How to hire and pay employees in The United Kingdom
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Before hiring
Before Hiring
You're planning your first UK hire. The compliance anxiety is real: Do you need to set up a legal entity? How do UK employment laws differ from what you're used to? What will this actually cost once you factor in employer taxes, benefits, and administrative overhead?
Here's what most US companies face: entity setup in the UK takes 3-6 months and costs £15,000-30,000+ in legal fees before you can even make an offer. An Employer of Record (EOR) like Oyster lets you employ compliantly in 48 hours with transparent, all-inclusive pricing and no entity required. For most companies hiring 1-10 employees in the UK, EOR is the faster, more cost-effective path—you get immediate compliance coverage, automated payroll, and expert support without the operational burden of managing a foreign subsidiary.
Before you employ in the UK, know that data protection under UK GDPR impacts how you handle employee information across borders. You'll also need to understand when statutory benefits like pensions and Statutory Sick Pay kick in versus when competitive employers go above minimums to attract talent. This isn't guesswork—these decisions directly affect your ability to compete for skilled workers in a market where employment protections are robust and candidate expectations are high.
Recent News
The hardest part of hiring in the UK isn’t writing the offer letter—it’s keeping up with changes that affect the real cost of employment. Over the past 12 months, payroll costs, wage floors, and employment policy have shifted in ways that directly impact budgets, payroll setup, and compliance risk. Staying current helps avoid last-minute surprises when Finance asks, “What will this hire actually cost?”
Higher "cost-to-employ" from Employer National Insurance changes
From 6 April 2025, the employer NIC rate increased from 13.8% to 15%, and the Secondary Threshold dropped from £9,100 to £5,000/year. That combination increases on-costs and can pull more lower-paid or part-time roles into employer NIC liability earlier than before. Action: update your cost calculators and budgeting assumptions for all UK hires starting in the 2025–26 tax year, not just "new headcount."
There is some offset, but it's not automatic: the Employment Allowance increased from £5,000 to £10,500, and the previous £100,000 employer NIC eligibility restriction was removed. For some employers, that's meaningful relief; for others, it won't touch the scale of the increase. Action: confirm eligibility early so you're not pricing offers based on a credit you can't claim.
Minimum wage increases that ripple through pay bands
From 1 April 2025, the National Living Wage (age 21+) increased to £12.21/hour, with higher youth and apprentice rates also taking effect. This isn't just a "lowest-paid roles" issue—compression pressure shows up quickly when team leads and experienced staff expect differentials to be maintained. Action: re-check pay ranges, overtime assumptions, and any roles close to the new floor before you approve headcount.
Minimum wage compliance also gets easier to break than most teams expect (think unpaid time, uniform deductions, or salary sacrifice interactions that drop the effective hourly rate). Action: tighten timekeeping and run "effective hourly rate" checks in payroll, especially for hourly and variable-hours workers.
Sick pay reforms on the horizon: plan now for "day-one SSP" (target April 2026)
Government communications over the past year signal major changes to Statutory Sick Pay (SSP), including making SSP payable from day one (removing waiting days) and removing the Lower Earnings Limit as an eligibility gate. The stated direction is tied to a broader "day-one rights" agenda, with an implementation intention referenced for April 2026. Action: review your sickness policy wording, probation practices, and payroll rules now—because a wider SSP net can increase incidence and cost.
More statutory pay admin to run through payroll
Statutory Neonatal Care Pay administration regulations came into force on 6 April 2025, adding another statutory payment process for employers to operationalize. Even if your workforce is small, statutory payments are where payroll setups and recordkeeping often fall apart under pressure. Action: make sure your payroll process can handle eligibility, documentation, and accurate payments without manual workarounds.
Enforcement and claims risk are rising—especially around pay and holiday calculations
Holiday pay reforms for irregular-hours and part-year workers (including 12.07% accrual and permitted rolled-up holiday pay for relevant leave years) are still "bedding in," which is exactly when mistakes show up. Media reporting has highlighted a rise in unpaid holiday pay claims, and the government has also announced plans for a Fair Work Agency with a target launch of April 2026, intended to strengthen labour market enforcement. Action: audit worker classification, holiday accrual methods, and payslip visibility now—because enforcement tends to hit the messy edge cases first.
Macro cost pressure is changing hiring behavior (and raising CFO scrutiny)
In the real economy, the combined effect of higher employer NICs and higher wage floors is feeding into tighter labour-cost discussions and slower hiring in some sectors. That often pushes companies toward more flexible staffing models—but those models are also under increased policy and enforcement attention. Action: scenario-plan your UK hiring costs (base pay, NICs, statutory payments, and holiday/sick assumptions) so you can defend headcount approvals with numbers, not hope.
Hiring in the UK can be straightforward—until one threshold changes, one policy shifts, or payroll has to handle a scenario you didn't model. Oyster helps you hire employees in the United Kingdom with the mix most platforms skip: technology that reduces manual work, and real humans who step in when the situation gets complicated. Start hiring globally.
At a glance
CURRENCY
GBP
OFFICIAL LANGUAGE
ENGLISH
PAYROLL FREQUENCY
MONTHLY
EMPLOYER TAXES
16.80%+
13th / 14th SALARY
N/A
Good to know
Good to know
- Notice periods are asymmetric: Employees need to provide just one week's notice as a statutory minimum (though different notice periods can be agreed in the employment contract), but employers must give one week per year of service (up to 12 weeks). This catches US employers off guard—plan for longer offramp periods when managing performance or restructuring.
- Healthcare is already covered—but private insurance matters: The NHS provides universal healthcare, so you're not on the hook for basic medical coverage like in the US. However, competitive employers offer private medical insurance (PMI) to provide faster access to specialists and comprehensive coverage—it's a key differentiator in attracting senior talent.
- The Working Time Regulations limit hours to 48 per week: Employees can opt out in writing, and many do, but you can't just assume US-style overtime expectations. Understanding how this works—and what's culturally acceptable—prevents misaligned expectations during onboarding.
- UK employment law favors employees after two years: Once an employee hits two years of service, unfair dismissal protections kick in, making terminations more complex and costly if not handled properly. Fair process matters more than in at-will US employment—this isn't a detail to ignore.
- Payroll runs monthly, not bi-weekly: UK employees expect monthly pay cycles, and PAYE (Pay As You Earn) tax withholding happens automatically through payroll. If your team is used to US bi-weekly rhythms, adjust expectations and cashflow planning accordingly.
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Top countries hiring in
United Kingdom
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Labor laws in
United Kingdom
Working hours and overtime
Under the Working Time Regulations, employees in the UK cannot work more than an average of 48 hours a week, a figure that is typically calculated over a 17-week reference period. Workers can opt out of this limit in writing, and this is common for more senior roles, but employees are able to opt back in with three months' written notice. In practice, most professional roles expect reasonable flexibility, but the 48-hour limit serves as a cultural and legal guardrail against overwork.
The regulations also mandate minimum rest periods: 11 consecutive hours of rest per day, one full day off per week (or 48 hours in a 14-day period), and a 20-minute break for shifts longer than six hours. Overtime pay isn't legally required unless specified in the employment contract—most salaried employees don't receive additional pay for extra hours. If you're hiring for roles where overtime is common, clarify expectations and compensation upfront to avoid friction later.
Minimum wage
Employment contracts
Employment contracts in the UK must be in writing. The contract (or written statement of employment particulars) must include: job title, start date, salary, working hours, holiday entitlement, notice periods, and workplace location. These aren't just formalities—contract terms are legally enforceable and set the foundation for the employment relationship.
Contracts should clearly distinguish between statutory minimums and what you're actually offering. For example, if you're providing 28 days of annual leave (statutory including public holidays) versus a competitive 30+ days, spell it out. Include clear language on probationary periods, confidentiality, IP assignment, and post-termination restrictions if relevant to your business. Vague or incomplete contracts expose you to disputes—getting it right from the start saves headaches later.
Probationary period
There's no statutory probationary period in UK law, but it's standard practice to include one in employment contracts—typically three to six months. During probation, you can assess performance and cultural fit with shorter notice periods (usually one week after one month's employment) and more flexibility to terminate if things aren't working. However, employees still have basic employment rights from day one, including protection against discrimination and the right to statutory benefits.
Use probation strategically: set clear performance expectations, conduct regular check-ins, and document feedback. If you need to extend probation, do it transparently and put it in writing. Once an employee completes probation successfully, their notice period increases to contractual or statutory minimums, and after two years, unfair dismissal protections apply—making early performance management during probation critical.
Pensions
Estimate your savings when using Oyster
Use this calculator to get an estimate of employment costs using Oyster.
(Spoiler alert: It’s much cheaper than setting up entities around the world!)
Benefits and leave in
United Kingdom
Vacation time
UK employees are entitled to 5.6 weeks (28 days) of paid annual leave per year for a full-time, five-day work week—a statutory minimum where employers can choose to include bank holidays as part of a worker's statutory annual leave. Most employers provide 20-25 days of leave plus public holidays, meaning competitive packages often total 28-33 days. If you're hiring senior talent or competing for in-demand roles, offering 25-30 days of leave (excluding public holidays) is standard.
Holiday entitlement accrues throughout the year and can be carried over only with employer agreement—unused leave typically expires at year-end or is paid out upon termination. When an employee leaves, you must pay out accrued, unused holiday in their final paycheck. Be clear in contracts about how holiday is calculated during the first year (pro-rated) and whether you allow unlimited or discretionary leave beyond statutory minimums.
Sick leave
Employees absent due to illness for four or more consecutive days are entitled to Statutory Sick Pay (SSP), with the official weekly rate for SSP at £118.75 for the 2025-2026 tax year, for up to 28 weeks. SSP doesn't cover the first three days of absence (the "waiting period"), and it's well below most employees' regular salary—so competitive employers offer enhanced sick pay, often paying full salary for 1-3 months depending on tenure.
Employees must notify you of illness within seven (7) days, or another deadline set by the employer, and provide medical evidence (a fit note from a doctor) if absent for more than seven consecutive days. Here's what catches US employers: UK sick leave is more generous and culturally accepted than in the US—employees won't feel pressure to work through illness, and trying to impose US-style attendance pressure creates friction and potential legal risk.
Maternity and paternity leave
Parental leave
Employees having a baby have the right to up to fifty-two (52) weeks' maternity leave. Eligibility for statutory maternity pay ("SMP") applies if the employee has been working continuously for the same employer for twenty-six (26) weeks before becoming pregnant and earns at least £125 a week on average for eight (8) weeks before becoming pregnant. SMP is calculated at 90% of the employee's average weekly earnings for the first six (6) weeks, and whichever is lower of: (i) £187.18 per week; or (ii) 90% of their average weekly earnings, for the following thirty-three (33) weeks. Competitive employers typically offer enhanced maternity pay—three to six months at full salary is common, and many offer more to attract and retain talent.
Employees are eligible for up to two (2) weeks of paternity leave, and the official government rate for Statutory Paternity Pay ("SPP") is whichever is lower of £187.18 a week or 90% of the employee's average weekly earnings. Shared Parental Leave (SPL) allows an employee who is entitled to take maternity or adoption leave to end their leave and to share the remainder with their partner, and employees can work up to 20 days during their Shared Parental Leave as 'shared parental leave in touch' (SPLIT) days. Adoption leave mirrors maternity leave entitlements. Employees also have the right to request unpaid parental leave (up to 18 weeks per child until the child turns 18) and emergency time off for dependents. If you want to position your company as family-friendly, go beyond statutory minimums—enhanced leave policies are a significant competitive advantage in the UK market.
Holidays
View a list of recognized public holidays in the United Kingdom here.
Employer tax
Employers in the UK are required to make National Insurance Contributions (NICs), and the amount payable depends on how much the relevant employee earns. You're also required to contribute a minimum of 3% of an employee's wages to a workplace pension scheme under auto-enrollment rules (with employees contributing 5% for a total minimum contribution of 8% for eligible employees). Total employer costs typically run 16-18% on top of gross salary, though rates can increase with higher pension contributions or optional benefits like private medical insurance.
These taxes fund the NHS, state pensions, and other social programs. Unlike the US, there's no state-by-state variation—employer tax rates are consistent across England, Scotland, Wales, and Northern Ireland. Factor these costs into your hiring budget from the start—they're non-negotiable statutory obligations, not optional benefits.
Individual tax
Employees in the UK pay income tax through PAYE (Pay As You Earn), which employers withhold directly from payroll. The standard Personal Allowance, or untaxed income limit is £12,570. After that amount, an employee's income tax is dependent on which band the income fits within:
- 20% on income from £12,571 to £50,270 (basic rate)
- 40% on income from £50,271 to £150,000 (higher rate)
- 45% on income above £150,000 (additional rate)
Employees also pay National Insurance contributions, and they must contribute a minimum of 5% of qualifying earnings to their workplace pension (combined with employer contributions, the minimum total is 8%). Unlike US employees, UK workers don't file annual tax returns unless they have additional income sources—PAYE handles withholding automatically, simplifying payroll but requiring precise setup.
Termination in
United Kingdom
Terminating employees in the UK requires careful attention to process, especially after two years of service when unfair dismissal protections apply. You must have a fair reason for dismissal—conduct, capability, redundancy, illegality, or "some other substantial reason"—and you must follow a fair procedure. Even during probation or in the first two years (when ordinary unfair dismissal claims aren't available), employees can still claim automatically unfair dismissal for protected reasons like discrimination or whistleblowing—so fair process always matters.
For performance or conduct dismissals, document everything. Employers can also be required to pay a 25% uplift on compensation if they are found to have unfairly dismissed an employee and not followed the ACAS Code of Practice in doing so.
Redundancy is a specific type of dismissal when the role is no longer needed. Employees with two or more years of service are entitled to statutory redundancy pay:
- Half a week's pay for each full year they were under 22
- One week's pay for each full year they were 22 or older but under 41
- 1.5 weeks' pay for each full year they were 41 or older (capped at 20 years)
You must also follow a fair redundancy process, including consultation and considering alternatives. Mishandling redundancy—like selecting employees based on discriminatory criteria—opens you to significant legal and financial risk.
Statutory notice periods in the UK are minimums: employers must provide one week's notice for employees with one month to two years of service, then one additional week per year of service up to a maximum of 12 weeks. Employees must give a statutory minimum of one week's notice when resigning, though different lengths of notice can be agreed in the employment contract—typically one to three months for senior roles.
You can pay in lieu of notice (PILON) if the contract allows it, meaning the employee leaves immediately but receives their notice period salary. Garden leave—where the employee remains employed during the notice period but doesn't work—is also common for senior roles to protect confidential information or client relationships. Be clear in contracts about notice requirements and PILON terms to avoid disputes during exits.
Start hiring employees in
United Kingdom
You have two paths to employ in the UK: set up a legal entity or use an Employer of Record. Setting up a UK subsidiary gives you full control and makes sense if you're planning significant long-term presence—10+ employees, local leadership, or business operations beyond employment. But it takes 3-6 months, costs £15,000-30,000+ in legal and accounting fees, and requires ongoing compliance management, payroll infrastructure, and local expertise to navigate employment law.
For most companies making their first UK hires or scaling distributed teams, an EOR like Oyster is faster and more cost-effective. You can employ compliantly in 48 hours with transparent pricing, automated payroll, benefits administration, and expert support for any employment questions. No entity setup, no legal fees, no compliance anxiety—just straightforward employment that lets you access UK talent without the operational burden of managing a foreign subsidiary.
Here's the real difference: with Oyster, you get both technology and human support. Self-service platforms work until they don't—when a compliance question arises, a tribunal claim looms, or payroll hits a snag, you need experts who answer. Oyster combines modern employment technology with real human expertise. When payroll, compliance, or employment issues get complex, experienced specialists step in. Transparent pricing, fair employment practices, and no hidden terms—because global hiring should be done right, not just quickly.
Disclaimer: The information provided in this resource is for general educational purposes only and shall not be construed as legal advice. While Oyster strives to provide current and accurate information, Oyster makes no warranties or representations as to the correctness of the content provided and accepts no liability or responsibility for any errors or omissions in the content provided. By using this resource you acknowledge and agree that you do so at your own risk. The content of this resource is subject to change without notice.
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FAQs
What are the benefits of using an Employer of Record in the UK?
An EOR lets you employ UK team members compliantly in days instead of months, without setting up a legal entity or navigating employment law alone. You avoid the £15,000-30,000+ setup costs and ongoing administrative burden of running a subsidiary while getting automated payroll, benefits administration, and expert support for compliance questions. For companies hiring 1-10 employees or testing the UK market, EOR offers speed, cost savings, and risk mitigation that entity setup can't match.
How quickly can I hire an employee in the UK with Oyster?
With Oyster, you can employ a UK team member compliantly in as little as 48 hours once you've selected your candidate. We handle employment contracts, payroll setup, benefits enrollment, and compliance—no entity required. You focus on onboarding and integration while we manage the operational and legal complexity behind the scenes.
What's the real total cost of employing someone in the UK?
Plan for 16-18% in employer costs on top of gross salary: National Insurance contributions and pension contributions. Add the cost of competitive benefits if you're offering private medical insurance or enhanced leave policies. With Oyster's transparent pricing, you know exactly what you'll pay—no hidden fees, no surprise add-ons, no asterisks.
Do I need to offer private health insurance to UK employees?
No—the NHS provides universal healthcare, so private medical insurance (PMI) isn't mandatory. However, competitive employers offer PMI to provide faster access to specialists and attract senior talent. It's a key differentiator in a market where employment benefits go beyond statutory minimums.
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