Employing people in the UK

Employing someone in the UK is administratively straightforward and legally more committal than in several of the markets groups arrive from. The administration is a solved problem. The commitment is the part to plan for.

Before anyone starts

• Register as an employer with HMRC. The reference takes a few weeks, so apply when the hire is agreed rather than when they start.
• Employers' liability insurance, at least £5 million, from an authorised insurer. Required by law from the day you employ anyone in Great Britain, with a daily penalty for not having it. It is the most commonly missed item on a new subsidiary's list.
• A right-to-work check, completed and recorded before the first day. The penalty for employing someone without permission falls on the company and is severe.
• A written statement of the main terms, on or before the first day.
• A workplace pension scheme in place, ready to assess and enrol from the first pay run.
• A sponsor licence, if the person needs permission to work: £611 for a small or charitable sponsor, £1,682 otherwise, around eight weeks, plus the immigration skills charge of £480 or £1,320 a year for each sponsored worker. Immigration advice is regulated in the UK, so this is a job for an immigration adviser.

What every UK employee is entitled to

• 5.6 weeks of paid holiday a year. Bank holidays count towards it unless the contract says they are extra.
• Statutory sick pay from the fourth day of absence.
• Maternity, paternity, adoption and shared parental leave and pay, some of which the employer can recover from HMRC.
• Auto-enrolment into a pension, with the employer paying at least 3% of qualifying earnings.
• The National Minimum Wage or National Living Wage, by age band.
• Protection from discrimination from the point of application, not the point of hire.
• A payslip showing the deductions, every pay period.

What it costs on top of salary

Employer National Insurance at 15% of earnings above £5,000 a year, uncapped, plus the pension contribution. On a £55,000 salary that is roughly £7,500 of National Insurance and £1,300 of pension. The employment cost calculator works it out for any salary and headcount, including the Employment Allowance, which is worth up to £10,500 a year but can be claimed only once across a group.

Ending employment

This is the real difference for groups arriving from the United States. There is no at-will employment. Dismissal requires a fair reason, one of a defined list, and a fair process. Employees with two years' service can bring an unfair dismissal claim, and some claims, including discrimination, can be brought from day one with no service requirement at all. Redundancy has its own process, its own payments and, above certain numbers, a collective consultation period with a statutory timetable.

None of that makes UK hiring risky. It makes it deliberate. Contractual notice of one to three months is normal for senior hires, probation periods are common and useful, and a run process is rarely challenged successfully. The groups that get into difficulty are the ones that treated a UK employee like an at-will one.

Share awards from the parent

Options and restricted stock granted by the overseas parent to UK employees are UK employment income, taxed through the UK subsidiary's payroll when they vest or are exercised. Every plan must also be registered with HMRC and a return filed by 6 July each year, including a nil return. Both obligations sit with the UK company even where the plan is administered from head office. Missing them produces a PAYE underpayment and escalating penalties for a return no one knew existed.

Staff visiting from the parent

An employee of the parent who works in the UK can create a UK PAYE obligation from the first day. Where a treaty exempts them, a short-term business visitor agreement with HMRC removes the need to operate payroll, and it has to be applied for. Social security is a separate question answered by whether the UK has an agreement with their country: it does with the United States, India, Canada, Japan, South Korea, Turkey and others, and where it does, a certificate of coverage from the home authority keeps them in the home system.

Directors are treated differently again. Pay for a director's UK duties is taxable here from the first board meeting, whatever the treaty says about employees.