Hire employees in the United Kingdom using an Employer of Record

One employee in United Kingdom means HMRC registration, RTI payroll submissions, pension auto-enrollment, and ongoing employment law compliance. Most companies don't find out about statutory sick pay calculations or holiday pay accrual rules until they're already non-compliant.

The penalties aren't small either. Get auto-enrollment wrong and you're facing £400 daily fines. Miss RTI submissions and HMRC charges 5% of unpaid tax monthly. Employment tribunal claims average £15,000 in settlements, and that's before legal fees.

You've got three ways to hire in the UK legally:

Option 1: Set up your own entity

• Cost: £15,000-£40,000 upfront, £8,000-£15,000 annual maintenance
• Timeline: 4-6 months minimum
• Complexity: Companies House registration, HMRC setup, payroll system, pension scheme, employment law compliance
• Makes sense when: Hiring 20+ people long-term, permanent UK market presence

Option 2: Hire contractors

• Cost: None upfront, but limited control
• Timeline: Immediate
• Risks: IR35 violations (back taxes plus 25% penalty), employment tribunal claims
• Makes sense when: Short projects (< 6 months), specialized skills
• Note: Hire with Columbus also handles contractor agreements and payments

Option 3: Use an employer of record (Recommended for most)

• Cost: $179/month per employee (USD)
• Timeline: 2-3 days to hire
• Complexity: None - we handle everything
• Makes sense when: 1-50 employees, testing markets, multi-country teams

If you're hiring 1-10 people, entity setup costs more than 4-5 years of EOR fees ($179/month = $2,148/year per employee). An EOR like Hire with Columbus handles employment contracts, RTI payroll, pension auto-enrollment, holiday calculations, and keeps you compliant with changing UK employment law. Example: Hiring 3 people = $537/month vs £25,000+ entity setup plus £10,000/year maintenance.

Ready to hire in United Kingdom without the compliance headaches? Get started with Hire with Columbus.

What employment types can you use?

You've got three ways to bring someone onboard in the UK. Here's how the costs and risks compare, because the difference between getting this right and getting it wrong is about £50,000 and six months of your life.

How can you hire in the UK?

Setting up your own UK entity

This is the traditional route, and it's expensive. You're looking at £15,000-25,000 just to get started with incorporation, VAT registration, PAYE setup, and legal fees. Then there's the waiting game – 4-6 months before you can actually hire anyone.

The ongoing costs hurt more. Annual compliance runs £8,000-15,000 minimum, plus accounting fees, payroll software, HR systems, and employment law expertise. You'll need someone who understands auto-enrolment pensions, apprenticeship levy calculations, and the 47 different holiday entitlements.

This makes sense if you're planning 20+ employees long-term and want complete control. Otherwise, you're burning cash and time.

Hiring contractors and freelancers

Fast? Yes. Risky? Absolutely. You can start immediately, but HMRC doesn't mess around with IR35 compliance. Get caught misclassifying someone as a contractor when they should be an employee, and you're facing back taxes, National Insurance contributions, plus penalties that can hit 100% of the unpaid amount.

The off-payroll working rules (IR35) are particularly brutal. If your "contractor" works exclusively for you, follows your schedule, and uses your equipment, HMRC will reclassify them faster than you can say "employment tribunal."

Use contractors for genuine project work under 6 months or highly specialized skills. For everything else, the risks outweigh the speed benefits.

Using an employer of record

Here's where things get interesting. Hire with Columbus becomes the legal UK employer, handling all the compliance headaches while you manage the actual work. Your new hire gets a proper UK employment contract, full benefits, and legal protections. You get to skip the entity setup entirely.

Cost breakdown: $179/month per employee versus £25,000+ for entity setup. If you're hiring 5 people, that's $895/month total. Your entity setup costs alone would cover 28 months of EOR services.

Timeline comparison: 2-3 days to hire through an EOR versus 4-6 months to set up an entity. Your competitor could hire an entire UK team while you're still waiting for Companies House approval.

We handle employment contracts, monthly payroll, PAYE submissions, auto-enrolment pensions, statutory leave calculations, and all the compliance reporting that keeps UK employment lawyers busy.

Employment contract types in the UK

Once you've decided how to hire (spoiler: EOR is usually the smart choice), you need to pick the right contract type. The UK recognizes several employment arrangements, each with specific rules and protections.

Permanent contracts (indefinite term)

This is your standard full-time employment contract with no end date. Most companies use permanent contracts for core team members because they offer maximum flexibility and employee commitment.

UK permanent employees get full statutory rights immediately – minimum wage, holiday entitlement, sick pay, and protection against unfair dismissal (after 2 years of service). They're also automatically enrolled in workplace pensions after 3 months.

Hire with Columbus handles permanent contracts for all your standard hires. We draft the contract, manage the probationary period (usually 6 months), and handle any performance or disciplinary issues that come up.

Fixed-term contracts

These contracts have a specific end date or are tied to completing a particular project. They're perfect for maternity cover, seasonal work, or project-based roles where you know exactly when the work will finish.

Here's the catch: if you renew a fixed-term contract more than once, or if the total duration exceeds 4 years, the employee automatically becomes permanent. UK law assumes that if you need someone that long, it's really a permanent role.

Fixed-term employees get the same rights as permanent staff – same holiday entitlement, same sick pay, same everything. The only difference is the end date.

Part-time contracts

Part-time employees work fewer hours than full-time staff (usually under 35 hours per week) but get the same hourly rights and protections. Their holiday entitlement, sick pay, and other benefits are calculated pro-rata based on their working hours.

This works well for specialized roles, senior consultants, or employees who want work-life balance. Just remember that part-time doesn't mean fewer employment rights – it means proportional employment rights.

Zero-hours contracts

These contracts don't guarantee any minimum hours, giving maximum flexibility for both employer and employee. They're common in hospitality, retail, and seasonal industries where demand fluctuates wildly.

Zero-hours employees still get statutory rights when they're working – minimum wage, holiday pay (calculated as 12.07% of their earnings), and workplace pension enrollment if they earn enough. They just don't get guaranteed hours or income.

Use these carefully. If someone works regular hours over several months, they might claim they're actually a permanent employee with guaranteed hours.

Apprenticeship contracts

If you're hiring someone under 25 or training existing employees, apprenticeship contracts offer significant benefits. You'll pay a lower minimum wage (£6.40/hour in 2025 for apprentices under 19 or in their first year), and you can access government funding for training costs.

The apprentice gets structured training, recognized qualifications, and a clear career path. You get skilled employees trained exactly how you want them, often with 50-90% of training costs covered by the apprenticeship levy or government funding.

Which contract type should you choose?

For most international hires, permanent contracts make the most sense. They offer stability for the employee and flexibility for you, plus they're the simplest to manage from a compliance perspective.

Use fixed-term contracts only when you genuinely know the end date – covering maternity leave, completing a specific project, or testing a new market for a defined period. Don't use them to avoid permanent employment obligations, because UK employment law will catch up with you.

Part-time contracts work well for senior hires who want flexibility or specialized roles that don't require full-time attention. Just budget for the same hourly costs as full-time employees.

Hire with Columbus handles all these contract types, drafting compliant agreements and managing the ongoing obligations. We'll help you choose the right approach based on your specific situation and handle all the paperwork, payroll, and compliance requirements that come with each contract type.

The key is matching the contract to the actual working relationship you want, not trying to save money with inappropriate contract structures that will cause problems later.

How does payroll and taxation work?

Your £60,000 employee actually costs £73,800 per year in the UK. That's a 23% markup once you factor in employer National Insurance contributions, pension contributions, and other statutory costs.

UK payroll runs monthly, typically on the last working day of the month. You'll need to handle income tax through PAYE (Pay As You Earn), National Insurance contributions, and auto-enrollment pension contributions. Miss a deadline and HMRC penalties start at £100 per month for late filings.

Income tax brackets

The UK uses a progressive tax system with these rates for 2025:

Personal allowance reduces by £1 for every £2 earned above £100,000. So high earners effectively pay 60% tax on income between £100,000-£125,140.

National Insurance contributions

Both employer and employee pay National Insurance, but employer rates are higher:

Employers also pay 0.5% Apprenticeship Levy if annual payroll exceeds £3 million.

Statutory pension contributions

Auto-enrollment pensions are mandatory for employees aged 22-65 earning over £10,000 annually:

• Employee minimum: 5% of qualifying earnings (£6,240-£50,270 band)
• Employer minimum: 3% of qualifying earnings
• Total minimum: 8% of qualifying earnings

Most employers contribute more than the minimum to stay competitive.

Payment schedule and timing

UK employees expect monthly pay, usually on the last working day of the month. Some companies pay on the 25th to avoid month-end cash flow issues.

Key payroll deadlines:

• PAYE/NI payments: 22nd of following month (19th if paying by post)
• RTI submissions: On or before each pay date
• P60s: By 31st May annually
• P11D forms: By 6th July for benefits in kind

Late payment penalties start at 1% of the amount due, increasing to 4% after 12 months.

Total employment cost breakdown

Here's what a £60,000 salary actually costs you:

This doesn't include recruitment costs, equipment, or office space.

Common payroll mistakes

Wrong tax codes: HMRC issues tax codes that change frequently. Using outdated codes means incorrect deductions and angry employees.

Missing auto-enrollment: Failing to enroll eligible employees in a pension scheme triggers fines of £400 per employee, escalating to £10,000 for continued non-compliance.

Late RTI submissions: Real Time Information must be submitted on or before each pay date. Late submissions incur penalties of £100-£400 per month depending on company size.

Incorrect holiday pay calculations: Holiday pay must include overtime, commission, and bonuses averaged over the previous 52 weeks. Getting this wrong leads to tribunal claims.

Benefits in kind errors: Company cars, private medical insurance, and other benefits need P11D reporting. Miss the July deadline and face £300 penalties per employee plus interest on unpaid tax.

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Setting up UK payroll yourself:

• Payroll software: £50-150/month
• Accountant/bookkeeper: £300-800/month
• HR compliance expertise: £45,000+ salary
• Penalty risk: Up to £10,000 for pension non-compliance

With Hire with Columbus: $179/month per employee, fully compliant, zero penalty risk.

We handle all PAYE calculations, RTI submissions, pension auto-enrollment, and statutory reporting. Your employees get paid on time, HMRC stays happy, and you focus on growing your business instead of decoding tax codes.

What benefits and leave are required?

UK employees get 28 days minimum paid holiday (including public holidays), and unused vacation must be paid out when they leave. But that's just the start—you'll also handle statutory sick pay, parental leave that can stretch 52 weeks, and pension contributions that increase every few years.

Let's break down what you're legally required to provide and what it'll cost you.

Annual vacation leave

Every UK employee gets 5.6 weeks of paid annual leave, which works out to 28 days for full-time workers. Part-time employees get a pro-rated amount based on their hours.

Here's how it works: employees start accruing leave from day one, earning 2.33 days per month. They can take leave as soon as they've earned it—no waiting periods required.

You can include the 8 public holidays in those 28 days, which most employers do. That leaves 20 days of regular vacation time. Employees can carry over unused leave, but only if your contract allows it, and they can't lose their statutory minimum.

When someone leaves, you must pay out any unused vacation days at their regular rate. No exceptions—this is statutory pay, not a nice-to-have.

Sick leave entitlements

UK sick leave gets complicated fast. Employees can self-certify for up to 7 days without a doctor's note. After that, they need a fit note from their GP.

Statutory Sick Pay (SSP) kicks in from day 4 of illness and pays £116.75 per week for up to 28 weeks. You pay this directly to the employee—it's not reimbursed unless you qualify for small employer relief (paying less than £45,000 in National Insurance annually).

Many companies offer enhanced sick pay beyond the statutory minimum, especially for senior roles. This might be full pay for 2-4 weeks, then half pay, before dropping to SSP rates.

The tricky part? You're responsible for determining if someone qualifies for SSP, managing fit notes, and potentially dealing with long-term absence procedures. Get it wrong and you'll face employment tribunal claims.

Parental leave breakdown

UK parental leave is generous but complex to administer. Here's what you're dealing with:

Maternity leave: Up to 52 weeks total, split into ordinary (26 weeks) and additional (26 weeks) maternity leave. The first two weeks are compulsory—employees can't work even if they want to.

Statutory Maternity Pay runs for 39 weeks: 90% of average earnings for the first 6 weeks, then £184.03 per week or 90% of earnings (whichever is lower) for the remaining 33 weeks.

Paternity leave: Two weeks at £184.03 per week, taken within 56 days of birth or adoption. Plus, fathers can take up to 50 weeks of Shared Parental Leave if the mother returns to work early.

Adoption leave: Same entitlements as maternity leave, available to the main adopter.

You'll need to track qualifying periods, manage return-to-work arrangements, and handle Shared Parental Leave requests that can be taken in chunks throughout the first year.

Public holidays 2025

The UK has 8 public holidays in 2025, and you must give employees these days off or pay them extra for working:

When a public holiday falls on a weekend, it typically moves to the following Monday. Employees working on public holidays don't get automatic double pay unless your contract specifies it—but most companies offer premium rates to encourage coverage.

Scotland gets an additional day (St. Andrew's Day), and Northern Ireland has different arrangements, so check your specific location requirements.

Mandatory benefits and contributions

Three benefits are non-negotiable in the UK: pension contributions, National Insurance, and holiday pay. Here's what you'll pay:

Workplace pension: You contribute minimum 3% of qualifying earnings (£6,240 to £50,270 in 2025), employees contribute at least 5%. Auto-enrollment is mandatory for eligible workers.

National Insurance: You pay 13.8% on earnings above £175 per week (2025 threshold). There's no upper limit, so high earners cost you more. You also pay 0.5% Apprenticeship Levy if your annual payroll exceeds £3 million.

Employment Allowance: You can claim up to £5,000 annually to offset your National Insurance bill, unless you're a one-person company.

You'll also handle PAYE tax deductions, but that's the employee's money passing through your payroll—not an additional cost to you.

Competitive benefits beyond minimums

Most UK companies offer more than statutory minimums to attract talent. Common enhancements include:

Enhanced sick pay (full pay for 4-6 weeks), private medical insurance (£500-2,000 per employee annually), and additional pension contributions (5-8% employer contribution vs. the 3% minimum).

Death in service benefits (typically 3-4x salary) and income protection insurance are increasingly standard for professional roles. Many companies also offer cycle-to-work schemes, electric car salary sacrifice, and flexible working arrangements.

London-based roles often include season ticket loans or travel allowances, given transport costs can hit £2,000+ annually.

Common benefit administration mistakes

The biggest mistake? Miscalculating holiday entitlement for part-time or shift workers. The calculation isn't straightforward—it's based on hours worked, not just days.

Pension auto-enrollment catches many employers off-guard. You must assess every employee every payroll period and automatically enroll eligible workers. Miss this and you'll face penalties starting at £400 per breach.

SSP administration trips up even experienced HR teams. You're responsible for determining eligibility, managing waiting days, and keeping detailed records. The government can audit your SSP payments and demand repayment if you get it wrong.

Employment tribunal claims for holiday pay underpayment have cost companies millions. Commission, overtime, and regular bonuses must be included in holiday pay calculations—many payroll systems don't handle this automatically.

Administering these benefits correctly requires local HR expertise (£45,000+ annual salary), benefits software (£200+ per month), and ongoing legal review (£5,000+ annually). Risk of errors can result in tribunal claims averaging £15,000 per case.

Hire with Columbus handles all UK benefit administration, statutory payments, and compliance requirements for $179/month per employee. We manage pension auto-enrollment, SSP calculations, holiday pay complexity, and tribunal risk—so you can focus on running your business instead of decoding UK employment law.

What are the compliance requirements?

Written contracts are mandatory in the UK within two months of start date. Skip this and you're looking at automatic unfair dismissal claims plus back payments for any benefits the employee should have received.

The good news? UK employment law is pretty straightforward once you know the rules. The bad news? Get the termination process wrong and you'll pay dearly.

Employment contract requirements

Every employee needs a written contract within two months of starting work. The contract must be in English (though you can provide translations) and include specific mandatory clauses.

Required contract elements:

• Employee and employer names and addresses
• Job title and description
• Start date and end date (if fixed-term)
• Workplace location
• Salary and payment frequency
• Working hours and overtime arrangements
• Holiday entitlement
• Notice periods for both parties
• Pension scheme details
• Disciplinary and grievance procedures

Miss any of these and the employment tribunal can award the employee 2-4 weeks' pay. More importantly, incomplete contracts often get thrown out entirely, leaving you with an expensive mess to clean up.

You don't need to register employment contracts with the government. But you do need to report new hires to HMRC through Real Time Information (RTI) before their first payday.

Probation periods

Standard probation in the UK runs 3-6 months. There's no legal maximum, but anything over 12 months looks suspicious to employment tribunals.

During probation, you can terminate with just one week's notice (or whatever your contract says, if it's longer). After probation ends, full employment protections kick in and termination becomes much more complex.

Key probation rules:

• Must be clearly stated in the employment contract
• Can be extended once if performance issues arise
• Employee still gets basic rights (minimum wage, holiday pay, anti-discrimination protection)
• Unfair dismissal protection starts after two years of service

Working time regulations

The UK follows EU-derived working time rules with some post-Brexit modifications. Maximum working week is 48 hours averaged over 17 weeks, though employees can opt out in writing.

Core requirements:

• Maximum 48 hours per week (unless employee opts out)
• 11 hours rest between working days
• 24 hours rest per week (or 48 hours per fortnight)
• 20-minute break for shifts over 6 hours
• Maximum 8 hours night work per 24-hour period

Overtime isn't mandatory unless contractually agreed. When you do pay overtime, it must bring the employee above minimum wage for all hours worked.

You must keep working time records for all employees. Fines for violations start at £1,000 per employee and can hit £20,000 for serious breaches.

Notice periods

Notice periods depend on length of service and apply to both employee resignations and employer terminations.

During notice periods, employees keep all contractual benefits. You can pay in lieu of notice, but this counts as taxable income.

Gross misconduct allows immediate dismissal without notice. You'll need solid evidence and a proper investigation process though.

Termination process

Firing someone in the UK requires a fair reason and a fair process. After two years of service, employees can claim unfair dismissal if you get either wrong.

Fair reasons for dismissal:

• Capability (performance or health issues)
• Conduct (misconduct or breach of contract)
• Redundancy (role no longer needed)
• Statutory restriction (employee can't legally do the job)
• Some other substantial reason

Required process:

1. Investigation (gather evidence, interview witnesses)
2. Disciplinary meeting (employee can bring companion)
3. Decision meeting (explain reasoning, allow questions)
4. Appeal process (different manager if possible)

Skip any step and you're looking at unfair dismissal claims worth up to £115,115 in 2025. Most settlements run £5,000-£25,000 plus legal fees.

For redundancies affecting 20+ employees, you need collective consultation periods. That's 30 days for 20-99 employees, 45 days for 100+. Individual redundancy consultations should run at least 2-4 weeks.

Severance pay requirements

Statutory redundancy pay applies after two years of service. It's calculated based on age, length of service, and weekly pay (capped at £700 per week in 2025).

Maximum service counted is 20 years. So the highest statutory payment is 30 weeks' pay (20 years × 1.5 weeks for someone over 41).

Many employers offer enhanced redundancy packages. Statutory redundancy is tax-free up to £30,000, but enhanced payments above this threshold face income tax and National Insurance.

When severance is required:

• All genuine redundancies after 2 years' service
• Unfair dismissal compensation (if tribunal finds against you)
• Contractual severance (if specified in employment contract)
• Settlement agreements (negotiated departures)

Data protection obligations

The UK follows UK GDPR (similar to EU GDPR but with local modifications). Employee data handling requires clear lawful bases and strict security measures.

Key requirements for employee data:

• Privacy notices explaining what data you collect and why
• Consent for non-essential processing (marketing, photos)
• Right to access, correct, or delete personal data
• Data breach reporting within 72 hours
• Data Protection Impact Assessments for high-risk processing

Fines for serious breaches hit £17.5 million or 4% of annual turnover, whichever is higher. Even minor violations start at £8.7 million or 2% of turnover.

Background checks need explicit consent. They must follow DBS (Disclosure and Barring Service) rules for criminal record checks. You can only ask for criminal records if they're relevant to the role.

Common compliance mistakes

Invalid employment contracts: Missing mandatory clauses, unclear terms, or verbal-only agreements. Cost: 2-4 weeks' pay per employee plus potential unfair dismissal claims.

Wrong termination process: Skipping investigation steps, inadequate consultation, or firing without fair reason. Cost: £5,000-£115,115 per case plus legal fees.

Working time violations: No opt-out agreements, inadequate rest breaks, or poor record-keeping. Cost: £1,000-£20,000 per employee.

Redundancy process errors: Insufficient consultation, unfair selection criteria, or missing collective consultation requirements. Cost: Full tribunal awards plus potential protective awards of up to 90 days' pay per affected employee.

Data protection breaches: Inadequate privacy notices, unauthorized data sharing, or poor security measures. Cost: Up to £17.5 million or 4% of turnover.

Penalties for violations

Employment tribunal awards (2025 rates):

• Basic unfair dismissal: £115,115 maximum
• Discriminatory dismissal: Unlimited compensation
• Failure to inform/consult on redundancy: Up to 90 days' pay per employee
• Unlawful deduction of wages: Full amount owed plus interest

HMRC penalties:

• Late PAYE payments: 1-4% of amount owed
• Incorrect RTI submissions: £100-£400 per month
• Missing auto-enrollment: £400-£10,000 per day

ICO data protection fines:

• Tier 1 violations: Up to £8.7 million or 2% of turnover
• Tier 2 violations: Up to £17.5 million or 4% of turnover

Common compliance failures in the UK cost companies an average of £15,000-£50,000 per incident. That includes tribunal awards, legal fees, and management time.

Hire with Columbus handles all UK employment compliance automatically. Our legal team drafts compliant contracts, manages termination processes, and ensures every hire follows UK employment law exactly. At $179/month per employee, it's much cheaper than dealing with one compliance failure.

What has changed recently?

The UK's employment rules got a major overhaul in 2025, and honestly, some of these changes caught a lot of companies off guard.

The biggest shake-up came from the Employment Rights Bill, which finally passed in March 2025. Day-one employment rights are now reality – your new hires get protection against unfair dismissal from their first day, not after two years like before. The probationary period workaround? Gone. You can still set probation periods, but they don't override statutory rights anymore.

Flexible working becomes the default

Employees now have the legal right to request flexible working from day one, and you need a really good business reason to say no. The old system where you could just delay the conversation for months? That's done.

The government also flipped the script on flexible working requests. Instead of employees having to justify why they need flexibility, you now need to justify why you can't accommodate it. Most companies we work with are scrambling to update their policies right now.

National minimum wage jumps again

The National Living Wage hit £12.85 per hour in April 2025 (up from £11.44 in 2024), and the apprentice minimum wage jumped to £8.15. If you've got junior staff or apprentices, your payroll costs just went up by about 12%.

IR35 gets another overhaul

IR35 rules changed again in January 2025, and this time they're actually trying to make them clearer. The "reasonable care" test got replaced with a more structured assessment, but let's be honest – it's still confusing. The good news is that HMRC published better guidance and examples.

If you're using contractors, you'll need to reassess all your arrangements against the new criteria. The penalties for getting it wrong haven't changed – you're still looking at back taxes, National Insurance, and interest charges.

Parental leave expansion

Neonatal care leave became statutory in September 2025. Parents of babies requiring neonatal care now get up to 12 weeks of additional leave, and it's paid at the statutory rate (£184.03 per week as of 2025). This is separate from maternity/paternity leave, so it stacks on top.

Bereavement leave also expanded – it now covers pregnancy loss from 24 weeks (previously it was only after live birth). It's still unpaid, but employees get up to two weeks off.

The compliance headache

The Worker Protection Act 2025 made employers liable for third-party harassment. If a client, customer, or supplier harasses your employee, you can be held responsible if you didn't take "reasonable steps" to prevent it.

You need documented policies, training records, and incident procedures. The Employment Tribunal can award up to 25% additional compensation if you can't prove you took preventative action.

When you're hiring through an EOR like Hire with Columbus, we handle all these compliance updates automatically. Our UK employment contracts already include the new day-one rights language, and we've updated our harassment policies to meet the Worker Protection Act requirements. That means your new hires are covered properly from day one, and you don't need to track every legislative change yourself.