The United Kingdom is a popular market for US companies to expand their global reach, and for good reason. The UK offers a large pool of talent, especially in the tech industry–it is a top-ten market for growing tech firms, according to Velocity Global’s 2020 Global Expansion Tech Index.
Building a business presence in the UK and tapping into its talent pool has many benefits, whether it’s for a short-term project or hiring a full team. Here’s what you need to know to hire and pay UK employees compliantly.
Can a US Company Hire a UK Employee?
Yes, a US company can hire UK employees. While it’s not as easy as directly hiring a US workforce, there are several ways to hire and pay them compliantly.
How Do US Companies Hire Employees in the UK?
To hire employees based in the UK, a US company must consider UK labor laws. The method you choose depends on a variety of factors, from the number of employees you plan to hire, cost and time commitment, and your overall strategic goals for global expansion. The following solutions will help you stay compliant:
Set Up a Local Entity in the UK
Many companies choose to set up an entity in another country to hire and pay employees directly. Having an entity in the UK gives your company full autonomy to establish a local branch and hire local employees. A payroll provider, such as multi-country payroll, is still required in order to pay your talent. If you plan to hire a large team or establish a long-term presence in the UK, establishing an entity is a prudent solution that results in fewer employment costs in the long run.
However, entity establishment is an expensive and lengthy process and is not an ideal use of time and resources if you only plan to hire a small number of UK employees. Setting up an entity also requires in-country knowledge of the UK’s corporate and employment laws, thus requiring a team with expertise and bandwidth to navigate the extensive process.
Partner With an Employer of Record
Another option is to partner with a global employer of record (EoR) to hire, pay, and manage UK talent on your behalf. An EoR partner has in-depth knowledge of the local labor requirements and handles all risk mitigation, payroll, and benefits associated with your global workforce. Not only does a global EoR partner ensure that you stay compliant with UK labor regulations, but it also streamlines the entire hiring and global payroll process. An EoR helps pay and support your talent so you can focus on daily operations and growth.
Engage Contractors in the UK Instead
Instead of hiring employees in the UK, you can engage an international contractor based in the UK. Engaging and paying a contractor allows you to target UK talent and the specialized skills you need, all while saving time and money that it would otherwise take to onboard and pay a full-time employee. This also gives you the flexibility to test out the UK market before jumping into entity establishment.
Even though a contractor is easy to engage, it still involves compliant contractor agreements and payment. Make sure to follow the proper steps with an agreement and payment terms to ensure your contractor is paid in a timely and compliant manner.
Compliance Risks When Hiring Workers in the UK
While the above solutions allow a US company to hire employees and engage contractors in the UK, it is still possible to run into compliance risks. The following are common compliance risks that a US company encounters when it doesn’t take the necessary steps to follow UK labor laws.
When a company has a fixed location in the UK and is generating revenue, it triggers permanent establishment and is liable for corporate taxes in the UK. If a company fails to recognize its permanent establishment and the obligations that come with it, the company is subject to compliance risks such as interest, penalties, employer liabilities, and legal issues.
Incorrect Payroll Contributions
As an employer, it is important to understand the required payroll contributions for your UK workforce. If payroll contributions are miscalculated, you may face fines and costly payroll reruns. The following are payroll contributions for UK employees:
- National Insurance. Employees pay National Insurance contributions to qualify for the State Pension and certain benefits, such as maternity allowance and bereavement support payment.
- National Health Service (NHS). The UK has a free healthcare system that provides free medical care to all British citizens. Part of National Insurance contributions goes toward funding the NHS.
Misclassification is a possible risk when a company engages contractors. For example, if a contractor has a fixed salary and your company manages their work schedule, they could claim they are entitled to employee benefits. If misclassification occurs, your company could face fines, legal issues, social contribution, and employee entitlement back pay obligations.
If you engage with a UK contractor, you must adhere to tax and reporting laws in both the US and UK. Use a W-8BEN tax form, which classifies your foreign worker’s status and determines proper tax reporting and withholdings.
Withholding Statutory Benefits
Even though your UK employees work for your US company, they are still entitled to statutory benefits as UK citizens. These include:
- Workplace pension. The minimum contribution by the employer is 3% of the individual’s qualifying earnings, and the minimum contribution by the employee is 5% for a total of 8% minimum.
- Holiday pay. Most employees receive 5.6 weeks of paid annual leave. Additionally, employees are entitled to the UK’s eight public holidays each year.
- Maternity, paternity, and adoption paid leave. Employees are entitled to paternity, maternity, adoption, and shared parental leave and pay. Eligible employees must take at least two weeks after birth and can be paid for up to 39 weeks. Pregnant employees can also receive paid time off for antenatal appointments.
FAQs When Hiring Employees in the UK
Because your UK employees are non-US residents, US employment laws do not apply to them. The following is additional information to consider when hiring and paying remote employees in the UK.
Do Employees Need a Visa to Work Remotely in the UK?
UK citizens do not need a visa to work remotely for a US company in the UK. However, if they are a citizen or resident of another country and they want to stay in the UK for a long period of time, they do need a visa.
Is There At-Will Termination in the UK?
UK termination laws vary from the US and may feel foreign for US companies. One of the most significant differences is that the UK does not follow “employment-at-will” in which neither the employer nor employee is required to give notice of termination or resignation. In the UK, employers and employers must provide a minimum of one week’s notice and up to 12 weeks’ notice of dismissal, depending on the length of employment.
Start Hiring UK Employees Compliantly
The UK market is full of opportunities to achieve your business goals. Partnering with an experienced global workforce partner better positions you for quick and compliant growth across international borders.
Velocity Global’s knowledgeable and experienced team helps you navigate UK employment laws, and our Global Work Platform™ allows you to support your growing workforce. Whether you need to hire and pay foreign employees through our global Employer of Record, utilize our Contractor Management solution to engage international contractors, or somewhere in between, we’re here to support your growing workforce along your path to global expansion.
Contact us today to learn more.