United Kingdom: A Guideline to Payroll and Employer of Record

Establish your presence globally with Neeyamo as we help you go beyond borders to manage your global payroll and hire new talent in the United Kingdom.

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Overview

You may be familiar with places such as Liverpool, Brighton, Belfast, Edinburgh and so much more, but what about Llanfairpwllgwyngyllgogerychwyrndrobwlllllandysiliogogogoch? The little town of Llanfairpwllgwyngyllgogerychwyrndrobwlllllandysiliogogogoch, also known as Llanfairpwll for ease of pronunciation, can be found in Wales and is the longest name in Europe. Apart from this unique name, the United Kingdom has so much more to offer like its intensely diverse and dedicated workforce.

Do your organization’s expansion plans require you to hire employees in the United Kingdom? Do you lack a physical entity in the country – a key requisite to hire local talent? Neeyamo – global payroll providers, provide assistance for onboarding and management of employees in the UK along with the processing of a firm's payroll, compliance, benefits, and more.

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London, UK
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City Reach, 5 Greenwich View Place, London, E14 9NN

Tools And Instances

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Global Payroll

Neeyamo’s global payroll solution covering 180+ countries

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Global Work

A tech-based EOR solution to manage your extended workforce

Facts And Stats

Capital

London

Currency

Pound Sterling (GBP)

Official Language

English

Fiscal Year

6 April - 5 April

Date Format

DD/MM/YYYY

Country Calling Code

+44

Other Languages

Scottish, Welsh, Cornish, Irish

Time Zone

UTC + 01:00

Global Payroll

Overview

How does Global Payroll work?

Handling payroll for a widespread workforce can pose a significant challenge for any organization, and the added complication of compliance can make things worse. If companies spend more time processing payroll, it directly impacts day-to-day operations and their overall productivity.

What is a global payroll system?

Over the years, Neeyamo has observed these complexities and strived to provide global payroll solutions through a single technology platform - Neeyamo Payroll. Neeyamos global payroll services ease the process for companies looking to outsource their global payroll requirements and aids them in maneuvering the tricky payroll system in the UK.

Payroll Taxes

Payroll tax is the percentage amount retained from an employee's salary and paid to the government to invest in the general population's welfare. These are statutory in nature and are levied from both the employer and employee. Additional statutory contributions are made by employers towards aiding both short-term and long-term benefits for their employees.

Employee Taxes

The employee taxes in the United Kingdom are computed as follows:

Employees are required to contribute to the National Insurance scheme, and to a company pension fund, at the following rates:

£797.00 - £4189.00 per month: 1.2%

£4189.00 per month and above: 2%

Pension Fund: 5%

Employee Income Tax: Deducted at Source 

0 to £12,570 0%
£12,571 to £50,270 20%
£50,271 to £150,000 40%

Employer Taxes

The employer taxes in the United Kingdom are computed as follows:

0 to £12,570 0%
£12,571 to £50,270 20%
£50,271 to £150,000 40%
Above £150,000 45%

 

With effect from April 6, 2023, Changes in employer rates and thresholds for the fiscal year 2023-24.
The standard employee personal allowance for the 2023 to 2024 tax year is: £242 per week, £1,048 per month and £12,570 per year

Payroll Cycle

Overview

Undoubtedly, payroll is a critical process for any organization. Pay cycle refers to the period for which an organization pays its employees, and this can vary depending on the pay frequency that the organization chooses to adopt.

Frequency

Salary payments in the UK are normally made between the 25th and 30th of each month,  with the payroll frequency being monthly.

13th Month Cycle

There are no legal requirements for 13th-month wage payments in the United Kingdom.

Global Work

Overview

What is Employer of Record?

An Employer of Record services (EOR) provider helps you eliminate the hassle of handling complexities while onboarding a new employee in an international location. They help bridge the gap that otherwise mandates organizations to have a local registered entity and a local bank account prior to making a job offer to an international hire.

An employer of record services provider acts as a legal employer, facilitates salary payments, and manages other statutory requirements such as health insurance, payroll taxes, and employee benefits, ensuring compliance with local tax laws and regulations.

This allows organizations to focus on collaborating with employees in the United Kingdom for operational tasks, with the knowledge that they have a cost-effective solution supporting their global payroll & HR requirements as they continue their global expansion.

HR Mandates and Practices

Minimum Wage

The age of the employee affects the national minimum wage in the United Kingdom:

As of 1 April 2023, the UK minimum wage has increased. The National Living Wage will consist of an hourly rate of £10.42. Additionally, the rate for 21-22-year-olds will be £10.18; for 18-20-year-olds, £7.49; for 16-17-year-olds, it will be £5.28.

The following rates will be in effect from April 1, 2024:

Category NMW Rate Increase in Pence % increase
21 and over £11.44 £1.02 9.8%
18 - 20 years old £8.60 £1.11 14.8%
16 - 17 years old £6.40 £1.12 21.2%
Apprentice rate £6.40 £1.12 21.2%
Accommodation Offset £9.99 £0.89 9.8%

 

Overtime  

​All work performed in excess of the required number of hours per week is considered overtime and must be compensated accordingly.

Employers may give written notice to employees when they need them to work overtime or on a holiday.

All overtime hours that exceed 48 hours per week are compensated at a rate that is outlined in the employment contract and collective bargaining agreements. The hourly overtime rate is not permitted to be less than the federal minimum wage.

Data Retention Policy

HMRC generally recommends that records in the United Kingdom should be kept for six years. With regard to PAYE records, HMRC requires employers to maintain records for three years.

Employers must keep records of any information used to calculate apprenticeship levy payments for at least three years after the tax year to which they relate. Employers must keep records about employees' pension arrangements for six years in an electronic or paper format. Records on opt-outs from NEST must be kept for four years.

Employers must keep records of the following for the current and previous three tax years in either an electronic or paper format for each employee:

  • the employee's name and address;
  • payslips or some other record showing gross earnings, taxes, NICs, any student loan repayments, and net pay;
  • pension payments;
  • Statutory Sick Pay, Statutory Maternity Pay, Statutory Adoption Pay, Statutory Paternity Pay, and Shared Parental Leave and Pay;
  • leave and sickness absences, overtime, commissions, and bonuses.

Such detailed records are not required for an employee whose wages are below the Lower Earnings Limit (LEL). However, records of the employee's name and address and the payments made each pay period are still required.

Employers must keep records of night workers' hours worked for at least two years.

New requirement to report hybrid or remote working patterns for sponsored employees (with effect from April 1, 2023):

  • The worker is, or will be, working at a different site, branch or office of your organization, or a different client's site, not previously declared to Home Office. 

  • The worker is, or will be, working remotely from home on a permanent or full-time basis (with little or no requirement to physically attend a workplace).  

  • The worker has moved, or will be moving, to a hybrid working pattern.

New Advisory Fuel Rates (with effect from June 1, 2023):

  • The updated guidance includes the continuation of the 0.09 British pounds (US$0.11) advisory electric rate per mile for fully electric cars and revised AFRs for petrol, liquefied petroleum gas (LPG), and diesel.

  • The new rates take effect on June 1, 2023, and employees can use the previous rates for up to one month after the date the new rates take effect.

Hiring and Onboarding Requirements

Hiring

In the UK, there is no legal requirement to give preferences in hiring to, or not to discriminate against, particular people or groups of people.

Positive discrimination is generally unlawful in the United Kingdom; however, certain additional positive requirements are imposed on public bodies, and ‘reasonable adjustment’ in disability discrimination is regarded as a form of partial positive discrimination.

Under the Equality Act 2010, employers in the United Kingdom may (although they are not required to) take the under-representation of those with protected characteristics into account when selecting between two equally qualified candidates for recruitment or promotion, provided that there is no automatic selection of under-represented groups. Decisions are not made irrespective of merit (i.e., by using mandatory quotas, an increasingly common phenomenon in mainland Europe).

Regardless of the new provisions, the selection of a less-qualified candidate because he or she is in a protected category remains unlawful.

Onboarding

Following are the documents required while onboarding an employee in the United Kingdom:

  • Name of candidate.
  • Address
  • Date of Birth
  • Education and qualification certificate
  • Work experience certificate (if applicable)
  • Emergency contact details
  • employment history with the organisation
  • Bank Account Details (for paying employees)
  • National Insurance Number (tax purpose)

Probation

A probationary period should be specified in the employment contract and can last for as long as the employer wishes. However, probationary periods generally last for between three to six months.

Leave

Public Holidays

England and Wales recognize eight public holidays, also known as bank holidays, while Scotland recognizes nine and Northern Ireland recognizes 10.

Scottish local councils may set their lists of public holidays that, in general, partially overlap with the Scotland-wide list but contain differences.

Employers are not required to provide employees with paid leave for public holidays. However, it is customary for employers to provide employees with paid leave for some or all of these holidays.

If a public holiday falls on a weekend, a substitute weekday becomes the holiday, usually the immediately following Monday. Employers can include these holidays as a worker's statutory annual leave.

The seven holidays that England collectively recognizes, Wales, Scotland, and Northern Ireland are as follows:

  • Jan. 1: New Year's Day.
  • April 7: Good Friday, the Friday immediately before Easter Sunday.
  • April 10: Easter Monday
  • May 1: Early May Bank Holiday, which generally is the first Monday in May.
  • May 8: Bank holiday for coronation of King Charles III
  • May 29: Spring Bank Holiday, also known as the Late May Bank Holiday, the last Monday in May.
  • August 7: Summer Bank Holiday, which for Scotland is recognized as the first Monday in August and for England, Wales, and Northern Ireland is recognized as the last Monday in August.
  • Dec. 25: Christmas Day.
  • Dec. 26: Boxing Day.

England and Wales

The additional public holiday recognized by England and Wales is Easter Monday, the Monday immediately after Easter Sunday.

The additional public holidays recognized by Scotland are:

  • Jan. 2: The second day of the new Gregorian Calendar year.
  • Nov. 30: St. Andrew's Day.

Northern Ireland

The additional public holidays recognized by Northern Ireland are:

  • March 17: St. Patrick's Day.
  • Easter Monday, the Monday immediately after Easter Sunday.
  • July 12: Battle of the Boyne (Orangemen's Day).

Sick Leave

An employee is entitled to Statutory Sick Pay (SSP) if he/she cannot perform work due to incapacity for four or more consecutive days. The weekly rate for Statutory Sick Pay (SSP) is £96.35 for up to 28 weeks. Employees who are off work sick for more than 4 weeks may be considered long-term sick. Employees do not receive SSP for the first three days of any sickness absence. SSP is paid by the employer and is not recoverable from the government.

Employers cannot require employees to contribute toward sick leave payments.

Maternity Leave

Eligible employees can take up to 52 weeks of maternity leave. The first 26 weeks are known as ‘Ordinary Maternity Leave’, and the last 26 weeks as ‘Additional Maternity Leave.'

Although employees do not have to take all 52 weeks of their maternity entitlement, they must take two weeks’ leave once the baby is born. The earliest that leave can be taken is 11 weeks before the expected week of childbirth.

It is a criminal offense for an employer to allow an employee to return to work within two weeks of giving birth. Pregnant employees also are entitled to receive up to 39 weeks of statutory maternity pay (SMP) if they have worked for the employer for at least 26 weeks and meet minimum earnings requirements.

Employees can claim Maternity Allowance as soon as they have been pregnant for 26 weeks. Payments can start 11 weeks before the child is due. Maternity pay is currently 90 percent of the employee’s average earnings for the first six weeks of maternity leave, £151.97 or 90% of your average weekly earnings (whichever is lower) for the next 33 weeks.

Paternity Leave

Employees with at least 26 weeks of continuous service are entitled to two weeks of paid paternity leave. The amount of time is the same even if they have more than one child (for example twins).

Leave cannot start before the birth. The start date must be one of the following:

  • the actual date of birth
  • an agreed number of days after the birth
  • an agreed number of days after the expected week of childbirth

Leave must finish within 56 days (8 weeks) of the birth (or due date if the baby is early).

Statutory Paternity Pay for eligible employees is either £151.97 a week or 90% of their average weekly earnings (whichever is lower). Tax and National Insurance need to be deducted.

Other Leave

  • Leave to look for a job and attend training: An employee who is given notice of dismissal because of redundancy is entitled to be permitted by his employer to take reasonable time off during the employee’s working hours before the end of his notice to look for new employment etc. Time off is usually unpaid unless the employer agrees to pay it.
  • Leave for Ante-Natal Care: An employee who is pregnant and has made an appointment to receive antenatal care is entitled to be permitted by her employer to take time off during working hours to receive antenatal care.

    An employee who has a qualifying relationship with a pregnant woman or her expected child is entitled to be permitted by his/her employer to take time off during the employee’s working hours so that he/she may accompany the woman when she attends by appointment at any place to receive ante-natal care. Such time off can be permitted on two or more occasions and shall be allowed for six and a half hours.

  • Training Leave: Employers with at least 250 employees are eligible for this leave. Employees shall have the right to ask for time off work for training or study. To ask for training or study, employees must have worked for their employer for at least 26 weeks, and the training must be work-related. Time off is usually unpaid unless the employer agrees to pay it. Employees can only make one request for leave a year.
  • Time Off for Public Duties: Employees can get time off work for certain public duties as well as their normal holiday entitlement. Employers can choose to pay them for this time, but they don’t have to. All employees must be allowed to take time off for jury service.

With effect from April 2, 2023, Statutory Maternity, Paternity, Adoption, Shared  Parental  and  Parental  Bereavement Pay increased to £172.48.
The Statutory Sick Pay rate increases to £109.40 per week.

Termination

Notice Period

Minimum notice periods are prescribed by legislation. Those are as follows:

  • For employees with more than one month’s service but less than two years – one week’s notice.
  • For employees with more than two years’ service but less than twelve years – one week’s notice for every year of service.
  • Employees with 12 years of service or more – 12 weeks’ notice.

These are minimum notice periods only. That is, they will override shorter contractual notice provisions. Employees are entitled to longer notice than the statutory minimum if this is set out in their contract.

If no notice were expressly agreed between the parties, the court or tribunal would imply one. This will be the customary notice period for that business, or the parties would have agreed if they had thought about it, but it cannot be less than the statutory minimum.

Severance Pay

Severance pay is only required in the case of redundancy. The amount of severance is dependent on the age of the employee if they have served at least two years of service as follows:

  • Half a week’s pay for each full year for employees under the age of 22

  • One week’s pay for each full year for employees between the ages of 22 to 41 years of age

  • One and half weeks’ pay for each full year for employees over the age of 41

Length of service is capped at 20 years  and weekly pay is capped at 571 GBP.

Visa

Overview

It is mandatory for UK employers to acquire a sponsor license to hire from outside the UK, which takes several weeks to acquire.

Without a visa, foreign visitors can stay in the UK for up to six months to travel, visit family and friends, pursue short-term studies, go on job interviews, etc. To stay more than 6 months, a foreigner needs to apply for VISA through the UK immigration points-based system.

There are numerous varieties of work visas available for both short- and long-term visits to the UK. Depending on the position being offered or sponsored, the type of labor involved, and whether bringing the family is required, each requires a varying amount of information regarding the foreigners' talents and qualifications.

Employee Background Checks

Legal and Background Checks

Employers must not ask questions about a job applicant’s health before a job offer (either conditional or unconditional) has been made to that person. If a disabled applicant claims disability discrimination based on an employer having asked a prohibited health question, the employer will have to prove that no disability discrimination took place. It is permissible to ask such questions once a job offer has been made. It is also permissible to make a job offer conditional on a satisfactory health check if this is relevant to the role.

Employers can carry out other background checks at any stage during the hiring process, but there are some limits on how far an employer can go in doing so.

For most jobs, employers cannot ask applicants about ‘spent’ criminal convictions (i.e., those which have expired after a specific period of time). There are exceptions to this for certain jobs, including lawyers entry into the profession, healthcare workers, and teachers.

Data protection legislation limits the extent employers can ask for personal data about job applicants. In outline, the employer must be transparent about the data it is collecting (i.e., outline what it is asking for and why), and act ‘proportionately’ in obtaining personal information through background checks. This includes only obtaining information relevant to the particular job and recruitment decision and not asking for or collecting any more information than is necessary for this purpose.

Last updated on January 19, 2024

If you have any queries or suggestions, reach out to us at irene.jones@neeyamo.com

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