Benefits of using a PEO in the UK & Employer of Record UK
- Expand without an entity
- Flexible and cost-effective solution to outsource payroll and HR functions for international expansion
- In compliance with foreign local laws & regulations
- Minimizes employment liabilities and risks
- Reduced risk, as the risks of being an employer fall almost completely on the employer of record
- Lets you focus on your core business
- You manage your employees
- PEO/EoR takes care of registration and contact with local authorities
Employment Contracts United Kingdom
The most common type of employment contract in the UK is an “open-ended”, a permanent, contract that can be terminated on notice. Many employers in the UK start with giving an employee a fixed-term contract. An employee on fixed-term contracts for 4 or more years will automatically become a permanent employee unless the employer can show there is a good business reason not to do so.
UK PEO and EOR service providers will support you with the set-up of a local employment contract.
Employment Termination UK & Notice Period UK
Employers in the UK must give a notice period to their employees before the employment ends. The minimum notice periods are:
- at least one week’s notice if employed between one month and 2 years
- one week’s notice for each year if employed between 2 and 12 years
- 12 weeks’ notice if employed for 12 years or more
An employer may give the employee more than the statutory minimum, but an employer cannot give less. Looking at statutory redundancy pay, the employer should either:
- pay the employee through their notice period
- pay the employee in lieu of notice depending on the circumstances
Your employment can be ended without notice if ‘payment in lieu of notice’ is included in your contract. In that case, the employer will pay the employee instead of giving a notice period.
As the PEO/EOR is the formal employer of your employees in the UK, they are also responsible for terminating the contract while applying the applicable UK terms.
Social Security Tax for Employers in the United Kingdom
Workers within the UK are required by law to pay social security contributions on their gross salary and all earnings in the United Kingdom. The following rates (2020) have to be applied against the gross salary, with the ceilings indicated.
There are three taxes associated with a UK payroll scheme, two that affect the employee and one that affects the employer. These taxes are listed below with their corresponding rates.
|Employee taxes: PAYE (Income tax)||20% - 45% (depending on salary and earnings)|
|National Insurance (Social Security)||2-12%|
|Employer taxes (national insurance)||13.8%|
Both the employee and the employer contribute to social security in the UK. Here is an example:
|PAYE @ 20%||£7,500.00|
|PAYE @ 40%||£37,000.00|
|National Insurance @ 12%**||£4,860.00|
|National Insurance @ 2%**||£1,600.00|
|Employee pension (incl tax relief of £437.60)
Employee net wage
|Employers National Insurance @ 13.8%**
Employers pension contribution
|Total Cost to Company||£148,040.06|
** Earnings up to £9,500 are charged at 0% NI for employees and £8,788 for employers.
Employer costs (source: Oury Clark)
Average Salary & Average Employer Costs United Kingdom
In 2022, the average annual salary in the UK was $34.068,72. This is lower than the average annual salary in the United States: $53.490. As an employer, the actual employer costs are around 14% higher than the gross annual salary. Based on a $34.068,72 annual salary, the employment costs would be $38.838,34. To learn more about the average salaries in Europe and the actual employment costs in Europe, we invite you to read this article on the costs of hiring European employees.
Working Hours United Kingdom
There is no specific number of hours that makes an employee a full or part-time employee. Usually, a full-time employee works 35 hours or more a week. By law, an employee cannot work more than an average 48 hours a week. There are expectations.
Paid Vacation Leave United Kingdom
Almost all employees are legally entitled to 5.6 weeks (28 days) paid holidays per year (known as statutory leave entitlement or annual leave). For employees that work less than 5 days a week, there is a simple calculation to determine the amount of paid vacation days: the amount of workdays x 5.6. For example, if they work 3 days a week, they must get at least 16.8 days’ leave a year (3 × 5.6). Statutory paid holiday entitlement is limited to 28 days. To learn more about the average paid vacation days in Europe and how the UK compares to the rest of Europe, we invite you to read our blog on paid vacation days Europe.
Public Holidays United Kingdom
In the United Kingdom, there are 8 public holidays. A low number, compared to other countries in the EU.
- New Year's Day - 3 January (substitute day)
- Good Friday - 15 April
- Easter Monday - 18 April
- Early May bank holiday - 2 May
- Spring bank holiday - 2 Jun
- Summer bank holiday - 29 August
- Boxing day - 26 December
- Christmas Day - 27 December (substitute day)
Maternity and Paternity Leave United Kingdom
Mothers in the UK are entitled to statutory maternity leave and statutory maternity pay. Statutory maternity leave is a total of 52 weeks. First 26 weeks of ordinary maternity leave and afterward 26 weeks of additional maternity leave. You do not have to take 52 weeks but you must take 2 weeks’ leave after your baby is born (or 4 weeks if you work in a factory).
Statutory Maternity Pay (SMP) is paid for up to 39 weeks. The employee is entitled to:
- 90% of your average weekly earnings (before tax) for the first 6 weeks
- £151.97 or 90% of your average weekly earnings (whichever is lower) for the next 33 weeks
Looking at paternity leave in the UK, fathers can choose to take either 1 or 2 weeks. The statutory weekly rate of Paternity Pay is £151.97, or 90% of the average weekly earnings (whichever is lower).
Learn more about PEO and EOR in Europe:
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Monique Ramondt Sanders
Executive Vice President | HR Outsourcing