Expanding to the U.K? Key Facts & Why a PEO Might be the Answer

International companies that do business in the United Kingdom benefit from a richer customer base and an opportunity to refresh their products and services. The U.K. is well-known for its highly skilled professionals – and there are 30 million people in the workforce right now. If you are considering expanding to the U.K., check out these key facts about hiring locally and how businesses can do this effortlessly. 

Key Payroll and Employment Benefits

In the United Kingdom, employer payroll contributions are based on a category letter. The most common one is category A, where most employees qualify. There are other special categories for married women or widows, apprentices under 25 years old, employees under 21 years old, and others. Employers must deduct taxes and National Insurance contributions from their worker’s pay as they get paid each period, either monthly or quarterly. 

The National Insurance contributions are taxes you need to pay for everything you provide your workers with – anything from cash amounts to other goods, such as company cars. Workers also cover National Insurance on their earnings and income tax (20% if the pay is above GBP 12,571, 40% if above GBP 50,270, and 45% if above GBP 150,000 per year).

Both employer and employee contributions are 16.8%, but this may vary depending on the pay, the age of the employee, and other factors. Also, the minimum wage differs in the United Kingdom, unlike in many other countries. It is based on the worker’s age, so that employees under 18 years old receive a minimum wage of GBP 4.62 per hour, and it increases up to GBP 8.91 per hour for employees over 23 years old. 

Some other key facts include:

• As an employer, you are required to enroll all of your workers into a pension scheme (if not in one already);
• All employees are entitled to 28 paid days off per year, and all 8 bank holidays are included in the annual leave, so there are 36 days off per year in total. Some employers may offer additional days off, but this must be clearly mentioned in the employment contract. 
• Mandatory employment benefits in the U.K. include pension, healthcare, holiday pay, maternity or paternity pay, and sick pay. 
• Other employers may opt for supplementary employment benefits, such as life insurance, critical illness insurance, dental insurance, health cash plan, and many more. 

Challenges and Costs in Hiring

Apart from understanding the tax system in the U.K., businesses must overcome several other challenges and unseen costs when hiring in this country. In short, employers must cover employer contributions (16.8%), employee contributions (16.8%), and income tax based on the right income bracket.

Many foreign businesses struggle with the complexity of employment legislation. It is important to note that delays in contributions payments result in interest, so companies that fail to master the tax legislation may be liable for higher expenses. In addition to this, such failure also results in a damaged brand image and reputation. 

Some other unseen challenges that may cost businesses unexpected time and resources include finding and hiring the people with the right skills and developing the workforce, such as training and improving employee skills.

Is PEO a Good Solution for Expanding in the U.K.?

From understanding the complex tax system to focusing on the recruitment process, businesses may find it very difficult to expand in the United Kingdom. Fortunately, there is an easier way to hire local talent, so you can focus more on your business activities. 

Opening a local entity in the U.K. can come at great costs. It is not only capital-intensive, but navigating through all the legal prerequisites to hire locally is certainly cumbersome if you lack the necessary expertise. Fortunately, there are global professional employer organisations (PEOs) that help to expand into the U.K. and manage the whole employment process on your behalf, from hiring workers to contract termination. 

The PEO will be the professional employer organization for your employees, so all you need to do is find the employees and direct them on their daily duties. A PEO will hire the workers on another company’s behalf and is liable for tax contributions, payments, and full legal compliance. 

In turn, your company only needs to manage employees on a daily basis and direct them in their daily work. All the administrative tasks, ranging from payroll contributions to employee benefits, are handled by the PEO. Thus, you can hire and expand in the U.K. without having to set up a local entity and you are not liable for British employees. 

Summary

Hiring in the U.K. means tapping into a highly-skilled talent pool. However, the U.K. employment system, legislative requirements, registering with tax offices, and other administrative duties may deter many businesses from taking this step. Fortunately, with a PEO that specialises in the U.K., any business can start hiring right away.