How to Hire in the UK Using an EOR (Employer of Record)

Key Takeaways:

• Hiring in the UK is streamlined and compliant with an Employer of Record (EOR), eliminating the need to establish a local entity.
• EORs handle all legal, payroll, tax, and HR complexities in the UK, ensuring compliance with intricate UK employment laws.
• Understanding key aspects of UK employment, such as contracts, PAYE, IR35, and National Insurance, is crucial, and an EOR provides expert guidance.

Introduction

The United Kingdom is one of the top destinations for companies seeking to hire new employees. The UK offers a wealth of skilled professionals across diverse industries, making it an attractive destination for global expansion. 

However, navigating the intricacies of UK employment law, payroll, and tax regulations can be challenging for foreign companies. This is where an Employer of Record (EOR) steps in, providing compliant solutions for hiring in the UK without the need to establish a local entity! Read on to discover how an EOR can be your strategic partner in unlocking the UK market.

Why hire in the UK?

The UK is renowned not only for its economic strength but also for its highly educated workforce, legal framework, and thriving innovation ecosystem. Its strategic location, well-developed economy, and diverse talent pool make it an ideal choice for businesses looking to expand their global footprint. 

Key sectors, including technology, finance, creative industries, and scientific research, are continually growing, offering a diverse array of skilled professionals. Furthermore, the UK's commitment to business-friendly policies and its strong reputation for innovation attract companies seeking to grow and succeed in an international market.

Read our UK Payroll & Employment Guide to learn about payroll, taxes, work permits and more. 

Why use an EOR to hire in the UK?

Hiring directly in the UK without a local presence means setting up a legal entity, a process that can be time-consuming, expensive, and administratively heavy. It involves navigating company registration, opening local bank accounts, understanding UK tax codes, and ensuring compliance with a vast array of employment legislation.

An Employer of Record (EOR) in the UK eliminates these burdens entirely. An EOR acts as the legal employer for your UK-based staff, taking on all the legal responsibilities, including payroll, taxes, benefits administration, and compliance with UK labour laws. You, the client company, retain complete control over your employees' day-to-day activities and strategic direction. This allows you to focus on your core business objectives while the EOR handles the administrative heavy lifting, mitigating risks, and ensuring full compliance from day one.

How EOR works in the UK: Step-by-step guide

Utilising an EOR to hire in the UK is a straightforward process designed to be efficient and compliant:

1. Identify your UK talent: You find the ideal candidates in the UK, just as you would for any other role.
2. Partner with an EOR: You select an EOR provider with expertise in UK employment law and payroll.
3. Onboarding and contract signing: The EOR drafts a legally compliant employment contract for your UK employee, tailored to UK labour laws. This contract is between the employee and the EOR.
4. Payroll and tax management: The EOR processes the employee's payroll, deducts income tax (PAYE), National Insurance contributions, and any other statutory deductions. They also file all necessary tax returns with HMRC.
5. Benefits administration: The EOR manages statutory and any agreed-upon supplementary benefits, such as pension contributions, sick leave, and holiday pay, ensuring they align with UK regulations.
6. HR and compliance support: The EOR stays up-to-date with evolving UK employment laws, providing ongoing compliance support and handling any HR-related queries or issues.
7. Ongoing relationship: You continue to manage your employee's day-to-day work, performance, and strategic goals, while the EOR handles the administrative and legal employer responsibilities.

UK employment law: What you need to know

Understanding the nuances of UK employment law is crucial for compliant hiring practices. An EOR will ensure adherence to these regulations, but it's beneficial to be aware of the key aspects:

Employment contracts

In the UK, it is a legal requirement to provide employees with a written statement of employment particulars (often referred to as an employment contract) by their first day of employment. This document outlines the terms and conditions of their employment, including job title, duties, start date, place of work, remuneration, working hours, holiday entitlement, and notice periods.

Salaries & PAYE

Employers are legally obliged to pay employees at least the National Living Wage or National Minimum Wage, depending on their age. The Pay As You Earn (PAYE) system is HMRC's method to collect income tax and National Insurance contributions from employees' salaries. An EOR will manage the accurate calculation and remittance of these deductions directly to HMRC.

IR35 & worker classification

IR35 (Intermediaries Legislation) is crucial for determining the tax status of self-employed contractors versus employees. Misclassification can lead to significant penalties. An EOR will help ensure that your workers are correctly classified, mitigating the risk of IR35 non-compliance. This is particularly vital when engaging freelancers or contractors in the UK.

National Insurance (NI) contributions

Both employees and employers contribute to National Insurance. These contributions fund certain state benefits, such as the State Pension. The EOR will be responsible for calculating and paying both the employer's and employee's NI contributions to HMRC.

Working hours

The Working Time Regulations stipulate maximum working hours (typically 48 hours per week on average, although employees can opt out), rest breaks, and holiday entitlement. An EOR ensures that your employment practices align with these regulations.

Paid leave

Employees in the UK are entitled to statutory paid annual leave (currently 5.6 weeks, including bank holidays). There are also statutory provisions for sick leave (Statutory Sick Pay - SSP), maternity leave, paternity leave, adoption leave, and parental leave, all of which an EOR will manage on your behalf.

"Navigating UK employment law requires a deep understanding of its evolving landscape. Partnering with an EOR mitigates the risks associated with non-compliance, allowing businesses to focus on growth." – HR Compliance Team at Native Teams

Common risks to avoid when hiring with an EOR

While EORs significantly reduce compliance risks, it's still important to be aware of potential pitfalls:

• Choosing the wrong EOR: Not all EORs are created equal. Ensure your chosen provider has a strong track record and deep expertise in UK employment law. Look for transparency in pricing and clear communication.
• Misunderstanding cost structures: Be transparent about all fees and potential hidden costs. A good EOR will provide a comprehensive breakdown of expenses.
• Lack of clear communication: Ensure a clear communication channel between your company, the EOR, and the employee. This prevents misunderstandings and ensures smooth operations.
• Not clarifying the scope of services: Confirm exactly what services the EOR provides. Does it include benefits administration, expense management, or just payroll?
• Overlooking legal updates: While the EOR handles compliance, it's still good practice to have a basic understanding of significant legal changes that might impact your employees.

Comparing top EOR providers in the UK

Note: Price estimates are illustrative and may vary based on the services included, the number of employees, and specific circumstances. Always request a custom quote.

Costs of hiring in the UK using an EOR

The cost of hiring an employee in the UK using an EOR goes beyond just the gross salary. It includes various statutory contributions and the EOR's service fee.

Let's look at an example for an employee earning a gross salary of £40,000 per year:

This example illustrates that while the gross salary is £40,000, the actual cost to the employer, including statutory contributions and EOR fees, will be significantly higher. An EOR provides complete transparency on these costs.

Hire in the UK with Native Teams as your EOR

Native Teams offers a comprehensive and compliant Employer of Record solution for hiring in the UK. Our platform streamlines global employment, handling all aspects of payroll, tax, HR, and compliance, enabling you to integrate UK talent into your team. With Native Teams, you can:

• Ensure 100% compliance: Navigate the complexities of UK employment law with confidence.
• Streamline payroll: Automate and manage payroll, PAYE, and National Insurance contributions effortlessly.
• Administer benefits: Provide competitive and compliant benefits packages to your UK employees.
• Gain expert support: Access a team of experts dedicated to supporting your UK hiring needs.
• Scale effortlessly: Expand your UK team without the burden of setting up a local entity.

Focus on building your dream team in the UK, and let Native Teams handle the rest.

Conclusion

Hiring in the UK presents significant opportunities for businesses seeking to expand their global presence. While the intricacies of UK employment law and administrative burdens can seem daunting, an Employer of Record (EOR) provides a robust and compliant solution. By partnering with an EOR, you can tap into the UK's rich talent pool, ensure compliance with all legal requirements, and streamline your international operations, enabling your business to thrive without the complexities of direct entity establishment.

FAQs about EOR in the UK

1. Is it legal to use an EOR in the UK?

Yes, it is entirely legal to use an EOR in the UK. EOR services are a well-established and compliant method for companies to hire employees in a country where they do not have a registered legal entity. The EOR acts as the legal employer, ensuring all local labour laws and tax regulations are met.

2. What’s the difference between EOR and a staffing agency?

A staffing agency (or recruitment agency) typically helps you find and recruit candidates for your open positions. Once a candidate is hired, they usually become your direct employee. An EOR, on the other hand, acts as the legal employer for your chosen candidates. While you manage their day-to-day work, the EOR handles all the legal, payroll, tax, and HR responsibilities. A staffing agency focuses on finding talent, while an EOR focuses on employing talent compliantly.

3. Can I hire remote employees in the UK using an EOR?

Absolutely. An EOR is an ideal solution for hiring remote employees in the UK. Since the EOR handles all local compliance, you can hire individuals anywhere in the UK, regardless of whether your company has a physical presence there, making it perfect for distributed or remote teams.

4. What if I want to convert the employee to my entity later?

This is often possible. Many EOR providers have provisions for "transferring" employees from their payroll to your own entity once you establish one in the UK. The process typically involves a transfer agreement and ensuring continuity of employment terms and conditions. Discuss this possibility with your EOR provider upfront.

5. Does EOR help with IR35 compliance?

Yes, a reputable EOR provider like Native Teams will be well-versed in IR35 regulations and will help ensure your workforce is correctly classified. They can advise on the appropriate engagement models and handle the necessary payroll and tax deductions to ensure compliance, significantly mitigating your risk of penalties related to IR35.