Overview
Hiring in the UK is simpler than most of Europe: one tax authority (HMRC), clear PAYE rules, and employer NIC around 15% on earnings above £5,000/year. An EOR fits your first few hires or when IR35 makes contractor conversion risky. A UK Ltd still registers in 1–2 days if you plan to stay.
Employer costs run 15–20% above gross salary when you include National Insurance and pension. Unfair dismissal protection kicks in after 2 years of service, giving employers more flexibility in the first 24 months than most of continental Europe.
Setting up a UK Ltd takes 1–2 days through Companies House. That part is simple. The complexity starts after incorporation: registering for PAYE with HMRC, enrolling in a workplace pension scheme with The Pensions Regulator, securing employer’s liability insurance, and running compliant monthly payroll with Real Time Information (RTI) submissions. For a single hire, the overhead doesn’t justify the cost. For 5–10 hires while you’re still testing the UK market, an EOR absorbs all of that and lets you focus on whether the hire works out, not whether your RTI filing was on time.
Three bodies matter. HMRC handles tax, PAYE, and National Insurance enforcement. Get NIC calculations wrong and they’ll assess you plus interest. The Pensions Regulator oversees auto-enrollment compliance and has fined employers for late contributions. ACAS (Advisory, Conciliation and Arbitration Service) handles workplace disputes before they reach an employment tribunal. Most EOR providers deal with all three on your behalf, but you should know who’s on the other side of the table if something goes wrong.
Key Employment Facts
| Item | Detail |
|---|---|
| Minimum wage | £12.71/hr (National Living Wage, age 21+, from April 2026) |
| Working hours | 48 hrs/week max (Working Time Regulations); employee can opt out in writing |
| Probation period | Not statutory; market practice is 3–6 months |
| Notice period | Statutory: 1 week per year of service (min 1 week, max 12 weeks); contractual notice often longer |
| Severance | Statutory redundancy: 0.5–1.5 weeks’ pay per year of service, capped at £751/week |
| Paid leave | 28 days/year including bank holidays (5.6 weeks for full-time) |
| Employer costs % | ~15% Employer NIC (above £5,000/year threshold) + 3% minimum pension contribution |
Employer Cost
UK employer costs are straightforward: Employer National Insurance Contributions (NIC) at 15% on earnings above the Secondary Threshold (£5,000/year, or ~£417/month from April 2025), and a minimum 3% employer pension contribution under auto-enrollment on qualifying earnings. Employer’s Liability insurance is legally required for any UK employer, typically £500–£1,500/year.
For a developer on a £60,000 salary: Employer NIC = 15% × (£60,000 − £5,000) = ~£8,250. Auto-enrollment pension: 3% of qualifying earnings (roughly £60,000 − £6,240 = £53,760 × 3%) = ~£1,613. EOR platform fee: ~£5,700–£7,100/year ($599/month). Total annual employer cost: approximately £75,500–£77,000. Budget roughly 25–30% above gross salary when combining NIC, pension, and EOR fees.
The Employment Allowance (£5,000/year credit against employer NIC) applies to eligible small employers but generally not to EOR entities employing multiple clients’ staff. Verify whether your EOR passes through any Employment Allowance benefit. Most don’t, and you should not assume it.
Compare that £60k London engineer to a €70k Berlin hire (~€91k–€93k all-in including social charges and Weihnachtsgeld). The UK looks cheaper on statutory load alone, but Skilled Worker Immigration Skills Charge (£1,320/year medium/large sponsor rate, paid upfront for the full visa duration) can erase the gap on sponsored hires. Local and Irish nationals skip that entirely.
Statutory Benefits
Employers must provide: auto-enrollment pension (minimum 3% employer + 5% employee on qualifying earnings), 28 days paid annual leave, Statutory Sick Pay (£123.25/week for up to 28 weeks), Statutory Maternity Pay (90% of average earnings for 6 weeks, then £194.32/week for 33 weeks), and paternity leave (2 weeks).
Beyond the basics, Shared Parental Leave lets parents split up to 50 weeks of leave and 37 weeks of pay between them. The mother must curtail her maternity leave to unlock it. In practice, uptake remains low, roughly 2–4% of eligible parents, but your EOR still needs to administer it correctly if an employee requests it. Statutory Adoption Pay mirrors maternity pay: 90% of average earnings for 6 weeks, then the flat statutory rate for 33 weeks.
Statutory Sick Pay remains among the lowest flat rates in Europe at £123.25/week (from April 2026, paid at the lower of 80% of average weekly earnings or that flat rate). The Employment Rights Act 2025 removed the old 3-day waiting period and the Lower Earnings Limit from 6 April 2026, so SSP is now payable from day one for eligible employees. Many employers still offer enhanced sick pay contractually. Your EOR should be clear about whether their standard contract includes any enhancement or just the statutory minimum.
Pension auto-enrollment has a catch that surprises some employers: employees who opt out must be re-enrolled every 3 years from the opt-out date. The EOR handles this automatically, but it means your cost projections should assume most employees will be enrolled at some point, even if they initially opt out.
One area that blurs the line between benefits and compliance is IR35. If you’re converting a UK contractor to an employee, the EOR route eliminates IR35 risk entirely. The worker is unambiguously employed, NIC and PAYE are deducted at source, and there’s no determination to get wrong. See contractor misclassification if you’re still debating the conversion.
The NHS handles healthcare. Private medical insurance isn’t required but is a common benefit for competitive employers. Most EOR providers include private health as part of their UK benefits package.
Work Visas and Immigration
Post-Brexit, every non-UK/Irish worker needs a visa. There are no free movement rights for EU nationals anymore. A French developer needs the same Skilled Worker visa as a Brazilian one. This shifted the UK from one of Europe’s easiest markets for cross-border hiring to one that requires active visa sponsorship for most international talent.
| Visa/Permit Type | Who It’s For | Duration | Processing Time |
|---|---|---|---|
| Skilled Worker Visa | Workers with a job offer at RQF Level 6+ and salary above £41,700 (or going rate, whichever is higher) | Up to 5 years | 3–8 weeks |
| Global Talent Visa | Leaders or emerging talent in tech, science, arts, humanities | Up to 5 years | 4–8 weeks (endorsement + visa) |
| Scale-up Worker Visa | Workers hired by qualifying scale-up companies, salary £39,100+ | 2 years | 3–8 weeks |
| Intra-Company Transfer (Senior/Specialist) | Transferees from overseas group companies, salary £52,500+ | Up to 5 years | 3–8 weeks |
The EOR must hold a Home Office Sponsor Licence to issue Certificates of Sponsorship (CoS) for Skilled Worker visas. This is non-negotiable. Without a valid Sponsor Licence, the EOR cannot legally employ non-UK workers who need sponsorship. Confirm your EOR has an active licence (searchable on the gov.uk register of sponsors). The EOR assigns a CoS, the worker applies for the visa, and UKVI processes the application. Priority service (£500) cuts processing to around 5 working days; super-priority (£1,000) delivers a decision by the next working day for in-country applications.
The salary threshold is the biggest constraint. The July 2025 increase to £41,700 general threshold priced out many mid-level roles that previously qualified. Going-rate exceptions exist for specific SOC codes (a data analyst might have a lower going rate than the general threshold), and new entrants (under 26, recent graduates, PhD holders) qualify for a 30% discount. The Immigration Skills Charge adds £480 for the first year for small sponsors or £1,320 for medium/large sponsors per worker (plus £240 / £660 per additional 6 months), paid upfront for the visa duration. This is a cost to the EOR entity, passed through to you. Factor it into your budget: for a 3-year Skilled Worker visa at the medium/large rate, that’s £3,960 before the worker starts.
Hiring in United Kingdom Without a Local Entity
Provider fees, entity models, and onboarding SLAs change frequently. See our ranked shortlist: Best EOR for United Kingdom.
Termination Rules
The UK’s termination framework is employer-friendlier than most of Europe, with one critical threshold: the 2-year qualifying period for unfair dismissal claims.
Under 2 years’ service: Employees can be dismissed with notice for any non-discriminatory, non-whistleblowing reason. No unfair dismissal claim is possible. This gives UK employers genuine flexibility in the first 24 months, more than Germany, France, or the Netherlands at any tenure point. Standard practice: serve notice or pay in lieu, clear statutory entitlements (accrued holiday), and issue a P45.
After 2 years: Dismissal requires a fair reason (misconduct, capability, redundancy, statutory restriction, or SOSR, “some other substantial reason”) AND a fair process. For misconduct: investigation, written warning, right to appeal, formal hearing, and documented decision. For capability (poor performance): documented concerns, opportunity to improve, and reasonable adjustments if disability is involved. For redundancy: genuine selection criteria, individual consultation, consideration of alternatives, and statutory redundancy pay (0.5–1.5 weeks’ pay per year of service by age bracket, capped at £751/week).
Discrimination claims: No qualifying period and no cap on compensation. Age, sex, race, disability, religion, sexual orientation, and maternity/pregnancy protection apply from day one. This is where the real financial risk sits. Discrimination claims at employment tribunal regularly exceed six figures.
Notice periods (statutory minimums): 1 week per completed year of service, minimum 1 week, maximum 12 weeks. Contractual notice typically extends this to 1–3 months for professional roles.
Practical cost model: A £60,000 developer with 5 years of service made redundant: statutory redundancy ≈ 5 weeks × £751 = £3,755 (age 22–40 band is 1 week/year; 41+ is 1.5). Add contractual notice or PILON of 1–3 months (£5,000–£15,000) and accrued holiday. Clean redundancy typically costs £9,000–£20,000 before legal fees. Without a fair process after year 2, unfair dismissal awards can reach the lower of 52 weeks’ pay or the statutory cap (~£118,000 in 2026).
Frequently Asked Questions
How hard is it to terminate a UK employee after 2 years?
Harder than the first 24 months, still easier than Germany or France. After 2 years you need a fair reason and a fair process. Procedural missteps make the dismissal unfair even when the facts are solid. Budget notice or PILON plus accrued holiday for clean exits. For redundancy, add statutory redundancy pay capped at £751/week. Discrimination claims have no service threshold and no compensation cap.
What should I budget all-in for a £60,000 London engineer?
Roughly £8,250 Employer NIC, ~£1,613 auto-enrollment pension, plus ~£5,700–£7,100 EOR fees, landing near £75,500–£77,000/year before equity or private medical. Employment Allowance usually does not flow through an EOR entity. Sponsored Skilled Worker hires add Immigration Skills Charge on top.
Do I need a Sponsor Licence if I hire through an EOR?
You need the EOR’s Sponsor Licence, not your own, as long as the EOR is the legal employer. Confirm the licence is active on the gov.uk register before you make an offer. Without it, non-UK/Irish talent cannot be sponsored. Local and Irish hires onboard in days with no CoS.
When does a UK Ltd beat an EOR?
Past ~8–12 employees with an 18-month UK commitment, Ltd economics usually win on fees alone. Companies House setup is fast (1–2 days), but PAYE, RTI, pension auto-enrollment, and Employer’s Liability still need ops capacity. Below that headcount, $599/month seats are cheaper than building payroll compliance yourself.
Does EOR employment kill IR35 risk for UK contractors?
Yes for the converted role. Once the worker is on a PAYE employment contract through the EOR, IR35 determinations no longer apply to that engagement. You still need clean offboarding of the old contractor arrangement and a real employment relationship going forward. Halfway conversions create the mess HMRC looks for.
How long does a Skilled Worker hire take end to end?
Plan 6–12 weeks from signed offer to first working day for overseas applicants, shorter for in-country switches. CoS assignment is fast once the EOR has licence capacity. Consular and UKVI queues drive the rest. Priority (£500) and super-priority (£1,000) cut decision time but do not fix incomplete paperwork.
Sources
Related Decision Pages
- Remote Review : How Remote handles UK entity ownership, HMRC compliance, and benefits
- Deel Review : Deel’s UK onboarding speed, PAYE setup, and pricing breakdown
- Rippling Review : Rippling’s native UK payroll and when you don’t need a separate EOR
- Hiring in Germany : Higher social charges and Kündigungsschutz after 6 months
- Hiring in Ireland : Common Law neighbor with different PRSI and unfair dismissal timelines
- Compare EOR providers
- Hiring your first international employee
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