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Global Payroll

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United Kingdom

Payroll in United Kingdom

Updated on:
28/2/2024
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Updated on:
16 Jan, 2024
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Payroll in the UK

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 UK

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 processes

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.

How is payroll calculated in the UK?

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 processes

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.

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How to set up your UK payroll process?

Setting up the payroll process in the UK is quite easy and straightforward. The steps listed below will guide you through the process.

  • The first step is to register as an employer under the Her Majesty’s Revenue and Customs (HMRC) portal. After registering, get the Pay As You Earn (PAYE) login details.
  • The next step is to choose a preferred payroll platform to calculate employees’ pay and other statutory deductions and report to the HMRC before the first payday.
  • Collect and keep records.
  • Make tax and national insurance payments to the HMRC.

While it is possible to set up your UK payroll process, you can use the services of a payroll platform for easier and more efficient payroll process setup. A global payroll platform like Skuad can streamline your entire payroll process, saving you time, money and valuable resources.

Components of salary structure in the UK

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.

Payroll cycle

Payroll is done once a month in the UK. Employees receive their salary between the 25th and 30th of every month.

Payroll contributions in the UK

Corporate Income Tax Rates 19% maximum (main rate to increase to 25% from 1st April, 2023)
Personal Income Tax Rates 45% maximum (the basic rate starts at 20%, the higher rate is 40%, and the 45%rate is for income over GBP 150,000)
WHT rates (%)(Dividends/Interest/Royalties)

Resident: 0 / 20 / 20

Non-resident: 0 / 20 / 20

UK Payroll options for foreign companies

The UK has three payroll options for foreign companies.

  • Manually, on spreadsheets,
  • Outsourcing to a third-party platform to handle payroll processes,
  • Utilizing payroll software. 

Using any of the three options is great but when factors such as the provision of comprehensive benefit packages, processing payments for employees in different countries, and business growth are considered, utilizing payroll software or outsourcing to a third-party platform like Skuad is the best option.

Payroll processing company in the UK

Skuad is a global employment and payroll platform that can help with hiring and processing payroll for organizations in the UK. Skuad's payroll platform can handle the accurate and prompt payment of employee's salaries and other payments easily. With full compliance with the employment laws in UK, Skuad ensures  seamless payroll processing for organizations.

Looking to pay talent in the UK? Skuad can help

Skuad streamlines the complex payroll process in the UK so that organizations can pay talent in the UK without any hassles. With Skuad as your global payroll partner, you can automate the entire payroll process on a single dashboard, use multiple payment methods, like bank transfers, e-wallets, etc., and make secure cross-border payments in 100+ currencies.

To know more about Skuad, book a demo today.

FAQs

Band Taxable Income Tax Rate
Personal Allowance Up to £12,570 0
Basic rate £12,571 to £50,270 20%
Higher rate £50,271 to £150,000 40%
Additional rate over £150,000 45%

The table shows the tax rates you pay in each band if you have a standard Personal Allowance of £12,570.Note: Income tax bands are different if you live in Scotland.

What is national insurance in the UK?

Workers in the UK pay National Insurance contributions to qualify for certain benefits and the State Pension. National Insurance is mandatory if you’re 16 or over and are either:

  • an employee earning above £242 a week
  • self-employed and making a profit of more than £11,908 a year

What payroll taxes do employers pay in the UK?

There is no payroll tax in the UK, however, there are some other things you need to be aware of. PAYE is a system used by HMRC to help collect National Insurance and Income Tax from employment. With PAYE, you need to report your employee's pay and any deductions to HMRC.

What is the W2 equivalent in the UK?

In the UK, the P60 form has been issued since 1944 by employers to each of their employees. The P60 form details the tax you have paid on your salary in that particular tax year.

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Employ contractors and employees in 160+ countries

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limited-offer-banner
EOR in 
the United Kingdom
Monthly
best value
Annually
Pay monthly at a discounted rate with a 12-month commitment
$
349
/month
(billed annually)
G2 badge

Employ contractors and employees in 160+ countries

G2 badge
limited-offer-banner
EOR in 
the United Kingdom
Monthly
$
399
/month
(billed annually)
Annually
Pay monthly at a discounted rate with a 12-month commitment
$
349
/month
(billed monthly)
G2 badge

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Looking to pay employees and contractors in United Kingdom? Skuad's payroll platform can help!

Talk to our payroll experts
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