Recently, the UK introduced new legislation to change a tax loophole and redefine certain relationships between contractors and companies. If you employ workers or have contractors in the UK (or if your company is based in the UK), you should know how the new IR35 rules could affect your business.

The IR35 legislation affects both companies dealing with contractors and the contractors themselves.

Many contractors in the UK have historically set up a limited company structure to take payments from clients and pay less in taxes. The UK government believed some of these workers were exploiting the tax system by operating as contractors when they should have been classified as employees. Anyone who would meet the definition of “employee” without the existence of the limited company (also known as a personal service company or PSC) is now termed a “deemed employee” and therefore is subject to employment taxes.

Some small businesses are excepted from the new rules, which apply primarily to medium- and large-sized companies in the private sector and all sized companies in the public sector. To qualify for the exemption, a small business must meet two of the following criteria:

Annual turnover of less than £10.1 million

All businesses that do not meet the small business criteria are subject to IR35 legislation. 

What does it mean to be subject to IR35 legislation?

In the past, the duty of discovering contractors exploiting tax loopholes fell to HMRC, the UK’s tax authority. Under IR35 legislation, companies subject to the new rules are responsible for determining the IR35 status of their own contractors. Small businesses are excepted from the rule because of their limited resources, but larger companies working with contractors are now required to vet the IR35 status of their own contract workforces.

IR35 legislation separates workers into “outside IR35” and “inside IR35” groups:

Contractors considered to be “outside IR35” — that is, contractors who are correctly classified as contractors and are not avoiding paying all relevant taxes — are considered self-employed. They are free to pay themselves in whatever way they find to be most efficient for their tax liability. This may include working through a limited company, as long as the arrangement makes sense and is not misused to avoid paying taxes.

Contractors who could be deemed as “employees” by IR35 are considered “inside IR35” and are therefore required to pay tax at the same rate as an employee in the same tax bracket. Companies working with contractors who fall inside IR35 must pay taxes as if the contractor were one of their employees. As such, the company (the “fee payer” in this instance) must deduct National Insurance Contributions (NICs) and income taxes on behalf of the contractor, as well as pay employer National Insurance Contributions and an Apprenticeship Levy. For more information on UK taxes, including employer taxes, see Remote’s UK Country Explorer page.

Does a contractor inside IR35 become a full employee?

No. While contractors found to be inside IR35 must pay taxes on their earnings as if they were employees, and their employing companies must do the same, this does not make them full employees automatically. Laws relating to classification and taxation remain separate at this time. Contractors who become “deemed employees” under IR35 are not automatically entitled to employment rights, such as benefits and paid time off.

What if a contractor is termed a ‘deemed employee?’

When a contractor is termed a “deemed employee” under IR35, penalties occur if the contractor was previously classified outside IR35 and not paying the appropriate taxes. A contractor found to be in violation of IR35 (one being paid through a limited company who should be classified as an employee inside IR35) must pay back all missing back taxes, plus interest and any penalties. HMRC has the power to investigate as far back as six years, so penalties can be severe.

Businesses working with contractors (that is, end clients of contractor services) must also pay penalties and back taxes with interest if found in violation. The UK government announced it would not enforce penalties for accidental offenders taking “reasonable care” in 2021, but it may continue to punish companies deliberately breaking the rules. The government may also publicly criticize companies that fail to comply to encourage more widespread adherence to the new rules.

How does an SDS help companies comply with IR35 rules?

First, companies under IR35 must produce a Status Determination Statement (SDS) for each contractor. The SDS goes from the end user or end client (the company receiving the service) to the agency (if applicable), then through the PSC/limited company and finally to the individual contractor. The SDS must include information on the decision the company made regarding the contractor’s status as either inside or outside IR35, plus the reasoning for the decision and evidence of reasonable care in deciding.

If the contract changes, the company engaging the contractor’s services must create a new SDS to determine whether the relationship with the contractor changed under IR35.

What happens if the contractor disagrees with the SDS the company creates?

Contractors may appeal SDS decisions verbally or in writing within 45 days of receiving the notification. Once the company receives the complaint, the company has an additional 45 days to respond.

Companies in this situation have two options:

Uphold the decision and respond to the contractor in writing citing the reasons why.

If the company fails to comply with the 45-day limit, the company becomes responsible for taxes and NICs incurred by the contractor for the changed status.

What is ‘reasonable care’ in the eyes of IR35?

HMRC expects companies to collect relevant information via SDS to determine whether contractors lie inside or outside IR35. Due diligence can vary, but should include records like:

Does the contractor take financial risks, i.e. is the contractor legitimately represented through the PSC/limited company?

What actual work practices does the contractor perform? Are these practices different from those conducted by full employees at the company?

Answering questions like these demonstrates reasonable care that the company attempted to comply with IR35 rules. Companies must maintain these records and document their reasoning for determining contractor status. Under no circumstances should companies make a ‘blanket’ decision about all their contractors’ statuses.

What is the CEST (Check Employment Status for Tax)?

The CEST is an online tool created by HMRC that presents a series of questions to help businesses determine the status of contractors and employees for tax purposes. This tool can be used as part of “reasonable care.”

Businesses can access the CEST on the UK government’s website.

How to pay contractors and stay compliant in the UK after IR35

With the wealth of talented workers in the UK, businesses should not let IR35 rules scare them away. Highly experienced contractors and employees in a variety of industries live and work in the UK, and these new regulations are intended to close a tax loophole, not make doing business in the country more difficult.

Helpful resources for employing in the UK

We've pulled together a collection of information about hiring and paying employees based in the United Kingdom. Use these guides to help your recruitment team understand the unique local requirements of hiring British workers. 

Guide to hiring employees in the UK: Whatever your situation, this guide on hiring employees in the UK can help you get familiar with the basics of UK employment law, payroll practices, common benefits, and more.

How to pay remote workers in the UK: Paying international employees doesn't have to be complicated, costly, or time-consuming. This article guides you through the nuances of paying British workers. Remember, the IR35 rules are critical here. To pay employees in the UK, a company based outside the country must either set up a local legal entity or employ their foreign workers through an employer of record, like Remote. Companies can also pay their workers as contractors: however, this approach is only valid if the relationship is legitimately a contractor relationship. Otherwise, the company could be subject to penalties and fines.

What does Brexit mean for employers?: Learn more about the specific employment ramifications of Brexit, including visa requirements, work permits, transfer requirements, and taxation changes.

Overview of the most critical labor laws in the UK: IR35 is just one of a collection of unique employment considerations for teams hiring and managing remote workers in the United Kingdom. This article introduces the most important aspects of the UK's laws around contractor classification, work permits, union requirements, terminations, and severance pay.

Benefits to offer employees in the UK: Companies in the UK must offer a specific set of employee benefits to remain compliant with UK labor laws. This is especially important for foreign employers of remote UK workers who may not be familiar with common benefits in the UK (don't forget that Remote also makes it easy to manage a consistent and competitive benefits program from contractors as well as employees).

If you are interested in working with contractors or employees in the UK, contact Remote and let us know! Through our legal entity in the UK, Remote guarantees your business receives the best payroll, benefits, taxes, and compliance services. Contact us today to learn more about our cost-effective global employment solutions.

Always work with your legal team and tax accountants to ensure an accurate IR35 status is selected. Once you’ve established the contractor’s IR35 status, our team can help implement invoicing or any other changes necessary within the Remote platform.

IR35 is legislation in the UK to change a tax loophole and redefine certain relationships between contractors and companies. If you employ workers or have contractors in the UK (or if your company is based in the UK), you should know how the new IR35 rules could affect your business.

The IR35 legislation affects both companies dealing with contractors and the contractors themselves. Many contractors in the UK have historically set up a limited company structure to take payments from clients and pay less in taxes.

What Is IR35 & What Does It Mean For Your Business?

What is IR35 and what does it mean for your business?

If you employ workers in the UK (or if your UK company employs workers outside the country), Brexit could create headaches for you and your team.

Although the UK has already terminated its membership in the EU, the UK will not complete the Brexit process until January 1, 2021. At that point, changes related to immigration, visas, and other matters of employment will come into effect.

As of November, the UK still has not made a new deal with the EU. This no-deal Brexit could make life even more difficult for companies in a number of countries. Without a new deal, the UK would be subject to a variety of new tariffs on goods, as well as border checks for travelers, which officials expect to cause significant travel delays. In the event of a no-deal Brexit, many UK citizens could find it difficult to travel to other countries within the EU.

The European Economic Area, or EEA, is an agreement between European countries that allows its members to trade with one another in a single market. The EEA includes EU members and non-EU members.

In 2020, the UK has operated as a member state of the EEA. However, unless the country makes a new deal to regain membership, which appears unlikely, the UK will fully exit the EEA in January 2021.

How are visa requirements changing in the UK after Brexit?

Anyone who attempts to immigrate to the UK beginning in January 2021 must procure a visa in advance. This was always the case for some nations, but it is a new requirement for citizens of other EU countries. Irish citizens are unaffected, however, and may continue to enter and leave the UK for work without the need for extra documentation.

UK companies recruiting talent to come work inside the UK must observe several requirements. Candidates must have an offer from a licensed sponsor, speak English proficiently, and have a job of a minimum skill level of RQF3 on the UK’s scale. Candidates must also be paid at least £25,600 or the average pay for the position, whichever is higher. Salary can be lower for employees with extra visa points in other areas, but salary may not dip below £20,480. 

The UK uses a points-based system to issue work visas. Prospective immigrants, temporary and permanent, must fulfill specific criteria to receive work visas of different types. There are occasional exemptions regarding visa requirements, but these are rare. If you have an employee who wishes to move to the UK, contact Remote to learn what kind of visa you need.

How do UK companies check applicants’ right to work?

UK companies are required to ensure all applicants have the right to work in the country. This applies to international employers as well. If you are hiring in the UK from abroad, Remote verifies your employees’ eligibility to work in the country. 

Until June 30, 2021, applicants can continue to demonstrate their right to work in the UK with a passport or national ID (if in the EU, EEA, or Switzerland); with qualified immigration documents; or through an online portal. After June 30, 2021, new rules will go into effect, but those rules have not been finalized yet.

How can companies transfer a worker to the UK after Brexit?

Companies can transfer their international employees to their offices in the UK, provided those employees meet certain standards:

Employees must receive an Intra-Company Transfer sponsorship from a Home Office licensed sponsor.

Employees must have at least one year of tenure working for the sponsoring company in another country. Employees who earn more than £73,900 are exempt from this requirement.

Employees must earn a minimum salary of £41,500 or the average pay for the position, whichever is higher.

If a company does not have an office or legal entity in the UK but has an employee moving to the UK, the information in the next section applies.

How do EU companies pay their UK employees after Brexit?

Before Brexit, companies based in other EU nations had more flexibility regarding payment of UK employees. Now, companies inside and outside the EU must treat their UK employees as they would any other foreign employees.

In most cases, this means companies cannot employ and pay workers in the UK without an established legal entity within the country. This was true for permanent employees before Brexit, but now that movement between countries has become more restricted, companies should be cautious before sending employees to work in the UK on long assignments. Permanent reassignments or continued employment of UK employees always requires a legal entity, unless the employee is paid as a contractor.

Paying employees as contractors may expose companies to risks of misclassification, though, which can get expensive and lead to legal penalties. To stay compliant with labor laws in the UK, companies employing full-time workers in the country must use an employer of record. Remote’s global employment solutions include UK employer of record services.

How do UK companies pay employees in the EU after Brexit?

Companies in the UK with employees outside the UK must follow the same process as companies outside the UK with employees inside the UK. Unfortunately, the more countries where UK companies need to employ workers, the more complex paying those workers becomes.

To employ and pay EU workers legally, a UK employer must either set up a local legal entity in each country where those employees live or partner with an employer of record. Because Remote owns and operates local legal entities across the EU, we can help companies inside and outside the UK pay employees no matter where they work.

What happens when a company leaves the UK during or after Brexit?

Some companies have moved their headquarters to other EU countries to avoid difficulties with Brexit. These companies must go through the long and difficult process to open their own legal entities in their newly chosen homes. However, most companies moving their headquarters do not completely shut down their UK entities. 

If a company shuts down its UK entity, that company will need to work with a UK employer of record to continue to employ UK talent. If the company retains its legal entity, however, the company may continue to employ UK workers through that entity. Companies choosing this route must continue to maintain relationships with law firms, payroll providers, and benefits administrators within the UK to stay compliant with evolving UK employment laws.

Regardless of where your organization calls home, Remote makes it easy for companies of all sizes to employ international talent. Our local legal experts ensure you and your employers are compliant with all applicable labor laws and regulations in your region. No matter what deals and agreements the UK makes in the Brexit aftermath, Remote can keep your company in compliance while providing a first-class experience for your employees.

What Does Brexit Mean for Employers?

What does Brexit mean for employers?

Companies in the UK must offer a specific set of employee benefits to remain compliant with UK labor laws. This is especially important for foreign employers of remote UK workers who may not be familiar with common benefits in the UK.

To compete for top UK talent, businesses should offer a more competitive benefits package that goes beyond the basic requirements. Remote’s guide on hiring remote workers in the UK covers a variety of topics on UK employment, payroll, benefits, and labor laws. In this article, we will examine a variety of statutory, standard, and premium benefits in the UK.

Employees and workers (two distinct terms) are entitled to statutory benefits in the UK. Employees meet the traditional definition of full-time workers and sign employment contracts with their employers. Workers operate in a gray area between contractors and employees. Some companies that have attempted to classify workers as contractors have run into trouble under UK laws.

For more information on employers and workers, view Remote’s introduction to UK labor laws. Remote helps businesses avoid classification troubles with an employer of record solution that guarantees full compliance with all UK labor laws.

Which employee benefits are common in the UK?

Workers in the UK are entitled to a minimum of 20 paid days off plus eight paid public holidays. Employers are required to pay employees for holiday leave but are not required to pay overtime for employees who choose to work on holidays. To attract top talent, many employers choose to offer more than the minimum 28 days.

Northern Ireland has two extra public holidays for a total of 10 paid holidays.

Employees in the UK may only roll over a maximum of eight PTO days per year in most circumstances. Employees forced to take another kind of leave (such as long-term sick leave) may roll over up to 20 days.

Employers are required to pay out unused PTO if an employee leaves during the middle of the year, up to the amount the employee has accrued during the current year.

Businesses with UK workers can offer unlimited PTO, but they must ensure their employees take enough time off. Employers who do not track PTO for workers in their home country must track PTO for workers in the UK to remain compliant with UK law.

The UK minimum wage depends on the age of the worker. Teenagers from 16-17 may work for a minimum of £4.15 per hour, while those older than 25 years old may not work for less than £8.72 per hour. This wage for workers aged 25 years and up is referred to as the National Living Wage.

Note that the UK government does not mandate overtime pay for workers. Companies often choose to include overtime pay in employment contracts if the job regularly requires overtime work.

UK employees may miss up to one week of work without needing to provide a doctor’s note, also called a “fit note.” After one week, however, the sick employee must provide the employer with a document from a doctor verifying the illness.

Statutory sick pay, also known as long-term sick pay, provides workers with £95.85 per week and is paid by the employer. If the employee remains ill, the employer must pay statutory sick pay for a duration of up to 28 weeks. Employment contracts can extend this time period but cannot shorten it.

Although a worker on long-term sick leave cannot be forced to work, workers continue to accrue PTO during their absence as if they were at work. If an employee chooses to quit after several weeks of sick leave, the employer must pay out unused PTO accrued up to the day of departure, not up to the day the illness began.

Maternity leave in the UK is split into two parts: ordinary maternity leave and additional maternity leave. Ordinary maternity leave in the UK lasts for the first 26 weeks, while additional maternity leave adds another 26 possible weeks, for a total of 52 weeks of leave. Expecting mothers may begin to take their leave 11 weeks prior to the due date. Mothers are required by UK law to take at least two weeks of leave after the birth of the child.

Employers are required to pay 90% of the mother’s average wages for the first six weeks of maternity leave. For the next 33 weeks, employers must pay the lesser of 90% of average earnings or £148.68 per week. Employers do not have to pay for the final 13 weeks of maternity leave, but mothers are still entitled to that leave if they do not need to return to work.

A mother wishing to change the return-to-work date must provide at least eight weeks’ notice to the employer.

Mothers do not need to work for any minimum period of time to be eligible to take the full amount of maternity leave allowed by law.

Paternity leave in the UK is much shorter than maternity leave at just two weeks. Paternity leave may not begin before the birth of the child, but employees may use paternity leave any time during the child’s first year of birth, provided the leave is taken consecutively.

Partners of pregnant employees are eligible for paternity leave regardless of gender. To qualify for paternity leave, the employee must be one or more of:

The legal partner of the person giving birth

The child’s intended parent, if planning to care for the child after surrogacy

While mothers taking maternity leave are not required to work for a minimum length of time before becoming eligible, paternity leave requirements enforce a minimum of at least 26 consecutive weeks of employment before eligibility begins. 

Shared parental leave does not stack on top of maternity and paternity leave, but many families choose to share leave after the birth of a child. Shared parental leave can extend up to 50 weeks with up to 37 weeks paid. Parents do not have to take shared parental leave at the same time, or even consecutively, but must use the time within the first year after the birth.

Employers of UK workers are required by law to contribute a minimum of 3% of every worker’s salary toward a pension plan. Employees must contribute a minimum of 5% of their salary toward the plan. Employment contracts can increase these contributions but not decrease them.

Plans vary, but most fall into two categories: defined contribution schemes and defined benefit schemes. In defined contribution schemes, the amount of future payments increases based on how much the employee puts in. These operate similarly to 401(k) plans in the US. In defined benefit schemes, employees still contribute a set amount, but the amount paid does not depend on the amount contributed. Instead, the payments upon retirement are based on other factors, like how long the employee worked for the company and their highest level of seniority achieved.

In most cases, employers automatically enroll employees in pension contributions, provided the employees are between the ages of 22 and 66 and earn at least £10,000 per year. Employers can postpone pension enrollment for up to three months, but to do so, they must notify the worker of the postponement in writing and have a legally valid reason to postpone.

The UK government provides health insurance for all citizens through the NHS. However, some companies attract top talent by offering premium private health insurance as part of the total compensation package. Private health insurance may provide access to clinics with shorter wait times or cover more elective procedures. Employers often give employees a cash stipend to use to find their own private plans.

Because the NHS and private health plans do not cover a few specific types of care, some employers offer additional insurance as part of employees’ compensation. These insurance offerings can include dental insurance, vision insurance, fertility support, specialized disability support, and others outside the coverage zone of standard health care.

Offer your UK employees better benefits with Remote

Remote is the expert on all things global employment. We can help you provide your team in the UK with a superior benefits package to ensure your company can attract and retain the top talent in your field. Contact us today at sales@remote.com to learn more about our UK employer of record and contractor management solutions.

Benefits to offer employees in the UK

Remote’s guide on hiring employees in the UK provides a high-level overview of UK payment processes, benefits expectations, and UK labor laws. In this guide, we will cover how to pay remote workers in the UK in greater detail.

Paying remote workers in the UK is functionally straightforward, but the process does involve a few legal hurdles. To ensure your employees, workers, and contractors receive their pay without interruption, start here.

Can foreign businesses pay remote workers in the UK directly?

To pay employees in the UK, a company based outside the country must either set up a local legal entity or employ their foriegn workers through an employer of record, like Remote. Companies can also pay their workers as contractors: however, this approach is only valid if the relationship is legitimately a contractor relationship. Otherwise, the company could be subject to penalties and fines.

What payslip deductions are employers of UK workers required to make?

Employers of remote UK workers must deduct social contributions and taxes from employee payslips. Much like in the US, these contributions cover things like social security programs and unemployment benefits. Employers must also deduct a percentage of pay to help fund the NHS, the UK’s universal healthcare service, as well as mandatory contributions to pension schemes.

How much do companies and employees pay for pension schemes and retirement plans in the UK?

Employers must contribute a minimum of 3% of each individual employee’s pay to a pension scheme. Employees must contribute at least 5% of their own pay to a pension scheme, which employers must show on the employees’ payslips.

Employers in the UK are required by law to contribute at least the minimum amount to employee pension funds. Employees are usually enrolled automatically to contribute a percentage of their pay as well. While employees may opt out of contributions, companies are not allowed to encourage, intimidate, or otherwise convince employees to opt out of pension contributions.

What information is required on UK payslips?

Companies employing UK workers are required by law to provide payslips with itemized information regarding deductions, hourly rates, and other key information. Payslips should detail any deductions, including pension deductions; taxes; fees for social contributions; and payment information.

Payment information must include a complete and accurate assessment of the amount paid, hours worked, and hourly rate. When employees receive overtime pay, employers can either break down hours worked into regular hours and overtime hours or display all hours worked at the average hourly rate for the duration of the payment period.

Employers in the UK are not required by the government to pay overtime rates. However, employers may not require employees to average more than 48 hours of work per week in most cases. Workers in the UK are also not entitled to special wage rates for working on public holidays.

While overtime is not required by law, many employers in the UK do provide overtime pay for employees who work beyond 40 hours per week. Companies that choose to offer overtime pay must outline the rules and limitations of their overtime offerings within their employment contracts.

In some cases, workers may agree in writing to work more than 48 hours per week on average. If they choose to do so, they must be allowed to cancel that commitment by providing one week’s notice.

To pay contractors in the UK, companies usually choose to use a payments processing tool. Remote offers a free contractor management tool that allows companies to pay contractors in the UK with no extra fees. Contractors can upload their invoices directly to Remote, and companies can approve and pay with a single click.

You can pay contractors in the UK directly in whatever currency you choose. Most contractors in the UK prefer to be paid in pounds.

How do IR35 rules affect contractors in the UK?

IR35 rules prevent companies from taking advantage of a tax loophole to classify workers operating in an employment-like relationship as contractors.

In the UK, contractors sometimes work through personal service companies, or PVCs. PVCs are third parties that hire contractors then sell those contractors' services to companies. The UK government recently identified a loophole through which companies were hiring contractors through PVCs when those contractors should have been classified as employees.

To remedy the situation, the UK government put new IR35 rules into effect. Where previously contractors were responsible for managing their classification status with PVCs, new rules now require companies hiring contractors to verify that any PVC intermediaries are valid and that the relationship between contractor and company would not constitute that of an employer-employee relationship in the absence of the PVC.

IR35 rules are a tricky area of UK employment law, even for experienced companies. Remote helps insulate companies from issues that could arise from misclassification and helps businesses remain compliant and protected under UK law.

What currencies can you use to pay UK employees?

UK employees must receive their pay in pounds. Companies in the US cannot pay their remote UK employees in dollars. To provide consistent payment, most companies set the employee salary in pounds in the employment contract, then absorb (or gain, depending on changes in currency values) the difference.

What is the difference between workers, contractors, and employees in the UK?

Workers and employees are distinct from one another in the UK, as we cover in our article on UK labor laws. Workers exist in a gray area between employees and contractors. Companies paying workers as contractors may run into legal trouble, as Uber and other gig-based companies have in the UK. Remote can help companies clarify worker and employee relationships in the UK and pay their teams appropriately.

What is included in UK employment contracts?

All full-time employees in the UK must sign employment contracts per the Employment Rights Act 1996. These contracts protect workers from unscrupulous employers, but they also protect employers by outlining every detail of the employment relationship. Mandatory contracts ensure employees cannot claim they did not receive a promised benefit or were hired into the wrong role.

Employment contracts include a variety of details, such as:

Pension contribution minimums (for both employee and employer)

Note that most details are mandatory, while some (such as performance expectations and company rules) may vary from one company to another.

Pay your remote employees in the UK with Remote

The UK has a thriving and diverse pool of talented workers in a variety of competitive industries. Remote helps businesses all over the world pay their UK employees in complete compliance with all UK laws while providing a first-class experience for their remote teams.

With our employer of record solution, we can help companies employ top talent in the UK without opening a local legal entity or paying a percentage of the employee’s salary to a third party. We offer a full EOR solution for a low flat rate — no hidden fees, no long-term commitments. To learn more about our employer of record and contractor payments solutions, reach out to sales@remote.com.

How To Hire & Pay Remote Workers In The UK

How to pay remote workers in the UK

Labor laws in the UK, while similar to those in the US, maintain a few important distinctions international employers need to understand. Employers looking to hire employees in the UK should research UK labor laws before moving forward with a new hire, continuing to employ a worker who moves to the UK, or converting a UK contractor into an employee.

What is the difference between an employee and a worker in the UK?

UK labor laws differentiate between “employees” and “workers.” 

Employees in the UK meet all the standard qualifications traditionally associated with full-time workers. Under UK law, anyone who works hours set by an employer, in a location determined by an employer, using methods determined by an employer, or in an otherwise dependent relationship is considered an employee.

In the UK, full-time employees must sign an employment contract with their employers. These employment contracts outline the details of things like benefits, productivity expectations, pension contributions, and other important details. Anything not in the contract is not considered to be part of the agreement between the parties.

Workers are a little fuzzier. In the UK, the term “worker” does not include contractors, but it does include some people who fall between the definitions of employees and contractors. Gig economy companies like Uber are currently fighting against court rulings classifying their drivers as workers, for example.

Workers are entitled to many of the benefits employees receive, including paid holidays, a minimum wage, reasonable breaks, pension contributions, and other rights.

What are the rules on contract workers in the UK?

Self-employed contractors remain independent. Just like contractors anywhere else, UK contractors set their own rates and hours and are not beholden to rules set for them by any employers.

Companies working with UK contractors must be extremely clear about intellectual property rights. Because the UK does not have a work-for-hire concept in the same way the US does, IP rights can sometimes default to creators over clients (in this case, contractors over companies). Because of this, employing workers as employees is often safer than entering into contractor agreements. Remote’s employer of record solution offers the strongest IP protections for employers in the industry.

In the past, some contractors and companies attempted to avoid employee classifications by using personal service companies, or PSCs, as go-betweens. New rules have largely eliminated this loophole by shifting the responsibility of classification corrections from the workers to the employers.

Before the IR35 law changed, a person working as a contractor behind a PSC was responsible for ensuring that relationship was proper and correct. Today, employers are responsible for ensuring that anyone working behind a PSC is doing so correctly and should not be classified as an employee. If the relationship between the contractor and employer would be the same with or without the presence of the PSC as a third party, IR35 applies.

As an employer of record, Remote eliminates this confusion by allowing companies to hire remote workers in the UK as full-time employees with complete legal compliance.

Yes. UK law guarantees the right for employees to join unions and prohibits employers from discriminating against employees for union membership. Unions and companies working with unions must follow the rules set by the Trade Union and Labour Relations (Consolidation) Act 1992.

How do you terminate an employee in the UK?

Employees in the UK typically do not have special protections against termination until they reach their second year of employment. Employers may usually terminate employees at will during the first two years of employment, outside of protected cases of discrimination including race, philosophical and religious beliefs, and gender.

After two years, employers must provide a “potentially fair reason” to terminate an employee with cause. While this definition sounds broad, UK courts can be strict in their interpretation of the law. Potentially fair reasons must pertain to personal conduct, ability to perform the work required, or other factors that substantially impact the employer-employee relationship.

Employees fired for negligence may be let go immediately depending on the circumstances. For example, an employee whose behavior endangers others is not guaranteed advance notice of termination.

Employees fired for other reasons are entitled to advance notice of termination. Notice periods cover a broad range:

One week if the employee has worked longer than one month for the employer

One week for every year of continuous employment from 5-11 years

Three months’ notice after 12 years of employment

Companies may not give employees more than 12 weeks’ notice. Many companies choose to give notice by sending terminated employees home and continuing to pay those employees for the duration of the notice period without requiring the employees to come into work.

Many businesses choose to keep employees on probationary periods for the first few months. When terminating an employee during a probationary period, companies are not required to provide advance notice as long as they serve the termination in writing. 

Are terminated employees in the UK entitled to severance pay?

The UK government does not mandate severance pay for employees. However, employees with two years of continuous employment are entitled to “unfair dismissal rights,” by which employees can claim they were let go improperly. If the court finds in favor of the employee, the company may be required to pay one year’s wages to the employee as a penalty, up to a limit of £86,444.

Companies may (and often do) use severance pay as part of a termination agreement to avoid a grievance. In this situation, employees must receive independent legal advice for the agreement to be valid. Remote can support companies during this process.

What work visas do employees need to work in the UK?

Work visas in the UK vary by purpose and qualification. Many of these visas operate based on a points system to determine the qualification level of the applicant.

Citizens of the European Economic Area (EEA) do not always need visas. Citizens of other parts of the world, including the US, almost always do. 

Types of common worker visas include, but are not limited to:

Tier 2 General Visas, for workers with UK job offers

If you would like help managing your employees’ visas, contact Remote to learn more.

Labor laws in the UK continue to evolve in the wake of Brexit, GDPR, the COVID-19 pandemic response, and other important events. Companies hiring remote workers in the UK may discover the rules have changed if they have done business in the country in the past.

Remote makes labor laws in the UK simple. Our employer of record solution keeps businesses in complete compliance with all applicable local labor laws while providing the best-in-class experience for UK remote workers. Contact us today to learn more about our UK employer of record solution.

What are labor laws like in the UK?

Looking to hire an employee in the United Kingdom? Is one of your existing team members planning to move to the UK? Whatever your situation, this guide on hiring employees in the UK can help you get familiar with the basics of UK employment law, payroll practices, common benefits, and more.

Labor laws in the UK can be tricky to navigate, especially for employers with just a few employees. Understanding the differences between “workers” and “employees,” for example, may not be intuitive to someone who has not managed a team in the UK before. As the premier employer of record for international talent, Remote helps businesses of all sizes hire workers in the UK in full compliance with all applicable labor laws. 

To keep your company compliant, start with our helpful guide on hiring employees in the UK.

Related: What are labor laws like in the UK?

The UK applies different rules to “workers,” “employees,” and “self-employed contractors.” 

Self-employed contractors are exactly what they sound like. Just like in the US, contractors work independently from the companies requesting their services. Companies in the UK are not required to provide benefits to contractors. To avoid misclassification issues, however, employers must be careful not to overstep their boundaries. Telling a contractor when or how to work, providing equipment or office space, and a number of other actions can all indicate an employer relationship and get companies into trouble.

To convert a contractor into an employee, UK employers must draft an employment contract clarifying the employment arrangement.

The term “worker” in the UK includes employees and a number of other people who fall in between the definition of contractors and employees. Uber drivers, for example, won a case in the UK Supreme Court in 2018 to be classified as workers. Workers receive some benefits under UK law, though not as many as full-time employees. Statutory benefits for UK workers include:

National living wage, depending on circumstances

“Employees” in the UK are people who enter into a formalized employment contract with a company. Employees are entitled to the full range of benefits and protections under UK law.

UK businesses must be explicit in the assignment of intellectual property rights when working with contractors, as UK employment law often defaults such rights to the contractor. There is no “work for hire” concept in the UK.

Because of this, many foreign employers of remote UK workers choose an employment relationship over a contractor one. Remote’s EOR solution provides the industry’s strongest IP protections for employers in the UK.

The UK provides the usual protections from discrimination based on race, age, gender, religion, and other protected qualities. In 2020, an employment tribunal also ruled on veganism as a protected philosophical belief under the Equality Act.

According to the Employment Rights Act 1996, all UK employers must provide their employees with a written contract outlining the details of the employment relationship. These contracts must include details such as job titles and descriptions, employment starting date, salary and payment schedule, pension plans, company rules, termination policies, and other important information.

Employers in the UK are required to carry liability insurance to protect against claims from workers. This insurance covers businesses in the event that an employee brings a grievance or case for compensation.

Work visas in the UK cover several types of visitation and employment purposes. Many visas work on a points system in which applicants earn points for meeting different visa requirements.

Citizens of the European Economic Area, or EEA, often do not need to apply for visas at all, while people coming into the UK from the US and other non-EEA regions must apply for the visa appropriate for their situation.

Examples of work visas in the UK include:

Labor laws in the UK can be tricky to navigate, especially for employers with just a few employees. Understanding the differences between “workers” and “employees,” for example, may not be intuitive to someone who has not managed a team in the UK before. As the premier employer of record for international talent, Remote helps businesses of all sizes hire workers in the UK in full compliance with all applicable labor laws.

United Kingdom

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What are labor laws like in the UK?

Written by • Vittoria Bilello

Guide on hiring in the UK