Before hiring employees in the United Kingdom, it’s essential to understand the ins and outs of UK payroll systems. You can either set up UK payroll yourself or work with a global professional employer organization (PEO) such as Our Partners as a form of UK payroll outsourcing. Regardless of which you choose, you should stay informed about taxation rules, required set up, and entitlement/termination terms.
Taxation Rules in the United Kingdom
In the UK, you must comply with the Real Time Information (RTI) system, which requires you to report all payroll information to Her Majesty’s Revenue and Customs (HMRC) based on a Pay As You Earn (PAYE) system. These reports occur in real-time, and you must communicate information such as payments, income taxes, and social contributions whenever you compensate an employee.
When you set up UK payroll, keep in mind that the corporate income tax rate is 20%, while individual income tax rates range from zero to 45% depending on your employee’s salary.
The National Insurance Contribution (NIC) is the country’s national social security program that comes out of payroll. Employers typically contribute 13.8%, on top of the total compensation, and employees contribute 12%.
UK Payroll Options for Companies
Companies looking to expand and hire employees abroad can choose from two UK payroll options:
You can run the payroll yourself by selecting software that reports relevant information to HMRC. You’ll need to find a software program that records employees’ details, works out overall compensation and deductions, determines how much you owe HMRC, and calculates statutory pay for maternity or sick pay.
You can work with a UK payroll processing company such as a UK PEO. Our Partners help you hire employees and begin running payroll in the UK before you establish a branch location. We ensure you’re compliant with UK labor laws and PAYE expectations.
How to Set Up a Payroll in the UK
If you choose to set up your UK payroll on your own, you first need to register to contribute to the NIC and the PAYE tax. It takes three days to complete this process through HMRC.
Every new hire needs a current P45 form that comes from their previous employer. If they don’t have one, you must complete HMRC’s starter checklist to find the right tax code. In addition to these steps, you’ll need to choose the right software to feed information to HMRC.
Entitlement/Termination Terms
While considering UK payroll options, you also need to create an employment contract with clear entitlement and termination terms. In the UK, employers are legally required to give an employee a termination notice.
You’ll need to consider two types of notice — statutory notice, which is required by law, and the period that you put in your employee’s contract. The decision is at your discretion, but the notice period in the contract is typically one month for regular employees and up to three months for senior employees.
Your employees are also entitled to redundancy, but there are no statutory requirements for severance pay. An employee who has been working continuously for two years or more ultimately has the right to the statutory redundancy payment (SRP).
Payroll Processing Company in the UK
Remove the stress and burden of choosing a UK payroll option by working with a UK payroll processing company. As a global PEO, Our Partners can lift payroll management off of your shoulders. Contact us today to learn more.
