At Bradford Jacobs, our Employer of Records (EOR) platform provides reliable solutions for companies wishing to establish their presence in the UK economy. From the first steps of setting up operations to ensuring compliance with the local payroll laws and regulations, we offer dedicated UK Payroll solutions that can be personalized to your requirements.
We aim to make business expansion easy. At Bradford Jacobs, we navigate the administration of the UK payroll system for you, and we also make the returns and associated payments for income tax and social security contributions directly from our payroll system to the local tax authorities. We do the work, so you do not have to.
When expanding into a new country, you may encounter some challenges regarding payroll, but allow us to take the reins and answer any of your questions and concerns with our trusty guide on payroll for the UK.
What UK Payroll Options Are Available for Companies?
Businesses in the UK have access to a variety of payroll options, depending on their needs:
- Remote payroll - Businesses may choose to operate under a single payroll system for all employees, by adding employees in Britain to your parent company’s payroll. However, employees in the UK have to operate under different regulations, which can cause confusion.
- Internal payroll - You may also operate payroll out of your subsidiary, especially if you are committed to growing your company’s presence in Britain. However, this does require hiring a dedicated HR staff that understands the local employment and compliance laws.
- UK payroll processing company - If you are keen on outsourcing, working with a British payroll processing company will help in your payroll process – but not compliance.
- UK payroll outsourcing - An option that solves both payroll and compliance needs - working with a company like Bradford Jacobs. We can handle both your payroll and compliance for all your employees in the UK. We take the stress of administration off your shoulders so you can focus on what you do best.
UK Payroll Services
In the UK, payroll regulations change frequently, and corporation may risk penalties or sanctions if they do not comply. Our payroll service involves staying up to date with these shifting demands, as well as an understanding of the UK’s employment laws, taxation regulations such as individual taxes, corporate taxes, social and labor insurance, and meeting all their associated deadlines. Our role consists of:
- Registering with the UK’s HM Revenue and Customs
- Registering for National Insurance
- Creating employment contracts for your new employees, in English
- Calculating employees’ monthly salary and sending them their pay slips
- Researching for any available tax incentives
- Submitting employees’ or employer’s wage tax returns and national insurance forms
- Creating and submitting your company’s annual accounts, administration, and year-end statements
- Creating payment schedules for wage tax, national insurances, and net wages
- Ensuring proficient personal income tax returns for you and your employees
It is easy to see why outsourcing payroll a popular practice for many employers in the UK. It saves money and time and guarantees that your employees are paid, tax returns are filed, and social security obligations are fulfilled in full and on time.
Bradford Jacobs provides the complete service to remove the anxiety and stress from your administration.
What Is Required to Set up UK Payroll?
The requirements for setting up payroll in the UK will depend on how you establish your presence in the country. If you would like to set up as a subsidiary, you will need to have your subsidiary established first – but this can take some time, depending on where you incorporate as well as the entity type you choose.
To start processing payroll in the UK, you will need:
- a local tax identification number
- Register for VAT
- Registration for a National Insurance number
- Register as an employer with HM Revenue and Customs (HMRC)
- A local bank account
- A real-time information system software
Registering with the appropriate authorities and the bank will take at least 5 working days to a few weeks, depending on the documentation required.
What Entitlement/Termination Terms Are Needed to Set up UK Payroll?
Employees in the UK can benefit from entitlements for both employment and termination that are enforced by the local legislation, collective bargaining, trade councils and labor institutions:
National Minimum Wage: All employees are entitled to receive at least the statutory minimum wage in the UK, which is split into two types, depending on your age and/or apprenticeship:
- National Living Wage – for employees aged 23 and over
- National Minimum Wage – for employees who are at least school-leaving age (16-18)
As of April 2021, these minimum wage rates apply:
- Apprentice - £4.30
- Under 18 - £4.62
- 18 – 20 - £6.56
- 21 – 22 - £8.36
- 23 & over - £8.91
Working Hours: The typical working week (inclusive of overtime) cannot exceed 48 hours, which is averaged over a 17-week period. However, employees can opt out of this limit by giving the employer written consent.
After working for an employer for more than 26 weeks, the employee may request flexible working arrangements, which may only be requested once every 12 months – and the employer must decide within 3 months.
Normal working hours are 8am-4pm or 9am-5pm, and the days are Monday-Friday.
Overtime: Employees may only work overtime if there is a written agreement between them and their employer and must not exceed 48 hours in a week (which includes working hours and overtime). Employers are not obliged to pay a premium rate for the overtime work, but they are required to ensure that the employee’s pay for the overtime work is not below the national minimum wage.
Annual Leave: Employees are entitled to a minimum of 28 paid days of annual leave each year. They are also entitled to an additional eight days or 1.6 weeks every leave year, with a maximum of 28 days.
Sick Pay: Employees are entitled to a statutory sick pay if they are unable to perform work for 4 or more consecutive days – sick pay is charged at a weekly pay rate of £96.75 for a maximum of 28 weeks.
Holiday Leave: There are 8 public holidays in Wales, England, and Scotland:
- New Year’s Day
- Good Friday
- Easter Monday
- An Early May Bank Holiday
- A Spring Bank Holiday
- A Summer Bank Holiday
- Christmas Day
- Boxing Day
In Northern Ireland, there are 10 public holidays. If a bank holiday falls on a weekend, a substitute weekday becomes the holiday – normally the following Monday. The holidays in the UK, however, may vary according to the country in the kingdom – for example, certain holidays in England and Wales are not in Scotland, and vice versa.
Employers are not obliged to give bank holidays as paid leave, but they may choose to include these holidays as part of the employee’s statutory annual leave.
Maternity Leave: Pregnant employees are entitled to 52 weeks of maternity leave, which are split into two parts:
- Ordinary Maternity Leave (OML): The first 26 weeks of maternity leave.
- Additional Maternity Leave (AML): The last 26 weeks of maternity leave.
Employees may choose not to take all 52 weeks of her maternity entitlement, but they must take 2 weeks of leave when the baby is born. The earliest time that maternity leave may be taken is 11 weeks before the expected week of childbirth.
Pregnant employees may also receive up to 39 weeks of statutory maternity pay (SMP), which may only be given if they have worked for their employer for at least 26 weeks, as well as meet the minimum earnings requirements.
Payments may start at 11 weeks before the child is due, and the maternity pay is currently at:
- 90% of the employee’s average earnings for the first 6 weeks of maternity leave
- £151.97 per week or 90% of the employee’s average weekly earnings for the next 33 weeks.
Paternity Leave: Partners of pregnant employees are entitled to 2 consecutive weeks of paid paternity leave before the end of a 56-day period, beginning on the date of the child’s birth. However, if the employee has taken parental leave, they are not entitled to paternity leave.
To be eligible for paternity leave, an employee must have at worked for at least 26 weeks with their employer, have or expect responsibility of the child’s upbringing, as well as be the biological father of the child or be married to/the civil partner of child’s mother.
The statutory paternity pay is £151.97 per week or 90% of your average weekly earnings.
Parental Leave: Employees in the UK are entitled to 18 weeks of unpaid parental leave for every child & adopted child, until they reach the age of 18. This leave type includes 4 weeks of parental leave that can be taken in weekly periods, unless otherwise agreed between the employer and employee.
Termination/Severance: In cases of termination, a notice period must be given – which is either stated in the employment contract, or the statutory minimum. The rates are:
- Between one month and 2 years - at least one week’s notice
- Between 2 years and 12 years - one week’s notice for each year
For employees that are on fixed-term contracts, and their employment is ended ahead of the expiry date, are also required to be given the statutory notice period.
Dismissal without notice can also be utilized in cases of gross misconduct.
In case of severance payments, severance is required in cases of redundancy, and is statutory if an employee has been under contract for at least 2 years, and depends on the employee’s length of service and age:
- For employees under 22 – half a week’s pay for each full year
- For employees between 22-41 – one week’s pay for each full year
- Employees over 41 – one and a half week’s pay
For severance payments, the length of service is capped at 20 years, and the weekly pay is capped at £525.
There is no 13th month pay in the UK.
What Taxation Rules Exist for Payroll?
A crucial aspect of UK payroll is knowing the local tax regulations. Employees pay a progressive income tax rate and contribute to health insurance and social insurance through monthly salary deductions.
The tax year runs from 6 April to 5 April of the following year. Employee salaries are paid monthly and pay slips may be provided online or in person. The employer must also file monthly social security declarations and yearly income tax reports, which state employees’ yearly earnings.
Employers in UK also have to keep these following tax payments in mind:
- Corporate Tax: Companies are obliged to make an income tax payment of 19%. Corporate taxes must be paid yearly, 9 months after the end of the end of the tax year, and returns must be made one year after the tax year ends.
- Income Tax: Income taxes in the UK are progressive and vary according to where in the UK you have settled. In England and Northern Ireland, income taxes depend on how much you earn, as well as how you earn it. Also, the rate of tax only applies to the proportion of your income that falls within that tax brand.
Income taxes are withheld and paid by the employer to the Her Majesty’s Revenue and Customs (HMRC). The 2021 income tax rates are like so:
- £0 - £12,570 - 0%
- £12,571 - £50,270 - 20%
- £50,271 - £150,000 - 40%
- £150,000 and over - 45%
- Social Taxes: Employers also have to deduct National Insurance Contributions from their employee’s pay each month, as well as make their own payments. NIC payments depend on how much they earn. These amount to make these payments monthly or quarterly. Late or incorrect payments may result in interest payments.
Employer’s Social Security Contributions
£520 - £737 per month - 0%
£737.01 – £4,189 per month - 13.8%
Over £4,189 per month - 13.8%
Employee’s Social Security Contributions
£520 - £797 per month - 0%
£797.01 - £4,189 per month - 12%
Over £4,189 per month - 2% on the remaining amount
For more information on taxes, you can check out our UK Tax page.
Contact Bradford Jacobs to sort out your payroll problems today
If you are looking to expand into the UK and need your employees’ payroll managed with extensive management in compliance, contact us today to see what our International Payroll services can do for you.