Introduction to Payroll in the United Kingdom

The United Kingdom has experienced many changes in the past years, yet its economy remains stable and the country still attracts many overseas investors. London, its capital city, continues to be one of the most thriving, dynamic, and exciting business, financial, and cultural hubs in the world.

If your company is looking at the United Kingdom as the next destination on its international expansion journey, then this guide is a must-read. Here, we will examine payroll in the United Kingdom in-depth, highlighting its complexities, peculiarities, and challenges for foreign businesses like yours, as well as explaining why teaming up with a global payroll provider like Skuad can make everything so much easier.

Payroll Process in the United Kingdom

Managing payroll in the United Kingdom means understanding how the three different stages — pre-payroll, payroll calculation, and post-payroll — of this complex process work.

Pre-payroll phase

This initial phase involves establishing a business in the United Kingdom while also getting familiar with the country’s many laws affecting labor and employment.

Setting up the organization

To begin with, you will need to set up a business entity in the United Kingdom. This is paramount, as it means that you can operate legally in the country.

Business profile

Once you have registered your business as a legal entity, you will be provided with your unique business number. This will appear on all official payroll paperwork and documentation.

Work location

The United Kingdom is formed of four different countries: England, Wales, Scotland, and Northern Ireland. Depending on precisely where you will be operating your business, you might need to follow specific laws that only apply in that area.

Leave policy

Defining policies around sick leave, vacation leave, and parental leave is another essential step of the pre-payroll phase.

Attendance policy

Another crucial aspect of this part of payroll is creating rules and regulations on work attendance, and communicating them clearly to your workforce.

Statutory components

Remember that, while your company can create and define all these provisions, it also must do so in legal compliance with the country’s laws.

Salary components

In the United Kingdom, salaries include both deductions and allowances, which is important to bear in mind at the moment of calculating your employees’ wages.

Pay schedule

Generally speaking, employees in the United Kingdom are paid once a month. Your company may decide the specific payday, and should ensure that its salaries are always paid out on the closest business day to that.

Employee information

It’s important to find out what exact information on your employees you need to gather before you finalize payroll.

Payroll calculation phase

After completing the pre-payroll stage, you are ready to move on to payroll calculation. Most companies operating in the United Kingdom work with an automated payroll system. This means that they are able to transfer all the information obtained during the pre-payroll phase onto their payroll system to calculate individual salaries.

Post-payroll phase

Salary payments

Paying out salaries is one of the central parts of post-payroll. You can do so either manually by communicating with your bank, or by using automated payment software.

Payroll accounting

Tracking your employees’ salaries each month is an essential aspect of your internal accounting.

Payroll reporting and compliance

Similarly, you will need to communicate specific payroll information to the relevant U.K. authorities.

Managing all this, and more, in an autonomous fashion might make your head spin. To avoid complicating things further, your best bet is teaming up with a trusted and experienced payroll provider, like Skuad.

Payroll Processing in the United Kingdom

The United Kingdom has many types of taxes and tax brackets, as well as different authorities with which your company will need to liaise when submitting tax information and paying contributions.

Payroll Processing Company in the United Kingdom

The Skuad team is knowledgeable about all things payroll in the United Kingdom, allowing simplification of what can easily become a daunting and complicated process.

Payroll Management in the United Kingdom

Managing payroll in the United Kingdom requires keeping an accurate record of your employees’ data, while always adhering to the country’s labor and employment laws.

Payroll Compliance in the United Kingdom

Statutory compliance with payroll laws in the United Kingdom is essential if you want your business to operate legally. Rules and regulations on payroll are enshrined in several legislations, including the Employment Rights Act, the National Minimum Wage Act, and the Employment Relations Act.

Payroll Components in the United Kingdom

Below, we will examine the major components of payroll in the United Kingdom. Familiarizing yourself with these aspects is a fundamental part of calculating your employees’ wages.

Compensation

In the United Kingdom, the minimum wage is established and protected by the National Living Wage Act. As of April 1, 2022, the U.K.’s minimum wage for workers aged 23 and over is £9.50 per hour.

Working hours

Out of all the European countries, the U.K. is one of the most heavily invested in remote working. This means that the traditional 9 to 5, Monday to Friday workweek is not always followed by all employees.

Overtime laws

In the United Kingdom, there is no minimum overtime pay, which can mean that employers might decide not to pay their employees for working overtime.

Social security

Social security in the United Kingdom is represented by contributions to the National Insurance system. This is mandatory for all businesses that operate a Pay-As-You-Earn, or PAYE, scheme.

Sick leave

As of April 1, 2022, statutory sick pay for U.K. employees was increased, from £96.35 per week to £99.35. Full-time employees are entitled to a maximum of 28 weeks of sick leave.

Parental leave

In the United Kingdom, new moms can receive up to 52 weeks of  statutory maternity leave. This leave can start 11 weeks before the due date, and must last for at least the first two weeks after giving birth.

New fathers are entitled to a maximum of two weeks of  paternity leave, all to be taken at once.

Public holidays

Below is a list of the main  public holidays in England, Wales, Scotland, and Northern Ireland:

England and Wales

• January 1: New Year’s Day
• Good Friday
• Easter Monday
• First Monday of May: early May bank holiday
• June 2: Spring bank holiday
• June 3: Platinum Jubilee bank holiday
• Last Monday of August: Summer bank holiday
• December 25: Christmas Day
• December 26: Boxing Day

Scotland

• January 1: New Year’s Day
• Good Friday
• Easter Monday
• First Monday of May: early May bank holiday
• June 2: Spring bank holiday
• June 3: Platinum Jubilee bank holiday
• First Monday of August: Summer bank holiday
• November 1: St Andrew’s Day
• December 25: Christmas Day
• December 26: Boxing Day

Northern Ireland

• January 1: New Year’s Day
• March 17: St Patrick’s Day
• Good Friday
• Easter Monday
• First Monday of May: early May bank holiday
• June 2: Spring bank holiday
• June 3: Platinum Jubilee bank holiday
• July 12: Battle of the Boyne
• Last Monday of August: Summer bank holiday
• November 1: St Andrew’s Day
• December 25: Christmas Day
• December 26: Boxing Day

Payroll taxes

The United Kingdom does not have any mandatory provisions for payroll taxes.

Other laws

Termination of Employment

In the United Kingdom, employees can generally be terminated only when a just cause has been found. In any case, it is mandatory to follow a specific dismissal procedure, particularly if the terminated employee has been with the company for more than two years.

Paid Annual Leave

The majority of workers in the United Kingdom receive 28 days of annual leave, which usually include all the bank holidays that we listed in the previous section.

Keeping abreast of all this information might make you feel confused and overwhelmed. This is why joining forces with an expert and trusted partner like Skuad is the best thing to do in order to manage payroll in the United Kingdom.

Conclusion

Managing payroll in the United Kingdom can be a minefield — and a very expensive one at that — if you decide to do everything by yourself. You have, however, a range of options, other than internal payroll:

• Remote payroll. With this approach, you will be able to manage all aspects of payroll directly from your parent company. While generally more affordable than internal payroll, this method can also get very complicated, very quickly, as it demands a constant and solid knowledge of the U.K.’s labor and employment laws.
• Payroll processing company in the United Kingdom. This might sound like a great option, but in fact, it often is quite problematic. Finding a reputable and experienced local agency that can handle payroll on your behalf might take you a long time and end up costing you a lot of money.
• Outsourced payroll. This is the most efficient, convenient, and legally-compliant option for your U.K. payroll. If you choose to team up with a global payroll provider like Skuad, you have the peace of mind that your payroll will be handled in the best possible way at all times, while you can seamlessly move ahead with important business-related activities.

Would you like to find out more about how our platform works? Take a look at our   FREE demo, or contact the Skuad team today.

As of May 23, 2022, the U.S. dollar is equivalent to .80 Pound Sterling (GBP), the currency in use in the United Kingdom.