Employer of Record in the UK: A Comprehensive Guide for 2026

Introduction

The United Kingdom's employment rests on the Employment Rights Act 1996, the Equality Act 2010, the Working Time Regulations 1998, and the National Minimum Wage Act 1998. These statutes set the baseline for every hire, regardless of the employer's country of origin.

The Employment Rights Act 2025 is phasing in across 2026 and 2027, cutting the unfair dismissal qualifying period from two years to six months by January 2027. Any hire today carries employment tribunal exposure sooner than most foreign employers plan for. The off-payroll working (IR35) rules also create retroactive liability when contractor classification is wrong, and the classification decision sits with the client for medium and large businesses.

An Employer of Record (EOR) in the UK acts as the legal employer, removing entity registration requirements. This guide covers employment contracts, statutory entitlements, IR35, right-to-work checks, termination and redundancy rules, work visa and sponsorship requirements, payroll and taxes, and how an EOR supports compliant UK hiring without a local entity.

UK at a glance

• Population: 69.97 million
• Currency: Pound Sterling (GBP, £)
• Capital: London
• Languages: English
• GDP: 3.69 trillion USD

How does employment regulation work in the UK?

UK employment is governed by a framework of statutes that set a floor employers cannot go below. The main ones are the Employment Rights Act 1996, the Equality Act 2010, the Working Time Regulations 1998, and the National Minimum Wage Act 1998. These cover contracts, pay, working hours, leave, and protection from unfair treatment and dismissal.

The Employment Rights Act 2025 is being phased in across 2026 and 2027, and it is the biggest overhaul of UK employment law in a generation, so a foreign employer should treat the UK baseline as a moving target and check the current position before each hire.

What are the types of employment contracts?

UK law recognises several contract types. The two that matter most when planning a hire are Indefinite and fixed-term contracts.

Permanent (Indefinite): The standard ongoing contract with no fixed end date. It runs until either side ends it under the contract and the law. This is the baseline for full-time and part-time roles alike.

Fixed-term (Definite): Set to end on a specific date or when a task finishes. Fixed-term employees cannot be treated less favourably than comparable permanent staff. After four years of continuous fixed-term contracts, the role becomes permanent unless the employer has an objective reason to keep it fixed-term.

UK law also recognises part-time, agency, zero-hours, and freelance or contractor arrangements. Whatever the type, the employer must give every new employee and worker a written statement of the main employment terms on or before their first day, with any remaining particulars following within two months.

What are the statutory employee entitlements in the UK?

Every UK employee is owed a set of statutory minimums. The figures below are current for 2026.

What are the UK public holidays in 2026?

In the UK, bank holidays are the statutory public holidays, and the festive holidays are all included within the bank holiday list. There are no additional paid public holidays beyond these dates. An employer does not have to give paid leave on bank or public holidays, as these can count toward the statutory 5.6 weeks' annual leave entitlement.

The number of bank holidays and specific dates differ across the four nations.

What is the difference between contractors and full-time employees?

The difference comes down to employment status, which decides what rights the person has, how they are taxed, and who carries the obligations. UK law also recognises a middle status, "worker", that sits between employee and self-employed, though the main choice when hiring is between an employee and a self-employed contractor.

Where a contractor provides services through their own limited company, often called a personal service company, the off-payroll working (IR35) rules can apply, making sure a contractor who would be an employee if engaged directly pays broadly the same Income Tax and National Insurance as an employee.

For medium and large private-sector clients, and all public-sector clients, the client must determine the contractor's status, and if the contractor falls within the rules, Income Tax and employee National Insurance are deducted from the fees.

The UK's IR35 off-payroll rules place the classification decision on medium and large clients, and getting it wrong means the business and the worker can owe unpaid Income Tax and National Insurance from the point the status was incorrectly assessed.

Whether you engage contractors for project-based work or hire full-time employees for ongoing roles, each model carries different classification and compliance obligations. Skuad supports both hiring models from a single platform:

EOR for full-time employees

• Acts as the legal employer across 160+ countries, so you can hire without setting up a local entity
• Supports employment contract generation aligned with local labor laws across supported markets
• Facilitates statutory contribution workflows covering applicable social insurance and pension obligations
• Supports payroll processing in 70+ currencies with automated tax withholding and year-end reconciliation
• Helps administer statutory benefits, paid leave, and parental entitlements in line with local requirements
• Assists with termination and offboarding, including notice periods and severance calculations as required locally

Contractor management

• Helps onboard contractors with locally compliant agreements that reduce misclassification exposure
• Supports invoice generation, approval workflows, and payment processing
• Helps flag classification risk before it becomes a compliance issue with built-in worker classification checks
• Facilitates multi-currency payouts across 70+ currencies
• Helps manage contractor records, contracts, and payment history from a single dashboard alongside full-time employees

Full-time or contractor, Skuad supports both. See pricing.

What are the key things to know about hiring in the UK?

Hiring in the UK is quick to get moving. Most employers source candidates through job boards such as Indeed, Reed, and LinkedIn, or through a recruitment agency. The part that catches overseas employers out is the set of checks an employer runs before someone starts. The right to work check, which is a legal duty on every employer, and background checks, which depend on the role.

Right-to-work checks

Every UK employer must check that a job applicant is allowed to work in the UK before they employ them. A correct check gives the employer a statutory excuse, so no civil penalty applies if the worker later turns out to have no right to work.

Where the check is not done correctly, the civil penalty runs to up to £45,000 per illegal worker for a first breach and up to £60,000 for repeat breaches. Knowingly employing someone without the right to work is more serious, carrying up to 5 years in prison and an unlimited fine.

Background checks

Beyond the right-to-work check, the standard pre-employment screen in the UK is the Disclosure and Barring Service (DBS) check, a criminal record check.

More detailed checks apply to sensitive roles, for example, in healthcare or childcare, where an enhanced check can also show whether the person is barred from the work. Employers often verify employment and education history too, and run credit checks for finance roles, as standard practice rather than a legal requirement.

Every UK employer has a legal duty to run a right-to-work check before someone starts, with civil penalties. Roles in healthcare, childcare, and finance carry additional screening requirements on top.

Skuad supports background checks as part of the hiring workflow, covering identity verification, employment history, criminal records, and education credentials, so you can see where each candidate stands before contracts are signed.

What are the probation and termination rules in the UK?

In the UK, the start and end of employment carry few fixed formalities, and an employee's protections grow with length of service. Here is what probation involves and what an employer must do to end employment lawfully.

Probation period

The UK does not require a probation period by law. It is a contractual arrangement set in the employment contract, and where one is used, its length and conditions must be stated in the written statement of terms.  In practice, probation usually runs three to six months.

How does termination of employment work in the UK?

The statutory minimum notice an employer must give for termination is:

• At least one week if the employee has been employed between one month and two years
• One week for each year if employed between two and twelve years
• Twelve weeks if employed for twelve years or more

Dismissal

A dismissal is fair only if the employer has a valid reason and acts reasonably, with a consistent and properly investigated process. The fair reasons are capability or performance, conduct, redundancy, a statutory restriction where continuing to employ the person would break the law, and some other substantial reason.

Employees can bring an ordinary unfair dismissal claim once they have two years' continuous service. Under the Employment Rights Act 2025, this drops to six months from 1 January 2027.

Some dismissals are unfair regardless of service or process, such as dismissing someone for taking maternity leave or for whistleblowing.

Statutory redundancy pay

Employees with two years' service or more receive statutory redundancy pay, set by age, weekly pay, and length of service, and capped at £751 a week and £22,530 in total for redundancies on or after 6 April 2026.

The UK's termination framework carries real liability for foreign employers who miss the process. Notice periods scale with length of service, dismissals must have a valid reason and a properly investigated process, and redundancy pay has various caps.

Skuad's Shield compliance layer helps your team stay aligned with termination and offboarding obligations across supported markets, without independently tracking every regulatory update. Here is what Skuad supports:

• Termination and offboarding support aligned with local labor requirements across supported markets
• Notice period and severance calculations in line with statutory obligations
• Employment documentation and record-keeping that supports compliant offboarding
• Monitoring of regulatory and labor law changes across supported markets
• Probation period tracking and contract management within a single platform

Why use an EOR in the UK for hiring?

Employing someone in the UK directly means registering with HM Revenue and Customs (HMRC), running PAYE, handling employer National Insurance, pension auto-enrolment, right-to-work checks, and meeting the full set of statutory entitlements, notice, and redundancy obligations.

The Employment Rights Act 2025 is also being phased in through 2026 and 2027, adding further obligations as the rules move.

An Employer of Record (EOR) is a company already set up as a UK employer that hires the worker on a company's behalf, so a business can employ someone in the UK without setting up its own entity or registering as an employer itself.

What are the benefits of hiring through an EOR in the UK?

• Fast market entry: A company avoids the lead time of forming an entity and setting up an employer payroll scheme before it can pay anyone.
• Payroll and tax supported: The EOR processes PAYE, deducts Income Tax and National Insurance, pays employer National Insurance, and supports pension auto-enrolment.
• Compliant onboarding: The EOR issues a UK-law employment contract, provides the written statement of terms, and supports the right-to-work check before the start date.
• Lower compliance risk: The EOR supports statutory entitlements, notice, and redundancy obligations, along with the right-to-work duty with a civil penalty.
• Intellectual property (IP) stays with the business: UK law gives the employer ownership of IP that an employee creates on the job, and the EOR's contract passes that to the client company.

Skuad acts as the legal employer across 160+ countries, so your company can hire in the UK and stay aligned with statutory requirements without setting up a local entity first. Here is what Skuad helps with:

• Employment contract generation aligned with local labor laws and statutory requirements across supported markets
• Statutory contribution workflows across supported markets, covering applicable social insurance and pension obligations
• Payroll processing in 70+ currencies with accurate tax withholding and statutory deductions
• Work permit and visa support for foreign nationals joining your team
• Termination and offboarding support aligned with local labor requirements across supported markets

See how Skuad supports EOR hiring in the UK.

What are the types of work visas in the UK?

The UK no longer uses the old Tier 1 to 5 system. Work visas are now named routes under the points-based immigration system, and the old Tier 1 Entrepreneur, Tier 1 Investor, and Start-up routes are closed to new applicants.

For an employer, the routes split into two groups: Ones where the employer sponsors the worker, and ones where the worker already holds the right to work and applies on their own.

Below are the routes where the employer sponsors the worker, holds a sponsor licence, and issues a Certificate of Sponsorship:

Below are the routes with no sponsorship. The worker already holds the right to work and applies themselves:

For short-term needs, the UK also has Temporary Worker routes such as Seasonal, Creative, and Charity Worker visas.

What is the work permit process in the UK?

The UK does not issue a standalone work permit. To employ someone who does not already have the right to work, the employer sponsors them through a work visa route, which means the business holds a sponsor licence and gives the worker a Certificate of Sponsorship.

A licence is needed to employ someone from outside the UK, including citizens of the EU, Iceland, Liechtenstein, Norway, and Switzerland who arrived after 31 December 2020. No sponsorship is needed for Irish citizens or for anyone with settled or pre-settled status or indefinite leave to remain.

The process runs in this order:

1. Check that the business and the job are eligible for sponsorship.
2. Apply for the sponsor licence online and pay the fee. UK Visas and Immigration (UKVI) may visit the business. Most decisions take less than 8 weeks, or an extra £750 buys a decision within 10 working days.
3. Assign a Certificate of Sponsorship, an electronic record, to the worker. They use it to apply for their visa within 3 months.
4. Meet the ongoing sponsor duties once the licence is live.

Note: Sponsoring someone does not guarantee they will get a visa.

How much does UK sponsorship cost?

The employer pays these costs and cannot pass them to the worker. The Immigration Skills Charge applies when you sponsor someone on a Skilled Worker or Senior or Specialist Worker visa.

A business counts as a small or charitable sponsor if at least two of these apply: Annual turnover of £15 million or less, total assets of £7.5 million or less, or 50 employees or fewer. A sponsor licence allows a business to employ someone, so the sponsor must be the organisation the worker actually works for, holding its own licence and offering a genuine role.

To hire someone in the UK who needs a visa, the business must hold a sponsor licence, assign a Certificate of Sponsorship, and pay the Immigration Skills Charge for the first year, depending on company size, with additional costs for each renewal period. The licence application cost and ongoing sponsor duties sit on top of that.

Skuad's global immigration platform helps support the work permit and visa process for foreign nationals joining your team, so your HR team does not need to track each step independently. Here is what Skuad helps with:

• Supporting work permit and visa applications for foreign employees joining your team
• Helping coordinate immigration documentation with relevant local authorities
• Assisting with visa conversions and work permit renewals as required by local immigration law
• Helping track documentation requirements and deadlines across the full permit lifecycle
• Helping keep your team aligned with compliance requirements as immigration rules and sponsor duties evolve

How do payroll and taxes work in the UK?

To pay employees in the UK, an employer registers with HM Revenue and Customs (HMRC) and runs payroll through PAYE (Pay As You Earn). PAYE lets HMRC collect Income Tax and National Insurance from employees' pay. Payroll software works out what to deduct each payday, and the employer reports it and pays it to HMRC. Employer National Insurance is paid on top of each salary.

How does income tax work in the UK?

Income tax comes out of the employee's pay through PAYE. In England, Wales, and Northern Ireland, the first £12,570 a year is the tax-free Personal Allowance, and tax applies to earnings above it:

Scotland sets its own income tax rates and bands. An employee who is a Scottish taxpayer is taxed under these rates, on earnings above the same £12,570 Personal Allowance:

How does National Insurance work in the UK?

National Insurance is the same across the UK, and it is a separate deduction collected through PAYE. The employee pays their share out of gross pay, and the employer pays employer National Insurance on top of the salary.

Payroll also runs workplace pension auto-enrolment, where the employer deducts the employee's contribution and adds the employer's minimum, covered in the entitlements section above.

The total employer cost in the UK runs above gross salary once employer National Insurance, pension auto-enrolment contributions, and Income Tax withheld through PAYE are added, across bands that differ between England, Wales, Northern Ireland, and Scotland.

Skuad's employee cost calculator helps estimate the cost of hiring across supported markets, including employer social and tax contributions, statutory deductions, and net-to-gross conversion, so finance teams can model headcount costs before committing to a hire.

How to set up a subsidiary in the UK?

In the UK, an overseas company usually sets up a private limited company, known as an Ltd. It can be wholly owned by the parent company, since the UK sets no local-shareholding requirement, and it needs only one director and one shareholder to exist. It is registered with Companies House, which is quick and low-cost compared with many markets.

What are the steps to incorporate a subsidiary in the UK?

1. Choose a company name and check it is available.
2. Give a registered office address in the UK, where Companies House and HMRC send official mail.
3. Appoint at least one director; a company secretary is optional. Have at least one shareholder, which can be the overseas parent company.
4. Identify anyone with significant control, for example, anyone with more than 25% of the shares or voting rights.
5. Prepare the memorandum of association, articles of association, and statement of capital, and choose a Standard Industrial Classification (SIC) code that describes the business.
6. Verify the identity of each director and person with significant control with Companies House through gov.uk One Login, a one-off step.
7. Register with Companies House. Online costs £100 and is usually done within 24 hours. By post, using form IN01, it costs £124 and takes 8 to 10 days.
8. Companies House issues the certificate of incorporation, and the company is usually set up for Corporation Tax at the same time.

Setting up a private limited company through Companies House is relatively quick by international standards, but it still requires registering as an employer with HMRC, setting up a PAYE scheme, arranging pension auto-enrolment, and meeting ongoing filing and compliance obligations before the first person is paid.

For teams that need to hire in the UK without that commitment, Skuad acts as the legal employer, so you can onboard employees without incorporating a local entity first.

Customer story: How PureRED onboarded 65 employees across six countries with Skuad?

PureRED is a marketing and advertising company that needed to build a distributed team across multiple countries, including the UK. The challenge was managing localized employment contracts, multi-currency payroll, and ongoing compliance across six jurisdictions at once. Skuad supported the onboarding process through its EOR platform, helping with employment contracts, payroll, and compliance across all six markets. The result was 65 employees onboarded with compliant contracts and payroll in place.

Skuad made our team expansion possible, helping with the complex onboarding and payroll processes across six different countries with ease. Their local expertise ensured our compliance, letting us focus on what we do best: serving our clients.

- Brian Butcher, EVP Corporate Development, PureRED

Read the full case study here.

What is a Professional Employer Organization (PEO) in the UK?

A Professional Employer Organization (PEO) is an HR outsourcing arrangement where the provider runs payroll, benefits, and HR administration for a company's staff while the company stays the employer. The company and the PEO share employer responsibilities, which is why the model is called co-employment: the company keeps day-to-day control of its people, and the provider handles the back-office HR.

The co-employment PEO model comes from the United States. To use a PEO, a company has to be the employer in the country where the staff sits, which means it needs its own UK entity and must register as an employer with HMRC to run payroll. Providers advertised as an "international PEO" in the UK usually operate as an Employer of Record, since the US-style co-employment model does not map onto UK employment law.

What is the difference between a PEO and an EOR?

The difference comes down to who the legal employer is and whether the company needs its own UK entity.

A company with no UK entity that wants to hire and pay someone quickly uses an EOR, which acts as the legal employer, so no entity is needed, as covered in the EOR section above.

Ready to hire in the UK without setting up an entity?

The UK is one of the most active hiring markets globally, but the compliance layer is substantial. PAYE registration with HMRC, employer National Insurance at 15%, pension auto-enrolment, right-to-work checks with civil penalties, sponsor licences for foreign hires, and an Employment Rights Act 2025 that is actively reshaping the baseline through 2027. Each of these obligations applies from the first hire, with or without a local entity.

An Employer of Record model helps simplify this by enabling companies to hire in the UK without setting up a local entity, while Skuad supports contracts, payroll across 70+ currencies, statutory contributions, onboarding, and work permits across global markets through its EOR capabilities.

The next step is to align your hiring plans and evaluate how an EOR setup can support your expansion into the UK in a structured and compliant way.

Start hiring in the UK without entity setup. Book a demo.

FAQs

1. What is an Employer of Record (EOR) in the UK?

An Employer of Record (EOR) in the UK is a company already registered as a UK employer that legally employs staff on your behalf, so you can hire without setting up your own entity. It processes PAYE payroll, supports National Insurance and pension auto-enrolment, and takes on statutory compliance.

2. How much does an EOR in the UK cost?

An EOR in the UK typically charges either a flat monthly fee per employee or a percentage of payroll. That fee sits on top of the employee's gross salary, employer National Insurance at 15% above £5,000, and the minimum 3% workplace pension contribution the employer must make.

3. Can a foreign company hire in the UK without a local entity?

A foreign company can hire in the UK without a local entity by using an Employer of Record (EOR). The EOR acts as the legal employer, registers for PAYE, processes payroll, supports right-to-work checks, and meets statutory entitlements, while you manage the employee's day-to-day work.

4. What is the risk of getting IR35 classification wrong in the UK?

Under the UK's off-payroll working (IR35) rules, medium and large clients must determine whether a contractor would count as an employee if engaged directly. Getting that decision wrong means the business and the worker can owe backdated Income Tax and National Insurance.

5. How does an EOR differ from a PEO in the UK?

An Employer of Record (EOR) acts as the legal employer, so you can hire in the UK with no local entity. A Professional Employer Organisation (PEO) is a co-employment model that keeps your company as the legal employer, which means you still need your own UK entity registered with HMRC.

6. How quickly can an EOR onboard a hire in the UK?

Onboarding depends on the worker. A UK national with the right to work can usually be onboarded through an EOR in days once the right-to-work check and contract are complete. A non-UK national who needs sponsorship waits on the visa route, which takes longer.

Conclusion

When your organization decides to expand its business into the United Kingdom, it is prudent to analyze the various options and decide which route to take. 

Building a subsidiary from the ground up while managing all tasks, from finding talent to hiring and managing payroll, can be an extremely cumbersome and difficult process. 

This is where outsourcing employment through an EOR can be useful. 

An EOR will manage not only hiring or payroll but the entire employee lifecycle.

Skuad is an HR-tech platform with expertise in building remote teams for your businesses. As the top management, you focus on your core business operations. 

To learn more about how our unique tech-enriched platform can add value to your global expansion plans, book a demo with Skuad today.

FAQs

What is an employer of record in the UK?

An Employer of Record (EOR), like Skuad, legally employs staff in the UK on behalf of other companies without a local entity, managing all human resources responsibilities such as payroll, taxes, and compliance with labor laws.

Is the employer of record legal in the UK?

Yes, an Employer of Record is completely legal in the UK. An EOR becomes the legal employer of the distributed workforce of other businesses without a local entity.

What are the benefits and challenges of hiring in the United Kingdom?

Hiring in the United Kingdom offers benefits like access to a skilled and diverse workforce and a robust legal framework that protects employers and employees. However, challenges include navigating complex employment laws and dealing with high employment costs, which Brexit has further complicated.

What are the benefits of EOR?

An EOR ensures compliance with local laws, enables quick hiring without a local entity, reduces costs and legal risks, and lets businesses focus on core operations while handling administrative tasks.

What is the difference between EOR and PEO?

A PEO co-manages HR duties as a third-party co-employer, while an EOR fully employs your workforce in regions where your business lacks a local entity.

How much does an EOR cost?

The cost of an EOR changes based on local labor laws and the number of employees. EOR providers usually charge a monthly fee per employee, ranging from $100 to $1000 or even more. Pricing structures depend on local regulations and workforce requirements, providing transparency for businesses.