The United Kingdom is a popular market for companies in the United States to expand their global reach—and for good reason. The U.K. offers a large pool of talent and is a top market for growing tech firms.
Building a business presence in the U.K. and tapping into its talent pool has many benefits for global employers, but it also comes with various compliance risks. Read this guide to learn how to hire and pay U.K. employees compliantly.
Can a U.S. Company Hire a U.K. Employee?
Yes, a U.S. company can hire U.K. employees. While it’s not as easy as directly hiring a U.S. workforce, there are several ways to hire and pay them compliantly.
How Do U.S. Companies Hire Employees in the U.K.?
To hire employees based in the U.K., a U.S. company must consider U.K. labor laws. The hiring method you choose depends on a variety of factors, from the number of employees you plan to hire to cost and time commitment and your strategic goals for doing business in the U.K. The following solutions will help you ensure global compliance:
Set Up a Local Entity in the U.K.
Many companies choose to set up an entity in another country to hire and pay employees directly. Having an entity in the U.K. gives your company full autonomy to establish a local branch and hire local employees. Still, foreign employers need a payroll provider, such as a multi-country payroll partner, to pay foreign talent.
If you plan to hire a large team or establish a long-term presence in the U.K., establishing an entity is an effective solution that results in fewer employment costs in the long run.
However, entity establishment is expensive and time-consuming and is not an ideal use of time and resources if you only plan to hire a small number of U.K. employees. Setting up an entity also requires in-country knowledge of the U.K.’s corporate and employment laws, thus requiring a team with expertise and bandwidth to navigate the extensive process.
Partner With an Employer of Record in the U.K.
Another option is to partner with an employer of record (EOR) to hire, pay, and manage U.K. 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 an EOR partner ensure that you stay compliant with U.K. 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.
Learn more: What Is an Employer of Record (EOR)?
Engage Contractors in the U.K.
Instead of hiring employees in the U.K., global companies may choose to pay international contractors in the U.K. Engaging contractors allows you to target U.K. talent with specialized skills while saving the time and money it would take to onboard and pay full-time employees. This route also offers more flexibility to test the U.K. market before seeking entity establishment.
Despite this flexibility, engaging U.K. contractors increases the risks of contractor misclassification, leading employers to face back taxes, back benefits, and reputational damage. We cover the risks of contractor misclassification in more detail below.
Compliance Risks When Hiring Workers in the U.K.
While the above solutions allow a U.S. company to hire employees and engage contractors in the U.K., it is still possible to run into compliance risks. The following are common compliance risks that a U.S. company encounters when it doesn’t take the necessary steps to follow U.K. labor laws.
Permanent Establishment
When a company has a fixed location in the U.K. and is generating revenue, it triggers permanent establishment and is liable for corporate taxes in the U.K. 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 U.K. workforce. If payroll contributions are miscalculated, you may face fines and costly payroll reruns. The following are payroll contributions for U.K. 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 U.K. has a free healthcare system that provides free medical care to all British citizens. Part of National Insurance contributions goes toward funding the NHS.
Misclassifying Employees
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 U.K. contractor, you must adhere to tax and reporting laws in both the U.S. and the U.K. For example, you must use a W-8BEN tax form, which classifies your foreign worker’s status and determines proper tax reporting and withholdings.
Learn more: How to Avoid the Risks of Independent Contractor Misclassification
Withholding Statutory Benefits
Even though your U.K. employees work for your U.S. company, they are still entitled to statutory benefits as U.K. 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.
Learn more information on U.K. labor laws.
FAQs When Hiring Employees in the U.K.
Because your U.K. employees are non-U.S. residents, U.S. employment laws do not apply to them. The following is additional information to consider when hiring and paying remote employees in the U.K.
Do Employees Need a Visa to Work Remotely in the U.K.?
U.K. citizens do not need a visa to work remotely for a U.S. company in the U.K. However, if they are a citizen or resident of another country and they want to stay in the U.K. for a long period of time, they do need a visa. The U.K. has several categories of work visas:
- Tier 1 visas for highly skilled workers (such as the Global Talent visa)
- Tier 2 permits for skilled workers (such as the Skilled Workers visa)
- Temporary visas for short-term work
Is There At-Will Termination in the U.K.?
U.K. termination laws vary from the U.S. and may feel foreign for U.S. companies. One of the most significant differences is that the U.K. does not follow “employment-at-will” in which neither the employer nor employee is required to give notice of termination or resignation. In the U.K., employers and employees 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 U.K. Employees Compliantly
The U.K. market is full of opportunities to achieve your business goals. Partnering with an experienced global workforce partner like Velocity Global better positions you for quick and compliant growth across international borders.
Velocity Global’s knowledgeable team and suite of employment solutions simplify hiring and paying talent in the U.K. Our global Employer of Record (EOR) solution handles everything from onboarding and payroll to benefits administration, immigration services, and compliance with local labor laws so you can focus on your global business goals.
Contact us today to learn how we can help you quickly and compliantly build a workforce in the U.K. and beyond.
