Expanding your business into the UK? Understanding the local employment and payroll laws is critical. Each country brings its own rules and nuances, and the UK is no different. Navigating these regulations is essential to remain compliant and avoid costly penalties.
At Metro Tax Solution, we help global companies streamline their international payroll operations, including in the UK. Here’s a comprehensive guide to key UK payroll process laws every business must know before hiring in ‘old Blighty’.
The UK’s Established Payroll System
In the UK, employees are typically paid in 12 equal monthly installments directly to their bank accounts. The payroll process runs through His Majesty’s Revenue and Customs (HMRC) using the Pay-As-You-Earn (PAYE) system, even if you only employ a single person.
Once you’ve registered as an employer, you can choose to either manage payroll in-house or outsource it to a trusted payroll service provider in the UK.
PAYE & HMRC Compliance Requirements
As a registered PAYE employer, you’re responsible for the following, even if payroll is outsourced:
– Recording wages and salary payments
– Creating payslips for employees
– Managing National Insurance (NI) contributions
Employers must also submit payroll data to HMRC before making payments, under the Real-Time Information (RTI) reporting framework. This involves submitting a Full Payment Submission (FPS); most modern payroll software can generate and send this automatically.
If your business offers a pension plan, ensure that contributions under the auto-enrolment scheme are correctly deducted and reported.
Auto-enrolment pension guidance
UK Taxation System (Updated for 2025-26)
UK employees are taxed under a progressive income tax system:
– Up to £12,570: 0% (Personal Allowance)
– £12,571 – £50,270: 20% (Basic Rate)
– £50,271 – £125,140: 40% (Higher Rate)
– Over £125,140: 45% (Additional Rate)
Note: The Personal Allowance reduces by £1 for every £2 earned over £100,000.
National Insurance Contributions (NIC) (Updated for 2025-26)
– Employees:
– 0% on earnings up to £12,570
– 8% on earnings between £12,571 and £50,270
– 2% on earnings above £50,270
– Employers:
– 13.8% on earnings above £9,100
Statutory Sick Pay (SSP) (Updated for 2025-26)
UK employees are entitled to Statutory Sick Pay (SSP) of £116.75 per week, for up to 28 weeks. To qualify, the employee must miss 4 consecutive days of work due to illness—the first three days are unpaid.
Many employers offer more generous contractual sick pay on top of SSP.
UK Paid Leave Regulations
Employees in the UK are entitled to a minimum of 5.6 weeks of paid leave per year, equating to 28 days for a five-day workweek. Part-time staff receive pro-rata holiday entitlement based on the number of days they work.
UK Minimum Wage & Overtime (Updated for April 2025)
The National Minimum Wage (NMW) and National Living Wage (NLW) rates have been updated as follows:
– Age 21 and over: £12.21/hour
– Age 18–20: £10.00/hour
– Age 16–17: £7.55/hour
– Apprentices: £7.55/hour
– Accommodation Offset: £10.66/day
Overtime:
– Not mandatory unless stated in the employment contract.
– Employees cannot be forced to work more than 48 hours/week unless they opt-in in writing.
– Average hourly earnings, including overtime, must never fall below the NMW/NLW.
Summary: What You Must Do to Stay Compliant
To ensure your UK payroll process is fully compliant:
– Register with HMRC as an employer
– Join the PAYE system and report payroll data accurately (FPS under RTI)
– Adhere to National Insurance and tax laws
– Comply with SSP and leave entitlements
– Pay the correct National Minimum/Living Wage by employee age group
How Metro Tax Solution Can Help
At Metro Tax Solution, we provide a full range of payroll support for companies expanding globally. Whether you’re hiring in the UK, managing compliance in India, or need Global Payroll expertise, we’ve got you covered.
Ready to streamline your UK payroll process? Get in touch with us today to discuss your needs and let us handle the compliance, reporting, and more, so you can focus on scaling your business.