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Our workforce compliance guide to the United Kingdom covers everything you need to compliantly hire, onboard, manage and pay workers in the UK.
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Our workforce compliance guide to the United Kingdom covers everything you need to compliantly hire, onboard, manage and pay workers in the UK.
To help you navigate the UK’s employment, tax, and compliance laws, Worksuite acts as your global employment partner, making it easy to hire employees or independent contractors—all without needing to set up your business entity.
– Quickly find, hire, and onboard talent in the UK without setting up your entity
– Prevent expensive legal, contractual, or tax mistakes in the UK
– Manage contracts, payroll, and global tax forms all in one Worksuite
We simplify the process of hiring in the UK by acting as the Employer of Record (EOR) or Global Agent of Record (AOR) on your behalf, handling everything from contracts, onboarding, documentation, payroll, benefits, and workforce management. Reduce your time-to-hire by 90%, slash your overheads, and remain fully compliant. Hiring workers in UK has never been so easy.
Country
Ease of Hiring Employees
Ease of Hiring Independent Contractors
Average Time-to-Hire
Labor Laws
Regulatory Risk
Country
Ease of Hiring Employees
Normal
Ease of Hiring Independent Contractors
Hard
Average Time-to-Hire
Up to 4 Weeks
Labor Laws
Complex
Regulatory Risk
High Risk
Country
Ease of Hiring Employees
Very Easy
Ease of Hiring Independent Contractors
Very Easy
Average Time-to-Hire
Up to 4 Weeks
Labor Laws
Complex
Regulatory Risk
Low Risk
Country
Ease of Hiring Employees
Very Easy
Ease of Hiring Independent Contractors
Very Easy
Average Time-to-Hire
Up to 4 Weeks
Labor Laws
Complex
Regulatory Risk
Low Risk
Country
Ease of Hiring Employees
Very Easy
Ease of Hiring Independent Contractors
Very Easy
Average Time-to-Hire
Up to 4 Weeks
Labor Laws
Complex
Regulatory Risk
Low Risk
Country
Ease of Hiring Employees
Very Easy
Ease of Hiring Independent Contractors
Very Easy
Average Time-to-Hire
Up to 4 Weeks
Labor Laws
Complex
Regulatory Risk
Low Risk
Country
Ease of Hiring Employees
Very Easy
Ease of Hiring Independent Contractors
Very Easy
Average Time-to-Hire
Up to 4 Weeks
Labor Laws
Complex
Regulatory Risk
Low Risk
Country
Ease of Hiring Employees
Very Easy
Ease of Hiring Independent Contractors
Very Easy
Average Time-to-Hire
Up to 4 Weeks
Labor Laws
Complex
Regulatory Risk
Low Risk
Any business hiring in the UK should understand the important legal distinction between who classifies as an independent contractor and who can be hired as an employee. Fines or penalties may be issued to businesses hiring contractors under the guise of employment.
Understanding the distinctions between employees and independent contractors (or self-employed workers) is critical to compliantly engaging workers in the UK. It is essential to work with a partner like Worksuite to ensure you put in place an engagement framework that accurately classifies freelancers as independent contractors for you and lets you know when freelance talent must be engaged as a payrolled contractor or employed directly.
In the UK there are multiple sources of employment law that cover both employees and independent contractors. UK employment law may also vary slightly between its four geographical zones of Great Britain (England, Scotland, Wales) and Northern Ireland.
In Great Britain (England, Scotland, Wales), this is governed by the Westminster Government in England through the Department for Work and Pension (DWP), along with various employment laws within Acts of Parliament (such as the Employment Rights Act 1996, the National Minimum Wage Act 1998, and the Working Time Regulations 1998), regulations, common law, and case law. In Northern Ireland, employment law is governed by the Northern Ireland Assembly, although there is significant alignment with British employment law.
Independent contractors are not defined in UK law, and so there is a reliance upon case law (precedence).
The individual must submit their CV (or resumé) to the employer, and some employers will also ask the individual to provide references. Once a decision has been made, the employer must deliver a formal job offer in writing to the individual. Once the individual has been offered and has accepted the job, the employer must acquire the individual’s personal information such as date of birth, proof of right to work in the UK, national identification (e.g. passport), proof of address, national insurance number, and most recent P45 (see below)
Contractors can be hired directly or via an intermediary, such as a staffing agency or umbrella company. Contractors may be found via word-of-mouth, jobs boards, social networks, industry bodies, or other forums. Although the hiring practices vary, the contractor may be asked to provide a CV, portfolio, and references, and possibly sign an NDA.
The key contractor operating models are:
Employees receive a P60 form from their employer at the end of each tax year (6 April to 5 April), and a P45 form upon termination of employment.
Employees are not required to submit any tax forms in relation to their income earned via employment. However, they will need to include some details from these forms as part of any tax self-assessments for additional self-employed work.
Tax codes and national insurance (NI) numbers are issued by Her Majesty’s Revenue and Customs (HMRC)
Contractors who do not operate via an intermediary must file their own tax returns by registering for HMRC’s Self-Assessment process. They may also need to register for Value Added Tax (VAT)
Employers must obtain new employees’ most recent P45 form. If the employee does not have a P45 form available, employers can use HMRC’s New Starter Checklist form.
Employers are required to withhold employees’ tax and national insurance at time of payment to the employee. This occurs through the PAYE payroll scheme. Employers report end-of-year expenses paid to each employee via a P11D form or using HMRC’s PAYE Online service.
Employers must give all employees a P60 form at the end of the tax year. Most businesses generate these forms using payroll software. Alternatively, HMRC’s Basic PAYE Tools can be used to generate the forms.
Hiring companies do not withhold any of the contractor’s payment for tax purposes
Upon termination of employment, the employer must issue the employee with a P45 form, which shows how much tax the employee has paid in the current tax year (6 April to 5 April). Employees must issue a P45 by law.
Changes to the IR35 tax law (April 2021) place more responsibilities on hiring companies to determine the contractor’s employment status before hiring them. This can be done using HMRC’s Check Employment Status for Tax (CEST) tool.
Employees are paid on an hourly, weekly, or monthly basis.
Contractors operating as a business typically submit an invoice on a monthly basis. Contractors operating without a business (i.e., as a sole-trader) may be paid via any preferred method, and often require a payment receipt.
The hiring company and contractor may also negotiate a payment structure, including any up-front payment, partial payments, and a final payment upon completion of the work.
Employment rights include National Minimum Wage (NMW), Statutory Sick Pay, Statutory Redundancy Pay, maternity/paternity pay and leave, parental pay and leave, notice periods, flexible working, emergency time off work, rest breaks and nights off, maximum hours per week (unless the employee opts out), automatic enrolment in a pension scheme, request for flexible working, minimum notice period of dismissal, statutory redundancy pay.
Contractors do not have standard employees’ rights. However, they have rights regarding health and safety, and protection against unfair discrimination.
The employer pays all employee benefits.
Contractors’ benefits are governed by the content of the contract.
Employees are usually paid in arrears on or before the last day of the month for which payment is due
Contractors send an invoice (or other form of payment request), and typically require payment within 14 days or 28 days of submission, unless otherwise stipulated in the contract. Contractors are not paid by payroll in most cases.
In Great Britain (England, Scotland, Wales), this is governed by the Westminster Government in England through the Department for Work and Pension (DWP), along with various employment laws within Acts of Parliament (such as the Employment Rights Act 1996, the National Minimum Wage Act 1998, and the Working Time Regulations 1998), regulations, common law, and case law. In Northern Ireland, employment law is governed by the Northern Ireland Assembly, although there is significant alignment with British employment law.
The individual must submit their CV (or resumé) to the employer, and some employers will also ask the individual to provide references. Once a decision has been made, the employer must deliver a formal job offer in writing to the individual. Once the individual has been offered and has accepted the job, the employer must acquire the individual’s personal information such as date of birth, proof of right to work in the UK, national identification (e.g. passport), proof of address, national insurance number, and most recent P45 (see below)
Employees receive a P60 form from their employer at the end of each tax year (6 April to 5 April), and a P45 form upon termination of employment.
Employees are not required to submit any tax forms in relation to their income earned via employment. However, they will need to include some details from these forms as part of any tax self-assessments for additional self-employed work.
Tax codes and national insurance (NI) numbers are issued by Her Majesty’s Revenue and Customs (HMRC)
Employers must obtain new employees’ most recent P45 form. If the employee does not have a P45 form available, employers can use HMRC’s New Starter Checklist form.
Employers are required to withhold employees’ tax and national insurance at time of payment to the employee. This occurs through the PAYE payroll scheme. Employers report end-of-year expenses paid to each employee via a P11D form or using HMRC’s PAYE Online service.
Employers must give all employees a P60 form at the end of the tax year. Most businesses generate these forms using payroll software. Alternatively, HMRC’s Basic PAYE Tools can be used to generate the forms.
Upon termination of employment, the employer must issue the employee with a P45 form, which shows how much tax the employee has paid in the current tax year (6 April to 5 April). Employees must issue a P45 by law.
Employees are paid on an hourly, weekly, or monthly basis.
Employment rights include National Minimum Wage (NMW), Statutory Sick Pay, Statutory Redundancy Pay, maternity/paternity pay and leave, parental pay and leave, notice periods, flexible working, emergency time off work, rest breaks and nights off, maximum hours per week (unless the employee opts out), automatic enrolment in a pension scheme, request for flexible working, minimum notice period of dismissal, statutory redundancy pay.
The employer pays all employee benefits.
Employees are usually paid in arrears on or before the last day of the month for which payment is due
Independent contractors are not defined in UK law, and so there is a reliance upon case law (precedence).
Contractors can be hired directly or via an intermediary, such as a staffing agency or umbrella company. Contractors may be found via word-of-mouth, jobs boards, social networks, industry bodies, or other forums. Although the hiring practices vary, the contractor may be asked to provide a CV, portfolio, and references, and possibly sign an NDA.
The key contractor operating models are:
Contractors who do not operate via an intermediary must file their own tax returns by registering for HMRC’s Self-Assessment process. They may also need to register for Value Added Tax (VAT)
Hiring companies do not withhold any of the contractor’s payment for tax purposes
Changes to the IR35 tax law (April 2021) place more responsibilities on hiring companies to determine the contractor’s employment status before hiring them. This can be done using HMRC’s Check Employment Status for Tax (CEST) tool.
Contractors operating as a business typically submit an invoice on a monthly basis. Contractors operating without a business (i.e., as a sole-trader) may be paid via any preferred method, and often require a payment receipt.
The hiring company and contractor may also negotiate a payment structure, including any up-front payment, partial payments, and a final payment upon completion of the work.
Contractors do not have standard employees’ rights. However, they have rights regarding health and safety, and protection against unfair discrimination.
Contractors’ benefits are governed by the content of the contract.
Contractors send an invoice (or other form of payment request), and typically require payment within 14 days or 28 days of submission, unless otherwise stipulated in the contract. Contractors are not paid by payroll in most cases.
Self-employment as an independent contractor is a popular income model for many individuals. The Covid pandemic has prompted an even greater increase in UK individuals working as self-employed independent contractors.
UK labor law distinguishes between three types of employment status classification: employee, independent contractor (or self-employed), and worker. Depending on the individual’s classification, this can have significant implications for companies looking to hire contractors in the UK. For the hiring company, engaging with independent contractors may be legally and financially risky, especially given the possibility of an independent contractor becoming re-classified as an employee of the hiring company.
This risk has been heightened since the UK updated the Off-Payroll Working (IR35) rules in 2021. Hiring companies should ensure their contract templates fully align with IR35, so that the individual’s status as a contractor is clear.
If the real substance of the company-contractor relationship proves to effectively be an employment relationship, the hiring company may suffer legal and financial penalties (including payroll taxes). It is therefore important to leverage an employment service partner like Worksuite when hiring in the UK, in order to ensure that independent contractors fall under the correct working relationship with your business.
In the UK, an individual is classified as an independent contractor or an employee based on the reality of the relationship between the individual and the hiring company. There is no single body of law in the UK that specifies this distinction. Instead, multiple factors are considered. Individuals are generally considered to be independent contractors if they:
Workers: In addition to “employee” and “independent contractor”, UK employment law also has a third category: “worker”. Individuals are generally considered to be workers if:
The “worker” category only exists within employment law; it does not affect tax law. There are only two categories under UK tax law: employed and self-employed.
Sole traders and PSCs: In the UK, independent contractors typically either operate as a self-employed “sole trader” or they create a “personal services company” (PSC) such as a limited liability partnership (LLP) or public limited company (PLC). For companies looking to hire an independent contractor, hiring an individual who is working as a “sole trader” can be risky, as it is possible the relationship may become an employer-employee relationship, which places additional financial and legal obligations on the employer. Instead, it can be less risky to work with an individual who is operating as a PSC.
IR35 rules (named after an Inland Revenue (IR) press release from 1999) were introduced to prevent contractors from working “off payroll” as a way of avoiding tax and national insurance contributions. IR35 tries to ensure that when contractors are effectively working in the same manner as employees, those contractors pay the same national insurance and income tax contributions as employees.
IR35 rules apply when a contractor provides services to a client via an ‘intermediary’, such as their own company, a partnership, or a personal service company (PSC). The IR35 rules were originally introduced in April 2000, but changes in April 2021 placed greater responsibility on medium and large-sized companies (along with public sector organisations) to assess the contractor’s employment status.
There are several aspects of IR35 that are worth noting:
‘Inside’ vs ‘Outside’ IR35: A contractor can be ‘inside’ or ‘outside’ IR35. Being ‘inside’ IR35 means the contractor is working within the remit of the powers of IR35. In short, the contractor is subject to the same income tax and national insurance contributions as if they were an employee. If a contractor is assessed as being ‘inside’ IR35, they may also be able to benefit from employee rights. Being ‘outside’ IR35 means the IR35 rules do not apply. The contractor can pay themselves a salary, plus further dividends which are exempt from national insurance contributions.
A contractor who is ‘inside’ IR35 will typically:
Check Employment Status for Tax (CEST): The CEST tool provided by HMRC allows a hiring company (or a contractor themself) to perform an employment status assessment. The tool can be used to understand (a) if the IR35 rules apply to a contract, and (b) if a particular piece of work is classed as employment or self-employment. The tool runs through a series of questions, whereby each response affects the subsequent questions that are asked. The questions can include (as of April 2022):
IR35 rules apply to an individual contract. This means that a contractor may undertake some contracts that are ‘inside’ IR35 and some contracts that are ‘outside’ IR35.
Payment to independent contractors is flexible and can be determined by both parties within the contract. There are no laws in the UK that require a specific payment method or time of delivery, although the typical window for paying a contractor is 14 days or 28 days from the date of issuance of the invoice. When working with independent contractors, you’ll need to have an established process for paying them correctly and on time within the contract.
There are four main types of contracting model for working with independent contractors in the UK.
Direct engagement
Under this model, the hiring company engages directly with the independent contractor and establishes a direct contract for the provision of services. The hiring company then pays the independent contractor directly, in accordance with the terms of the contract.
Staffing agency
Here, the hiring company engages with a staffing agency, which in turn supplies one of its own contractors to deliver the contracted services. The hiring company pays the staffing agency directly, in accordance with the terms of the contract. The contract is therefore between the hiring company and the staffing agency, while the agency pays the independent contractor through a separate contractual arrangement.
Umbrella company
Due to the IR35 rules (see above), UK contractors often work through an umbrella company. This turns a ‘self-employed’ individual into a legal ‘employee’ of the umbrella company and therefore avoids the complications of the IR35 rules. The contractual relationship is between the umbrella company and the client, with the umbrella company running payroll and administration for the contractor. The umbrella company invoices the client directly while paying the contractor via PAYE as a standard employee. Umbrella companies levy a fee on the contractor to cover their costs.
Hiring partner
The hiring company can also work with a hiring partner who helps them vet potential contractors, set up contracts, ensure the contractor is properly classified, onboard and manage contractors, and pay contractors.
In the UK, independent contractors must pay tax on all income above £12,570 (for the 2022/23 tax year). Independent contractors manage their own tax payments to HMRC, typically via the Self-Assessment process. Depending on their level of self-employed income, independent contractors might need to register to pay Value Added Tax (VAT). Unlike employees, independent contractors do not need to pay Class 1 National Insurance Contributions (NICs). However, they do need to pay Class 2 and Class 4 NICs.
It is important to note that an individual’s employment status (as employee, contractor, or worker) does not necessarily determine their tax status. In the UK, these determinations are made by an employment tribunal and a tax tribunal (or HMRC), which are separate. One decision may influence the other, but this is not guaranteed.
It is mandatory to provide new employees with a written statement outlining the basic terms of employment which must include:
Compensation (in GBP)
Working hours
Annual leave
Sick pay
Severance pay
Notice period
However, it is common for employees and employers to negotiate a formal employment contract. Although most employment agreements are concluded indefinitely, fixed-term agreements are also possible.
Employers may request their employees to work a standard 48-hour week. Daily working time is flexible and varies depending on business needs but a nine to five working day is typical for most employees in the UK.
After six hours of continuous work, employees must take a 20-minute break.
All work above the standard working hours a week is to be paid as overtime and is regulated by employment contract/collective agreements etc. When an employee is requested to work overtime or work on holidays, employers may request this of employees in writing.
All overtime hours in excess of 48 hours a week are paid at an overtime compensation rate; this rate is stipulated in the employment contract/collective agreements. The hourly overtime rate cannot fall below the national minimum wage.
UK labour law does not regulate the length of probation periods. Generally, employers and employees usually agree on a probation period between three and six months.
The termination process varies according to the employment agreement and collective agreement in place and is based on the type of contract and reason for termination. Dismissals can be deemed fair or unfair depending on the reasoning and conduct of the termination.
In the United Kingdom, notice periods are outlined with the employment contract or the statutory minimum, whichever is longer.
For redundancy the statutory notice period is at least one week’s notice if an employee has been employed for between one month and 2 years and one week’s notice for each year of service between 2 years and 12 years of employment.
In the case of gross misconduct, a dismissal without notice is possible.
Employers can pay in lieu of notice.
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:
The annual leave entitlement is 28 days of paid leave per year for full-time employees. Bank holidays are included in the annual leave entitlement.
Employers may offer additional leave at their discretion; this must be outlined in the employment contract.
Employees can receive up to 28 weeks of paid sick leave; this is compensated at 98.85 GBP per week Statutory Sick Pay (SSP) as a minimum, this is not payable for the first three days of any sickness absence. Employers may compensation varies depending on the company’s sick pay scheme.
If the employees’ sick leave exceeds seven days, including weekends and bank holidays, the employee must provide a professional medical doctor certificate.
An employee may also be entitled to contractual sick pay (that is, pay during sick leave at a higher rate than SSP) if the employer offers this benefit.
In the United Kingdom, female employees receive 52 weeks of statutory maternity leave, 26 weeks of ordinary leave, followed by 26 weeks of additional maternity leave.
An employee is not required to use the full 52 weeks of leave; however, the employee must take at least two weeks following the child’s birth; this may vary depending on the employee’s sector.
Mothers are compensated by Statutory Maternity Pay (SMP) for up to 39 weeks at the rate of 90.00% of the employees average weekly earnings for the first six weeks, and 151.97 GBP or 90.00% of the employees average weekly earnings, whichever is lower) for the following 33 weeks.
Employees are entitled to one to two weeks of paid paternity leave, which begins after the child’s birth. Employees receive Statutory Paternity Pay of 151.97 GBP, or 90.00% of the employee’s average weekly earnings, whichever is lower, per week of leave.
Parents in the United Kingdom may be entitled to Shared Parental Leave (SPL) when adopting a child or following the birth of a child. Shared Parental Leave allows parents up to 50 weeks of leave they can share; 37 weeks of pay is possible. Employees must take leave within the first year of the child’s birth.
Depending on the employment contract, an employee may be allowed additional leave, as approved between the employer and employee, for the following: