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As a global EOR expert, we manage payroll, employment contract best practices, statutory and market norm benefits, employee expenses, as well as severance and termination. You’ll have peace of mind knowing you have a team of dedicated employment experts assisting with every hire. G-P allows you to harness the talent of the brightest people in 180+ countries around the world, quickly and easily.
Hiring in the UK
When hiring employees in the UK, there are many details to be aware of, including:
- Employment Classification: The UK is complex when determining who is an employee, worker, or independent contractor. Understanding these nuances from the outset is crucial.
- Benefits packages: When and whether to offer market-norm benefits packages including supplemental health insurance and pension to compete with other UK employers.
- Stock option planning: Managing employer taxes on stock option gains in the UK requires foresight and planning.
- Non-compete clauses: Legislation favors the employee over the employer in the UK, and language pertaining to non-compete clauses in employment contracts should be managed carefully.
- Termination: Termination of employment is somewhat nebulous in the UK, so employers should be aware at the outset of an agreement with an employee of risk mitigation pertaining to any eventual termination of employment.
Employment contracts in the UK
In the UK, employers are legally required to put an employment contract in place specifically highlighting the terms of the employee’s duties, details of any probationary period, compensation and pay dates, hours of work, benefits, grievance and disciplinary procedures, and termination requirements. An offer letter and employment contract in the UK should always state the salary and any compensation amounts in British pounds rather than another currency. The legal requirements for an employment contract in the UK are basic, and most employment contracts in practice are much more comprehensive than the law requires, often including provisions relating to confidential information, intellectual property, and non-compete restrictions.
The following information is provided to help companies better understand the statutory and market norm benefits that employees in the UK are most commonly focused on when negotiating terms of an employment offer.
Working hours in the UK
Employers are free to set the day-to-day working hours according to business needs. By law there is a maximum of 48 hours per week which an employee can be expected to work, averaging over 17 weeks. However, it is possible, and quite common, for employees to opt out of this maximum expectation and an employee can opt out at any time during employment.
Holidays in the UK
England and Wales will celebrate 9 public holidays in 2023:
- New Year’s Day
- Good Friday
- Easter Monday
- Early May Bank Holiday
- Spring Bank Holiday
- Summer Bank Holiday
- Christmas Day
- Boxing Day
Scotland and Northern Ireland have slight variations in their public holidays.
Vacation days in the UK
All full-time employees in the UK are legally entitled to a minimum of 28 days of paid vacation per year. This vacation time is known as statutory leave entitlement or annual leave.
An employer can choose to include public holidays as part of an employee’s statutory annual leave entitlement. However, the market norm is to provide 20-25 days of paid vacation or more per year, in addition to the paid public holidays. Senior employees often negotiate up to 30 days of vacation, plus up to 8 public holidays per year.
Part-time employees are entitled to a pro-rata calculation of paid vacation and paid public holidays per year.
UK sick leave
Employees in the UK are entitled to Statutory Sick Pay for up to 28 weeks, which is paid for by the employer. If employees are absent from work for more than 7 days, they must provide a note from their doctor to document the sickness giving rise to the statutory sick pay obligation. Sick pay begins after the employee has been out of work for 4 or more days in a row and it is currently paid at the rate of GBP 109.40 per week (since April 2023). Most companies offer additional sick pay on top of the statutory pay but the number of days or weeks they offer can vary widely.
Maternity/Paternity/Parental leave in the UK
Pregnant employees are entitled to 52 weeks of maternity leave. Generally, birthing parents must take a minimum of 2 weeks leave immediately after the baby is born, although factory workers must take 4 weeks. The leave is divided into:
- Ordinary maternity leave: This is the first 26 weeks of leave.
- Additional maternity leave: This is the last 26 weeks of leave.
Employees receive statutory maternity pay for up to 39 weeks.
- For the first 6 weeks, employees receive 90% of average weekly before-tax earnings.
- For the remaining 33 weeks of the ordinary maternity leave, employees will get GBP 172.48 or 90% of average weekly earnings (whichever is lower).
Partners are entitled to 1 or 2 weeks of paid paternity leave per child.
There is also a concept of shared parental leave which enables pregnant employees to share 50 weeks of their 52 weeks of maternity leave with the other parent. This enables employees to return to work before the end of their maternity leave without sacrificing the rest of the leave that would otherwise be available to them. Shared parental leave can either be taken consecutively or concurrently, as long as the total time taken does not exceed 52 weeks, and it can be taken in blocks, rather than all at once.
The partner who shares the leave is eligible to take:
- The remaining leave: This means the original 52 weeks minus any weeks of parental or adoption leave the other parent used.
- The remaining pay: This means the original 39 weeks minus any weeks of parental pay or allowance the other parent received.
There are similar provisions for those who adopt.
Health insurance in the UK
The primary statutory benefit in the UK is provided through the employers’ portion of the National Insurance Contribution (NIC), which is the national social security program by which all employers and employees contribute to the public healthcare system. The employer’s portion of the national insurance contribution is usually 13.8% on top of total compensation. Employees must also pay national insurance contributions; it is the employer’s responsibility to deduct the employee’s contribution through the PAYE (Pay As You Earn) system.
UK supplementary benefits
In addition to the NIC, many companies also provide supplementary benefits such as medical, dental, income protection, and life insurance for their employees. There is no legal requirement to do this but market norms mean employees may expect their employer to provide additional benefits. Supplementary insurance benefits are provided by approximately 75% of employers based in the UK.
Many UK insurance plans carry exclusions on coverage while the employees are outside the UK. If an employer intends to have its UK-based employees traveling back and forth outside the UK, it is strongly recommend to ensure that the employee is covered under a travel insurance policy.
Pension plans in the UK
In addition to insurance coverage, most employees in the UK negotiate heavily for increased employer contributions to pension plans, which is one of the most commonly requested benefits in the UK. Pension benefits are generally prioritized by employees over employer-provided medical insurance in the UK.
All employers are required to offer a pension plan with a 3% minimum contribution while employees are required to contribute at least 5%.
Bonuses
It is entirely up to an employer what bonus to pay or whether to pay a bonus at all. Some employers operate structured bonus plans which might, for example, be linked to corporate and/or personal performance. Others might operate an undocumented discretionary bonus policy under which payments are variable. Practice varies between industries and where bonuses are paid, there should be a policy in place.
Termination and severance in the UK
In the UK there is no concept of at will employment and the employer must give the employee notice to terminate employment. There are two types of notice – statutory notice, which is required by law, and the notice period stated in the employee’s contract of employment.
Length of service is used to calculate the statutory notice period:
- 1 week’s notice for one month and less than 2 years of service
- 1 week’s notice for each year for between 2 and 12 years of service
- 12 weeks’ notice for 12+ years of service
The length of notice in the employment contract is at the employer’s discretion and is agreed at the time of employment, but market norms mean this notice period is usually 1 month for most employees and up to 3 months for more senior employees. When providing notice, the employer must give whichever notice period is longer. It is common to include in contracts of employment a right to pay in lieu of notice to avoid the employee having to work during the notice period.
Severance pay (redundancy pay as it is known in the UK) is paid when an employee is terminated due to redundancy and the employee has worked for the employer continuously for at least 2 years prior to the redundancy, according to the following schedule:
- 1/5 of one week’s pay for each year of service where the employee was below the age of 22
- 1 week’s pay for each year of service where the employee was between 22 to 40 of age
- 1/2 week’s pay for each year of employment where the employee was 41 and over
There is a cap on a week’s pay for redundancy pay purposes that is adjusted annually.
Employees who have more than 2 years’ continuous service have the right not to be dismissed unfairly and anti-discrimination laws apply regardless of the length of service. It is therefore important to take appropriate advice before considering terminating employment.
UK payroll
Employers have to deduct Personal Income Tax and a National Insurance contribution from employment earnings via the PAYE system.
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