Key Takeaways
1. The rules for employers and employees in the UK are clearly set out under UK employment law.
2. The UK has an hourly UK minimum wage which is dependent on the age of the individual, and whether they are an apprentice or employee. Employers must check the current national minimum wage to ensure they are complying with the legislation.
3. In the UK, employers must pay their employees through a system called “pay as you earn” (PAYE). Employers pay taxes on behalf of their employees through PAYE directly to the UK tax authority (‘HMRC’). Independent contractors are not paid through PAYE.
4. From 6 April 2022 to 5 April 2023 National Insurance contributions are set to increase by 1.25%. This increment will facilitate money being allocated to the National Health Service (NHS) and social care in the UK.
The United Kingdom (UK) is a popular place to do business due to the vast number of skilled workers available, and the general ease of doing business in the UK, and Brexit has done little to change this.
It is also a great place for workers, because the minimum working standards allow employees protection from poor working conditions, or being overworked for little pay or exploitation.
Overview of UK employment law
Many firms choose to expand to the UK because of the pool of highly skilled and educated individuals due to the number of reputable universities across the country.
The labour laws in the UK (also known as ‘UK employment law’ or ‘UK labor law’ are clearly set out by the government through a range of government websites and guides, so that employers are aware of exactly what they need to do to meet the statutory requirements and ultimately comply with legislation.
Requirements include providing some kind of an employment contract, paying the national minimum wage, not asking employees to work more than the maximum number of working hours per week, providing sufficient break periods and employee entitlements.
UK labour law also requires that employers comply with the anti-discrimination protections contained in UK equality law (in formal terms, the Equality Act 2010).
Employment contracts in the UK
According to UK employment law, all employees must have an employment contract from the employer, which is an agreement between the two parties outlining employment conditions, rights, responsibilities, and duties: Otherwise known as the ‘terms of the contract’.
According to UK law, the contract does not actually have to be written in a separate document. The contract could appear in other places such as the employee handbook, the job offer letter, or within a written statement or a verbal agreement. However, most employers do provide an actual contractual agreement document which is to be signed by the employee before commencing work.
Within the contract will be details regarding how each party can end the relationship. This could be due to the end a fixed term period, or if notice is given. Usually, the contract will outline a period of time in which the employee and employer must provide notice to end the agreement. Depending on the role, the employee may need to give as little as 1 week’s notice or this could be as long as 3 months.
The express terms of the contract may include things like working hours, working location (remote or office-based), salary, the probationary period, and holiday entitlements. The implied terms of the contract may include things that are not expressly mentioned in the agreement but are ‘read into’ the contract by operation of the law, such as the employer providing a safe place to work and statutory entitlements such as public holidays.
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Minimum employee entitlements in the UK
Under applicable employment law, employees are entitled to a range of employee rights and employee benefits in the UK, including the following:
- Receiving the UK National Minimum Wage
- Protection against unlawful deductions from wages
- The statutory minimum level of paid holidays
- The statutory minimum length of rest breaks
- To work no more than 48 hours weekly
- Sufficient protection against unlawful discrimination
- Sufficient protection for ‘whistleblowing’ if they report wrongdoing in the workplace
- Protection against unfair dismissal, or non-compliant employee redundancy
- Not to be treated less favourably if they work part-time.
In the UK, employees usually cannot work for longer than 48 hours on average per week, and are entitled to have a minimum of 11 hours rest period between each shift. Usually, employees work from Monday to Friday, 9am-5pm with a minimum of 30 minutes for a break.
Holiday or vacation time in the UK is called “annual leave” and most full-time employees are entitled to 5.6 weeks of paid annual leave or 28 days. Within this holiday entitlement, 8 days are actually public or “bank” holidays such as Christmas Day and New Years Day. Employers are required to pay employees for these days off.
Minimum wage in the UK
The “minimum wage” is the lowest amount that an employer can pay an employee. The hourly UK minimum wage is dependent on the age of the individual and whether they are an apprentice. The rate tends to change yearly. It is therefore important for employers to keep up to date with minimum wage requirements in order to be compliant with employment legislation.
The current UK minimum wage until April 2022 includes the following:
- 23 and over: £8.91
- 21-22 year olds: £8.36
- 18-20 year olds: £6.56
- Under 18 year-olds: £4.62
- Apprentice: £4.30
The UK minimum wage from April 2022 includes the following:
- 23 and over: £9.50
- 21-22 year-olds: £9.18
- 18-20 year olds: £6.83
- Under 18 year olds: £4.81
- Apprentice: £4.81
Tax and National Insurance Contributions
Employers must ensure that they are providing accurate details about tax to Her Majesty’s Revenue and Customs (HMRC). This includes submitting correct taxes like National Insurance contributions, the Health and Social Care Levy, and completing P60 forms.
PAYE
Employers in the UK pay their employees’ taxes through a system called “pay as you earn” (PAYE). Rather than employees having to pay their own taxes, employers pay them on their behalf through PAYE directly to HMRC. In simple terms, every employee in the UK has a tax-free allowance. The standard Personal Allowance is £12,570 (applicable to the tax year April 21/22) and this is the amount of income that an individual does not have to pay tax on. Any earnings above this figure are taxed at 20%. Any income earned between £50,271 to £150,000 is taxed at 40% and income of over £150,000 is taxed at 45%. An individual does not get a Personal Allowance on taxable income over £125,140.
National Insurance
Under UK employment law, employees over the age of 16 must pay National Insurance if they are earning more than £184 per week or are self-employed and making a profit of £6,515 or more a year. The amount that a person must pay towards National Insurance varies depending on their employment status and level of earnings. The categories are split up into what are called National Insurance “classes.”
From 6 April 2022 to 5 April 2023 National Insurance contributions are due to increase by 1.25% which will be spent on the NHS and social care in the UK.
The general National Insurance rates for the tax year 21/22 include the following:
- Those who earn £184 to £967 a week will pay 12% towards National Insurance
- Those who earn over £967 a week will pay 2% towards National Insurance
IR35
In the UK, a tax law has been implemented for “off-payroll” working. This has come about due to independent contractors avoiding taxes resulting in the government losing out on money, otherwise known as “disguised employment”. The off-payroll working rules can apply where a contractor “provides their services through their own limited company or another type of intermediary to the client.” An “intermediary client” is considered as the worker’s own service company or partnership.
The rules are there to avoid workers being classed as contractors when they are actually employees. The new tax ensures that such individuals pay similar Income Tax and National Insurance contributions as employees would. These rules are sometimes known as Inland Revenue 35 or ‘IR35’. As a result, from 6th April 2021, the UK government placed the onus on employers to decide if the IR35 rules apply to their relationships between themselves and contractors and therefore whether a worker should be classed as a contractor or employee. If the contractor is providing their services to a small business it is their responsibility to classify themselves correctly. If HMRC finds that someone is being treated as an employee, but claiming to be an independent contractor, they may impose heavy fines and tax implications on those involved.
Independent contractors in the UK
Independent contractors or self-employed individuals who have their own businesses must notify HMRC of their self-employment status and declare their profits and expenses to ensure that they are correctly taxed. Independent contractors are not paid through PAYE as they are not employees and are therefore responsible for their own taxes. In most cases, UK employment law does not cover contractors.
Horizons and UK employment law
At Horizons, we have experts that specialize in offering global Professional Employer Oganization (global PEO) services in the UK, ensuring full compliance with UK employment law.
Please contact us today for more information on how we can help your business.
Frequently asked questions
The employment laws or ‘labour laws’ in the UK are clearly defined and laid out by the government so that employers know exactly what they need to do to meet statutory requirements and comply with legislation. This includes paying the UK national minimum wage, providing minimum benefits and ensuring employees do not work more than the maximum working hours per week or without sufficient breaks.
It is not a requirement for UK employers to provide private health insurance for their employees. This can be a supplementary benefit that employers may provide if they wish to. Some employers may include private health insurance as a benefit to joining the company to attract the best workers.
