The United Kingdom (UK) is a top choice for U.S. companies considering expanding their operations internationally. The country is a global powerhouse, with a 2021 GDP of approximately $3.2 trillion, the fifth-largest in the world. The UK's economy is primarily fueled by its extensive service sector, with a particular emphasis on finance, insurance, and business services.
Additionally, the UK and the U.S. have largely developed alongside each other. Due to the close relationship, hiring UK employees is a rather natural progression for U.S.-based companies expanding their reach.
However, any company interested in hiring employees in the UK must understand exactly what goes into this process to reduce risks.
Hiring Employees in the UK
Employing workers in the UK can prove to be an excellent choice. However, employers should keep in mind that UK employment, tax, and establishment laws as well as other rules and policies often vary wildly from U.S. regulations.
When hiring from the United Kingdom, employers must ensure they’re following UK labor laws, including minimum wage requirements. As of April 2023, the national minimum wage is approx. $8.37 (£10.42) for those aged 23 and over.
British labor laws also require that employees work no more than 48 hours per week. There are some exceptions to this law. For example, the employee can sign an agreement that they intend to work more hours than this stated weekly limit.
United Kingdom employers deduct taxes and fees for government-provided healthcare from employee wages; international employers must do the same. It’s also critical to determine an employee’s residency. There are a number of factors used to determine an employee's residency, like the number of days they spend in the UK and the location of their home if they own one.
Employee Policies and Contracts
According to UK labor law, an employment contract is mandatory. The contract must mention specifics like the benefits, allowances, and terms and conditions of service. There are other policies companies must also follow to stay compliant with employee rights in the UK. For example, termination policies require employers to give a “potentially fair reason” for the termination, and these must be in line with the list of reasons allowed in the UK.
Permanent Establishment Laws
If an organization hires employees from the United Kingdom, it must also follow permanent establishment rules that apply to the company. For example, if the company is not a UK permanent establishment, it will be subject to taxes if it earns profits attributable to:
- Land development or dealings
- Immovable property gains
- Profits from UK rental property business
Cost of Hiring Employees in the UK
The cost of hiring employees in the United Kingdom (UK) can vary depending on a range of factors. Some of these include hiring and training costs, benefits, and background checks.
Hiring and Training Costs
UK recruiting doesn't often come cheap. Many businesses have recruitment departments or utilize recruitment agencies to handle hiring. These recruitment agencies often charge between 10–30% of the employee’s starting salary, which can quickly become a significant cost for companies.
After recruitment, there is still the cost of training. According to Nerdwallet, businesses spent around $1,841.35 (approx. £1,480) on training costs per employee in 2019.
When hiring from the UK, employers must also follow the UK benefits system. Employers must offer mandatory benefits, including:
- Annual leave
- Sick leave
- Social security benefits
- Maternity leave
- Paternity leave
- Probationary period
Failure to provide these benefits can result in non-compliance and significant fines.
To ensure employers hire a candidate they can trust, background checks are a necessary part of the process. There are many kinds of checks available, like right-to-work, criminal record, credit score, social media screenings, and more.
Criminal background checks can start at approx. $32 (£26) per employee, and the cost adds up depending on which other checks employers want to complete prior to hiring.
What a Company Needs to Hire in the UK
Before hiring in the UK, organizations must fully understand their options for operating compliantly in the country.
When building out a large team in the UK, an organization may be required to establish an entity in order to hire locals directly or create a local branch. This can be an expensive and long process that requires knowing the intricacies of the UK's corporate and employment laws.
The costs of setting up an entity can range from tens to hundreds of thousands of dollars. The costs don’t end there, as legal entities also need to get worker's compensation insurance, other licenses, and conform to frequently changing local regulations. The costs of maintaining an entity average around $200,000 per year.
Another option available is to hire international contractors. The perks of this include less commitment and a simpler onboarding process, without the cost of benefits, withholding, and taxes required when hiring full-time employees. Despite these advantages, there are substantial risks involved if mistakes are made during this process, which can result in non-compliant payments, misclassification risks, and hefty legal fines.
Employer of Record
Organizations can also utilize an Employer of Record (EOR), which simplifies the hiring and employee management processes substantially. An EOR is a third-party company that, on paper, becomes international employees’ legal employer, although the hiring company still handles the day-to-day management.
EORs can help organizations fast-track the international hiring process and avoid the costs that come with setting up an entity. An Employer of Record can also help businesses mitigate the risk of penalties for compliance errors, follow UK tax and employment laws, and streamline HR processes.
Discover How Easy It Can Be to Hire Employees in the UK
Businesses exploring hiring employees in the UK understand the breadth and depth of the country’s talent pool. However, the recruitment and hiring process may seem overwhelming. That's where Global Expansion, a trusted UK Employer of Record service provider, comes in.
We handle onboarding the UK’s top workers and streamline processes like payroll, benefits, and compliance. With Global Expansion, you can also avoid the high cost of entity establishment, reduce misclassification risks, and stay compliant with laws and regulations. Let us help you build your global workforce. Hire in the UK today.