of the process, ensuring a smooth and effective transition to working in the UK. If you seek a seamless and successful employment journey, do not hesitate to contact us today. Your success is our foremost concern, and we are here to assist you every step of the way.