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Employment Laws in the United Kingdom: A Guide for US Companies

The United Kingdom is a natural destination for US employers interested in expanding internationally, especially if you're looking for tech workers. Learn about UK employment laws to consider before hiring there.

Exterior of Jubilee Market Hall, Covent Garden, London

Caitlin MacDougall

Published on March 30, 2022

If you're looking to hire talent internationally, the United Kingdom would be a natural place to start. For one, there is no language barrier, with 58.1 million UK citizens whose primary language is English. While wholesale and retail workers currently comprise most of the UK's private sector, the tech industry has long been a major industry, too. The tech industry has actually allowed the UK economy to grow an average of 7% per year since 2016. Even more impressive is the start-up economy, which is currently valued at $585 billion.Before you hire in the UK, however, you will want to familiarize yourself with UK employment law. So what does employment law cover? In this article, we will provide guidelines on UK workers' rights, as well as employers' rights.

Employment contracts in the UK 📑

While employees rarely receive a written employment contract, employers must provide a written statement of their terms of their employment if requested. The written statement will often include a job title and description, date employment began, the salary or wage rate, working hours, leave entitlements, pension, procedures for termination, as well as disciplinary and appeal terms.There may be instances where a UK employer will hire an employee on a casual or temporary basis. Zero-hours contracts, for instance, is an employment relationship wherein the employer doesn't guarantee any number of hours per week, and the worker is not obligated to work when hours are offered.

Independent contractors

Businesses may hire self-employed workers, or workers who are part of other companies. These workers can be freelancers, consultants, or contractors. They have the flexibility to determine when and how they work, and often they use their own tools to perform their duties. In general, contractors don't have as many protections as employees do, but they may have some health and safety protections. Self-employed workers may also have protections against discrimination, depending on where they work.Here are a few specifications for determining whether a worker is self-employed. A self-employed worker likely:
  • is not directly supervised by the employer
  • provides price points or quotes for their work
  • operates under a "contract for services" or "consultancy agreement" that uses language like "self-employed," "consultant," or "independent contractor
  • submits invoices for the work they’ve completed
  • pays their own National Insurance and tax
  • does not have sick leave or holiday entitlement
If they meet most of the above criteria, then they probably are self-employed.If a worker is classified as a contractor, they may be self-employed, have worker status, or have employee status if an agency has hired them to work for a client.

Tax obligations

Pay As You Earn, or PAYE, is the system most UK employers use to remit income tax when they are paying their employees. This means that a portion of every paycheck that an employee receives is withheld and paid to a tax agency. Employers do not provide PAYE to their self-employed workers, as these workers are required to withhold their own income tax and remit them to the UK government.If an employer misclassifies a UK worker as self-employed when they are, in fact, an employee according to UK employment law, the employer may be subject to remit back payments to the employee, as well as back taxes to the UK government.

Labor laws in an employment relationship

An employment relationship can be complex, and business owners have a lot of regulations to maintain if they are to expand their business internationally. Here are some general guidelines for understanding UK employment laws and how they protect workers.

National minimum wage rate 💷

The National Minimum Wage Act guarantees that workers in the UK who are school-leaving age and older receive the national living wage, which increases every year. Those who qualify for minimum wage include:
  • part-time
  • casual laborers (e.g. someone who is hired for one day)
  • agency workers
  • workers who are paid by the number of items they make
  • apprentices
  • trainees
  • disabled workers
  • agricultural workers
  • foreign workers
  • seafarers
  • offshore workers
At present, the UK's minimum wage is £8.91 for workers who are 23 years and older, and it is due to increase to £9.50 in April 2022.

Working hours ⏰

An employee may not work more than 48 hours a week. This directive is sometimes called a "working time directive." If the employee is over 18-years-old, they have the prerogative to work longer hours by opting out of the maximum working week.Employers are not required to pay their employees for overtime hours.

Trade union rights

A collective agreement is a written agreement between an employer and an employee representative from a trade union. Collective agreements are used to set the terms of employment, and it also serves to protect employees from being exploited. Collective agreements will include which employees are covered by the agreement, terms and conditions the agreement will cover, how negotiations will be organized, and who represents employees.The Employment Relations Act governs collective bargaining and assigns bargaining agents. It can protect employees from unfair dismissal, or discrimination for engaging with trade unions.

Protections against discrimination

UK employees are protected from discrimination under the Equality Act of 2010. Discrimination can occur when an employee is being treated less fairly than another employee because of certain characteristics. These characteristics are known as protected characteristics, and they include:
  • age
  • gender identity
  • being married or in a civil partnership
  • being pregnant or on maternity leave
  • disability
  • race including color, nationality, ethnic or national origin
  • religion or belief
  • sex
  • sexual orientation
There are two types of discrimination under UK labor law: direct discrimination and indirect discrimination. Direct discrimination occurs when an employee is discriminated because of their protected characteristics. An example might be an employer laying off a disabled employee after refusing to accommodate that employee's needs.An employee can make an indirect discrimination claim if there is a company-wide policy that is intended to treat everyone equally, when in fact it creates a disadvantage for a particular group of people.The Equality Act prevents discrimination during the recruitment process and during workplace decisions, unless those decisions are designed to accommodate workers with protected characteristics.If an employee believes they have been discriminated against, they can make a discrimination claim against their employer, and it can be taken to civil court.

Termination 🔓

If an employee is to be dismissed by their employer, they must be given the notice period outlined in their employment agreement, or they must be given statutory notice period—whichever is longer. If an employee has been employed less than a month, they are not entitled to a notice period. After at least a month of working for the same employer, they are entitled to at least one week of notice. The notice period increases by a week for every year of employment after the first two, and up to 12 years maximum.The employer must have valid reasons for dismissing an employee, and must undergo the proper procedures before terminating a contract: this can include disciplinary measures to try to correct an employee's misconduct, or training an employee if the employee does not know how to use a certain technology.If an employee believes they have been unfairly dismissed, they can file an unfair dismissal claim under the Employment Rights Act. Unfair dismissal claims may be filed if an employee was dismissed after:
  • asking for flexible working hours
  • refusing to give up working time rights (e.g., rest breaks)
  • resigning and giving the correct notice period
  • joining a trade union
  • taking part in legal industrial action that lasted 12 weeks or less
  • requesting time off for jury service
  • requesting maternity, paternity. or adoption leave
  • being on any maternity, paternity. and adoption leave
  • trying to receive Working Tax Credits
  • whistleblowing, or reporting misconduct in the workplace
  • retiring under compulsory retirement
If an employer and their employee cannot resolve a dispute, the employee can go to an employment tribunal. If an employee loses their case, they may apply for an employment appeal tribunal.

Statutory redundancy pay

An employee who is dismissed because of a redundancy is entitled to redundancy pay if they have been working for the same employer for 2 years or more. The length of service is capped at 20 years.In redundancy pay, the employee receives:
  • half a week’s pay for each full year they worked at the company before they turned 22-years-old
  • one week’s pay for each full year the employee worked after age 22, and until age 41
  • one-and-a-half week’s pay for each full year the employee worked when they were 41 or older

Data protection act 🔐

Under UK law, every company must follow data protection principles that protect employees' personal information. The Data Protection Act 2018 implements the General Data Protection Regulation (GDPR) to ensure that an employee's personal information is used lawfully and transparently. It is illegal to share an employee's information with other parties unless absolutely necessary, and with express permission. Information about an employee should only be used for as long as it is relevant, and otherwise must be removed securely.

Paid leave 🏝

UK employees are legally entitled to certain leave benefits as well. Let's review some of the most common leave benefits afforded to employees.

Statutory annual leave

Employees are entitled to paid annual leave if they work for at least five days a week. If so, they may enjoy 28 days’ paid leave per year, or 5.6 weeks, depending on employment contracts. Agency workers, workers with zero-hours contracts, or workers with irregular hours are also entitled to this pay.

Statutory sick pay 🤒

UK employers must grant 28 weeks of paid sick leave to their employees, at £95.85 Statutory Sick Pay (SSP) per week. In order to qualify for SSP, the employee's weekly earnings must be at least £120, and the employee must be sick for four consecutive days in a row, including any scheduled days off or weekend days.Contractual sick pay is a type of sick leave where the worker is paid at a higher rate than statutory sick pay. A written agreement must be provided by an employer for this type of arrangement.

Holiday entitlement 🎄

There is no law that requires employers to provide holiday pay for bank holidays or public holidays, but employers may include these holidays as part of the employee's statutory annual leave.

Maternity leave and paternity leave 🤰

An employee who is pregnant or adopts a child is entitled to maternity leave if they have worked continuously at the same job with the same employer for at least 26 weeks. The 26 weeks must including the "qualifying week," or the 15th week before the pregnant employee's due date. This worker must also provide notice of their due date to their employer, and submit a doctor's note as proof of their pregnancy in order to qualify for leave.Once a parent has given birth or adopted a child, they are allowed 52 weeks of maternity leave. This leave is broken up into two periods: the first 26 weeks is known as ordinary maternity leave. The additional maternity leave constitutes as the last 26 weeks. The first 39 weeks of maternity leave are required to be paid leave, and the remaining thirteen weeks may be unpaid.Employees who want to qualify for paternity leave must fulfill similar requirements. To qualify, fathers must provide 28 weeks of notice to their employers, and, like the mother, their tenure working for the same employer at the same job must be at least 26 weeks, including the "qualifying week."Fathers are entitled to one or two weeks of paid paternity leave after the birth of a child, and the leave may not be broken up into separate periods.Parents may take unpaid parental leave in certain cases, such as to spend more time with their children, to look at new schools, or to help their children settle into a new childcare arrangement. Parents may also take parental leave to spend more time with their family (e.g., visiting grandparents).

Navigating employment law in the UK

Obviously, UK law is complex, and you may be asking yourself how your company will be able to keep track of all of these critical details, especially when there's still hiring, payroll management, and taxes to consider.Many US companies hire an employer-of-record to facilitate hiring abroad. An EOR can ensure that a company stays compliant with employment law internationally.

Legal Disclaimer:

The information contained in this site is provided for informational purposes only, and should not be construed as legal advice on any subject matter.

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