Employer of Record in the UK: A complete guide

Companies House registration costs £50 and is processed within 24 hours. That is where the simplicity ends.

After incorporation, you need to register as an employer with HMRC (which can take several weeks), open a UK business bank account (increasingly difficult for overseas-owned companies, often requiring in-person verification and taking two to six weeks), set up a PAYE scheme and Real Time Information (RTI) reporting, arrange a qualifying workplace pension scheme for auto-enrolment, and take out employers’ liability insurance, which is a legal requirement for almost all UK employers.

Between legal advice, accounting setup, payroll infrastructure, and management time, expect to invest several thousand pounds before your first employee receives a payslip. Then there are ongoing costs for accounting, annual filings, payroll administration, and legal support, for as long as the entity exists.

This route gives you maximum control. It makes sense if you are building a large, permanent UK team. For a handful of hires, or for testing the market, the investment rarely makes sense.

This avoids the employment relationship entirely, but carries real risk. HMRC actively investigates employment status using the CEST (Check Employment Status for Tax) tool and IR35 legislation.

Since April 2021, medium and large businesses have been responsible for determining the employment status of contractors they engage through intermediaries. If HMRC determines that a contractor should have been treated as an employee, the hiring company bears liability for unpaid income tax and National Insurance contributions (both employee and employer), plus interest and potential penalties.

For genuine self-employment where the contractor has autonomy, serves multiple clients, can send a substitute, and bears financial risk, this route works. For anything that looks like a permanent employment relationship with a single company, it is a risk not worth taking.

An Employer of Record employs the person through its own UK entity. You retain full control of the work, priorities, and the relationship. The EOR handles contracts, payroll, PAYE and National Insurance, pension auto-enrolment, and compliance with UK employment law. This is a fully compliant employment structure, not a workaround, and it works whether you are hiring one person or building a distributed UK team.

The main advantage is speed and simplicity. You avoid the upfront investment of entity setup and the ongoing administrative burden of maintaining one, while still giving your employee full statutory employment rights and protections. For companies that need to move quickly, or that do not yet have the scale to justify their own UK infrastructure, this is typically the most practical option.

The UK operates a Pay As You Earn (PAYE) system with Real Time Information (RTI) reporting. Every time an employee is paid, the employer must report pay and deductions to HMRC electronically through a Full Payment Submission (FPS) on or before the payment date.

This is not a quarterly or annual obligation. It happens every payroll cycle, and late or inaccurate submissions can trigger penalties and interest. The employer is responsible for calculating and withholding income tax and employee National Insurance from the employee’s gross pay, and for paying employer National Insurance on top.

Income tax in England, Wales, and Northern Ireland is charged at three rates. Scotland has its own six-band system with different rates and thresholds.

England, Wales, and Northern Ireland:

• Personal allowance: £12,570 (no tax on income up to this amount). Frozen until April 2028.
• Basic rate: 20% on income from £12,571 to £50,270
• Higher rate: 40% on income from £50,271 to £125,140
• Additional rate: 45% on income above £125,140

The personal allowance tapers by £1 for every £2 earned above £100,000, creating an effective 60% marginal rate between £100,000 and £125,140.

Scotland applies different rates to non-savings, non-dividend income, with six bands ranging from 19% (starter rate) to 48% (top rate). If you are hiring in Scotland through an EOR, the provider should be applying the correct Scottish tax codes automatically.

National Insurance changed significantly in April 2025.

Employee NI: 8% on earnings between £242/week (£12,570/year) and £967/week (£50,270/year), then 2% on earnings above the upper earnings limit. These rates are unchanged from 2024/25.

Employer NI: 15% on earnings above £96/week (£5,000/year). This is the rate that changed. Employer NI increased from 13.8% to 15% in April 2025, and the secondary threshold dropped from £9,100 to £5,000 per year. The combined effect is a meaningful increase in the cost of employing people in the UK, particularly for lower and mid-range salaries.

Employment Allowance: Eligible employers can reduce their annual NI liability by up to £10,500 (up from £5,000 in 2024/25). The previous £100,000 eligibility cap has been removed. This is relevant for smaller employers and can significantly offset the NI increase, but it does not apply to single-director companies.

Apprenticeship Levy: Employers with a total annual pay bill above £3 million pay 0.5% of that pay bill, minus a £15,000 annual allowance.

Every UK employer must automatically enrol eligible workers into a qualifying workplace pension scheme. There is no opt-out for the employer. The employee can opt out individually, but the employer must re-enrol them every three years.

Eligibility: Workers aged 22 to State Pension age who earn above £10,000 per year.

Minimum contributions (on qualifying earnings between £6,240 and £50,270):

• Employer minimum: 3%
• Employee minimum: 5% (including tax relief)
• Total minimum: 8%

An Employer of Record must have a qualifying pension scheme in place and handle all enrolment, contribution calculations, and opt-out administration. This is non-negotiable. If a provider is unclear about how they handle auto-enrolment, or if they are not set up with a qualifying scheme, that is an immediate red flag.

Employees are entitled to a minimum of 5.6 weeks (28 days for a full-time worker) of paid annual leave per year under the Working Time Regulations 1998. This includes the 8 UK public holidays, though employers can choose whether to include public holidays within the 28-day entitlement or offer them on top.

Part-time employees receive a pro-rata entitlement. There is no statutory right to carry over unused leave (beyond limited circumstances), but many employers allow it contractually.

SSP is currently £118.75 per week for up to 28 weeks. It is payable from the fourth qualifying day of absence, and the employee must earn at least £123 per week (the lower earnings limit) to qualify.

This is changing under the Employment Rights Act 2025. From April 2026, SSP will be payable from the first day of absence (not the fourth) and the lower earnings limit will be removed. For workers who previously earned below the threshold, SSP will be payable at 80% of weekly earnings.

All pregnant employees are entitled to 52 weeks of maternity leave regardless of length of service: 26 weeks of Ordinary Maternity Leave and 26 weeks of Additional Maternity Leave. Statutory Maternity Pay (SMP) requires 26 weeks of continuous employment by the 15th week before the expected week of childbirth, and earnings at or above the lower earnings limit.

SMP is paid at 90% of average weekly earnings for the first 6 weeks, then £187.18 per week or 90% of average weekly earnings (whichever is lower) for the remaining 33 weeks.

Currently, employees need 26 weeks of continuous service to qualify for 2 weeks of statutory paternity leave, paid at £187.18 per week or 90% of average weekly earnings (whichever is lower).

From April 2026, paternity leave becomes a day-one right under the Employment Rights Act 2025. The service requirement is removed entirely.

Eligible parents can share up to 50 weeks of leave and 37 weeks of statutory pay between them. This allows mothers to end their maternity leave early and share the remaining entitlement with their partner (or vice versa with adoption leave).

Employees with one year of service are entitled to 18 weeks of unpaid parental leave per child, taken before the child’s 18th birthday. From April 2026, unpaid parental leave becomes a day-one right under the Employment Rights Act 2025.

Currently, employees need two years of continuous service to qualify for unfair dismissal protection. From January 2027, this reduces to six months. A dismissal must be for a fair reason (capability, conduct, redundancy, breach of statutory duty, or some other substantial reason) and must follow a fair process.

ACAS publishes a Code of Practice on Disciplinary and Grievance Procedures that sets the expected standard. Failure to follow the ACAS Code can result in a 25% uplift to any compensation awarded by the tribunal. With the removal of the compensation cap under the Employment Rights Act 2025, the financial risk of getting terminations wrong in the UK is increasing significantly.

Employees with two or more years of continuous service are entitled to statutory redundancy pay: 0.5 week’s pay per year of service under age 22, 1 week’s pay per year of service aged 22 to 40, and 1.5 weeks’ pay per year of service aged 41+. Weekly pay is capped at £719 for 2025/26, and the maximum number of years counted is 20.

Collective redundancy (20 or more employees at one establishment within 90 days) triggers a duty to consult with employee representatives, with minimum consultation periods of 30 days (20-99 redundancies) or 45 days (100+). Under the Employment Rights Act 2025, the protective award for failure to consult doubles from 90 to 180 days’ pay from April 2026.

An Employer of Record with genuine UK expertise should be guiding you through the entire termination or redundancy process, advising on risk at each stage, drafting the correct documentation, and making sure every step is compliant before you act. This is the area where the difference between a good EOR and a poor one shows up most clearly.

Your Employer of Record provider needs to know UK employment law, and specifically the version of it that is currently in force. That means understanding how the Employment Rights Act 2025 changes the qualifying period for unfair dismissal and when those changes take effect, what the new SSP rules look like from April 2026, how HMRC’s RTI reporting works in practice, and what constitutes a fair process for a dismissal under the ACAS Code.

Country count alone does not tell you much. A provider with deep, current UK knowledge is more valuable than one that covers 185 countries through a patchwork of partners, some of whom may not be fully up to speed on the latest legislative changes.

Some EOR providers own their own UK entities, while others work with in-country partners. Neither model is inherently better, but you should know which applies to your situation.

Where a partner is involved, you need to understand who holds the employment relationship, how support works, who you contact when there is an issue, and what due diligence the EOR has done on that partner. A good provider will be transparent about this from the start.

UK employment law is complex enough that a self-serve platform will not be sufficient for anything beyond the most straightforward situations. When you need to handle a performance issue, a termination, a workplace grievance, or a question about how a specific regulation applies to your employee’s circumstances, you need to speak to someone who knows UK law and knows your business.

Dedicated account management, with a consistent point of contact who understands your context and does not need the situation explained from scratch each time, makes a real difference.

A good provider will tell you when Employer of Record is not the right solution for your situation, even if that means losing your business. They will flag risks like permanent establishment, explain IR35 implications clearly, and communicate Employment Rights Act changes proactively.

A provider who acknowledges the complexity and can demonstrate exactly how they manage it is a more reliable partner than one who pretends the complexity does not exist.

Pricing should be clear before you commit. You need visibility into the total employer cost, including the EOR’s service fee, employer National Insurance, pension contributions, and any other statutory costs.

Ask for a sample cost breakdown at a specific salary level before signing anything. If new charges appear after you have committed, expect that pattern to continue.