UK compensation laws differ from those in the US, and it’s important to understand these differences to stay compliant while hiring abroad. From the National Minimum Wage (NMW) to the cap on the workweek, there are many components that factor into compliant compensation and benefits.
UK Compensation Laws
One critical UK compensation law is the NMW. The minimum wage depends on your employee’s age, so you can utilize different calculators to ensure you pay every employee a fair and legal wage. The country also has a legally mandated 48-hour workweek. Employees can opt out of this mandate if they’d like to work more hours, but you need to know their preferences ahead of time when crafting daily schedules.
In the case of a termination, the UK doesn’t have statutory requirements for severance pay except for redundancies. Any employee who’s worked continuously for two years or more has the legal right to the statutory redundancy payment (SRP).
Guaranteed Benefits in the United Kingdom
UK compensation laws are structured to benefit employees. Therefore you need to stay aware of every benefit and entitlement. For example, employees who work more than six hours a day are automatically entitled to a 20-minute break away from work. You can often work out these bonus schemes in an employment contract, which should go to an employee within two months of their start date.
The employer’s portion of the National Insurance Contribution (NIC) provides the primary statutory benefit of UK health insurance. However, many companies choose to offer supplementary benefits such as medical, vision, dental, and life insurance that are not guaranteed in UK employment law.
UK Benefits Management
If you choose UK benefit outsourcing, you don’t need to worry about benefits management. But if you decide to handle the entire compensation and benefit process yourself, you need to know how to disperse benefits in the UK.
Before your employee starts, you are legally required to draft an employment contract. In that contract, you can specify when you will pay the employee, how they will get paid, what benefits they are entitled to, and how those will get dispersed.
Restrictions for Benefits and Compensation
Any employment contract in the UK needs to include compensation in British pounds rather than US dollars. You need to ensure you pay your employees in the country’s currency instead of foreign money.
Employees’ benefits are not typically covered when they’re in the US. If your employees will travel between the UK and the United States, or to another country outside of Europe, you need to cover the employee under a travel insurance policy.
If you’re overwhelmed by UK compensation laws, consider UK benefit outsourcing. A global PEO such as Our Partners can take the stress out of determining the correct compensation and benefits by hiring employees on your behalf. Contact us today to learn more.
United Kingdom Competitive Benefits Planning
If you’re establishing a business abroad, building a competitive employee benefits plan is critical when it comes to recruiting and retaining leading professionals. Designing UK employee benefits plans requires compliance with national and local labor laws, balance with your company’s available resources, and navigation of local market standards.
UK Employee Benefits Plans
To be competitive in your recruiting and employee engagement, you’ll need to consider local standards and ensure your workers receive the benefits they’re expecting.
If employees need to use health insurance, take sick leave, receive coverage for hospitalization or address other situations, they must have coverage and protection for themselves and their families. As an employer, you are responsible for offering coverage for these requirements.
Along with perks such as a company car or phone, travel reimbursements, and other practical assistance, you can also provide benefits to cover life events your employees must navigate. These supplemental benefits aren’t legal requirements, but they are common market standards:
- Long-term disability income protection
- Private medical insurance offerings
- Dental insurance
- Health cash plan
- Life assurance
- Employee assistance programs
- Critical illness insurance
- Employer-sponsored retirement savings
Requirements for Employee Benefits in the United Kingdom
The UK has several requirements for employers to follow in terms of benefits. You’ll need to cover the following in your plan:
- Pension
- Health care
- Holiday pay
- Maternity and paternity leave
- Sick pay
How to Design Your Employee Benefits Program
To build a competitive employee benefits program that meets your workers’ needs, you can follow some key best practices.
1. Identify Your Company Benefits Objectives and Budget
Your first step is to evaluate your business’s available resources and your goals for providing employee benefits. Assess your budget restraints, research market standards for your industry, and determine your priorities to provide for your employees. If retention is a priority, for example, you might opt to provide more robust benefits for a small team.
2. Conduct a Needs Assessment
To make your plan competitive, you’ll need an understanding of what other local companies are offering and what employees want. In this stage of the process, you can consider interviewing local employees, sending out questionnaires, doing a comparative benefits analysis, and analyzing legal regulations. Your company will benefit from in-depth data on the market and employee expectations and needs.
3. Build an Employee Compensation and Benefits Plan
Once you’ve completed a needs assessment and gap analysis, incorporate the data into a benefits plan. Use your research to prioritize key benefits. Remember to consider administration costs, employee contributions, outsourcing requirements, and cost containment features as you build a benefits program.
Average Cost of Benefits Per Employee
Your benefit costs will vary based on the plan you create for your business. It’s best to set a customized budget based on your unique requirements rather than relying on a one-size-fits-all average cost. You might find it useful to establish a percentage of revenue to put toward your benefits program so you can more easily scale it as your company grows.
As you develop your benefits program, be sure to consider your budget requirements and any additional costs involved. Ensure that you’re building a sustainable plan that will help you reach long-term goals.
How to Calculate Employee Benefits
The employee benefits you must provide are based on government regulations in the UK.
Currently, employees must have a pension scheme of 9 percent of qualified earnings, with the employer contributing at least 4 percent of the total. The market standard is significantly higher than the minimum level in most cases, so make sure you’re providing an appropriate rate to keep your benefits offerings competitive.
You should provide full pay for a holiday, maternity, and sick leave.
Supplemental benefits may include contributions from both you and your employees. You’ll want to research market standards in your industry to calculate competitive rates.
How Are Employee Benefits Taxed in the UK?
Employees must pay taxes on supplemental benefits such as a company car, accommodations, bonuses, or assets provided. As an employer, you are responsible for withholding these taxes on a Pay As You Earn (PAYE) basis.
Employee Health Benefits Plans
While the National Health Service (NHS) provides coverage for UK residents, many employers also offer private insurance options to cover services such as dental and vision care. In either case, employees are entitled to healthcare benefits. You are also responsible for providing maternity and paternity leave and sick leave pay.
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