Payroll and Benefits Guide United Kingdom
Last updated: Apr 11, 2023
Employer Payroll Contributions
Workplace Pension (applied on income between £520 and £4,189.17 per month at minimum)
Apprenticeship Levy (applied on large enterprises)
National Insurance (NI) (for income above £1,048)
Total Employers Cost
Employee Payroll Contributions
Workplace pension (applied on income between £520 and £4,189.17 per month at minimum)
National Insurance (NI) (for income between £758 and £4,189)
National Insurance (NI) (for income above £4,189)
Total Employee Cost
Employee Income Tax
Up to 12,570
50,271 – 125,140
* Most employees fall under category A. For other categories, please visit the NI website.
The national minimum wage in the United Kingdom is dependent on the age of the employee, and effective from 1st April 2023:
- Employees aged 23 and over receive a minimum wage of 10.42 GBP
- Employees aged 21 – 22 receive a minimum wage of 10.18 GBP
- Employees aged 18 – 20 receive a minimum wage of 7.49 GBP
- Employees ages under 18 receive a minimum wage of 5.28 GBP
- Employees who are apprentices receive a minimum wage of 5.28GBP
MINIMUM WAGE (PER MONTH)
In the United Kingdom, the payroll frequency is typically monthly, with salary payments made between the 25th and 30th of each month.
In the United Kingdom, there are no statutory provisions for 13th-month salary payments.
Under the PAYE system (Pay As You Earn), employers are required to deduct Personal Income Tax and National Insurance contributions from their employees’ income.
The standard working week consists of 40 hours and cannot exceed a maximum of 48 hours averaged over 17 weeks. Employers can ask workers to opt out of the 48 hour limit.
All work above the standard working hours per week is to be paid as overtime and is regulated by employment contract/collective agreements etc.
In the UK, most white collar workers are asked to waive the limit of working 48 hours which means they can work more hours with no limit or additional pay given.
The exception where overtime is paid is if this waiver is not signed, in industries with CBAs, or if specific overtime payment is outlined in the contract. For additional information visit here.
Paid Time Off
Annual Leave (vacation)
The annual leave entitlement is 20 working day of paid leave per year for full-time employees, this in addition to 8 days of Public Holiday.
The annual leave cycle is 1st January – 31st December . Carryover of unused vacation days is per employer discretion and should be included in the employment agreement and set as a custom policy. Employers are obligated to ensure the employees take their holiday entitlement in one year.
If the employee receives more than 28 days’ leave, the employer may allow to carry over of any additional untaken leave. The employer must allow the worker to carry over a maximum of 20 of the 28 days’ leave entitlement if the worker could not have taken the annual leave because he was off sick. The employee will be only allowed to carry over 4 weeks annual leave for the next two years.
If the worker chooses not to take their holiday entitlement and the employer’s policy states they cannot carry over annual leave until the next year, then vacation days will be deleted. This is subject to client’s discretion. An employer can choose when an employee/worker can take annual leave, however sufficient notice needs to be given. Negative leave balance is allowed.
If the worker leaves before the balance has been accrued, the negative leave will be deducted from the final salary. Unlimited leave policy is permitted by law and is subject to employer’s discretion and approval. Upon Termination – All unused days will be paid.
When a holiday falls on a weekend, workers must be given a day off in lieu – it is common to give off the next working day.
Employees can receive up to 28 weeks of paid sick leave; this is compensated at 109.40 GBP per week Statutory Sick Pay (SSP) as a minimum, this is not payable for the first three days of any sickness absence. Employers’ compensation varies depending on the company’s sick pay scheme, it is common to pay regular salary during the first three days as well.
If the employee’s sick leave exceeds seven days, including weekends and bank holidays, the employee must provide a professional medical doctor certificate.
An employee may also be entitled to contractual sick pay (that is, pay during sick leave at a higher rate than SSP) if the employer offers this benefit.
Employees who are sick with the COVID-19 virus or live with someone who is may be eligible for statutory sick pay.
In the United Kingdom, female employees receive 52 weeks of statutory maternity leave and 26 weeks of ordinary leave, followed by 26 weeks of additional maternity leave.
An employee is not required to use the full 52 weeks of leave; however, the employee must take at least two weeks following the child’s birth; this may vary depending on the employee’s sector.
Mothers are compensated by Statutory Maternity Pay (SMP) for up to 39 weeks at the rate of 90.00% of the employees average weekly earnings for the first six weeks, and 172.48 GBP or 90.00% of the employee’s average weekly earnings, whichever is lower) for the following 33 weeks.
PAID MATERNITY LEAVE (DAYS)
Employees are entitled to one to two weeks of paid paternity leave, which begins after the child’s birth. Employees receive statutory paternity pay of 172.48 GBP , or 90.00% of the employee’s average weekly earnings, whichever is lower, per week of leave. The employee is entitled to this leave if they have been continuously employed by their employer for at least 26 weeks up to any day in the ‘qualifying week’.
If adopting as a couple, the second adopter may be entitled to up to 2 weeks of statutory paternity leave and pay. Couples can choose which of them takes statutory adoption leave and which takes statutory paternity leave. To be eligible for statutory paternity leave, they must have worked for their employer for a minimum of 26 weeks.
Taking adoption leave at the later date (on matching) may affect statutory adoption pay. This is based on the final 8 weeks’ salary before taking leave, so a fostering for adoption carer who takes unpaid leave while fostering will be eligible for statutory adoption leave but not statutory adoption pay.
Employed adopters are usually entitled to adoption leave and may be entitled to adoption pay. Some employers may offer a more generous scheme than the statutory one, but they cannot offer less.
Statutory Adoption Leave
Adopters who are employed (or one of a couple) may be entitled to up to 52 weeks of statutory adoption leave. Prospective adopters are also entitled to time off on 5 occasions (main adopter) or 2 occasions (secondary adopter) for adoption appointments.
Adoption leave can start either from the day a child starts to live with the adopter, or up to 14 days before the child starts living with them. Adoption leave has no qualifying period in employment, although proof of adoption is required.
A prospective adopter should inform their employer within seven days of being notified that they are matched with a child or expecting a fostering for adoption placement. If this is not possible, the employer should be informed as soon as possible. Adopters can return to their previous job if they take up to 26 weeks’ adoption leave and must be offered a suitable alternative job if they return after 26 weeks, or at the end of 52 weeks’ leave.
Statutory Adoption Pay
Statutory Adoption Pay (SAP) is a weekly payment made by employers to their employees who adopt a baby and are on adoption leave. The employee must have been employed for a continuous period of at least 26 weeks before the week of notification.
SAP is paid for 39 weeks, at a rate of 90% of the average salary figure for the first six weeks (based on earnings during the eight weeks or two months before the qualifying week (the ‘relevant period’). Increasing to the flat rate (£172.48 per week) or 90% of average earnings for the remaining 33 weeks.
If adopting as a couple, SAP is only available to the nominated adopter who is taking adoption leave. The other partner may be entitled to Statutory Paternity Pay (Adoption).
Parents in the United Kingdom may be entitled to Shared Parental Leave (SPL) when adopting a child or following the birth of a child. Shared Parental Leave allows parents up to 50 weeks of leave that they can share; 37 weeks of pay is possible. Employees must take leave within the first year of the child’s birth.
Depending on the employment contract, an employee may be allowed additional leave, as approved between the employer and employee, for the following:
- Jury Service Leave: Employers to provide their full-time regularly employed employees, job-protected, unpaid leave for their duty as jurors or as a witness in a case, or acting as a plaintiff or defendant in the courts. Employees must provide a copy of the jury summons to the employer as evidence of requirement. The court will provide a specific amount of payment and the employer can choose to provide any additional payment.
- Public Duties Leave: Employees are entitled to a reasonable unpaid amount of time off to perform public duties, for example, if they are a justice of the peace, a local councilor, a school governor, etc.
- Parental Bereavement Leave: Parents who lose a child under the age of 18, or due to stillbirth after 24 weeks of pregnancy, are entitled to 2 weeks of bereavement leave. Those who meet the eligibility requirements will be paid during this leave at £156.66 per week or 90% of the average weekly earnings (whichever is lower).
- Bereavement Leave: The UK law does not establish any statutory bereavement leave outside of the Parental Bereavement leave entitlement. In the event of a death of a person close to the worker each employer can decide their own policy based on how long is perceived as a reasonable length of time to give off and if it should be paid or unpaid.
- Study/Exam Leave: Time off to study is usually unpaid unless the employer agrees to pay it and eligibility for statutory study leave is based on very specific criteria including that the training must be to help them do their job better and at least 250 people are employed in the organization.
- Marriage Leave: The UK law does not establish any statutory right to this leave, each employer can decide their own policy.
- Home Moving Leave: The UK law does not establish any statutory right to this leave, each employer can decide their own policy.
The termination process varies according to the employment agreement and collective agreement in place and is based on the type of contract and reason for termination. Dismissals can be deemed fair or unfair depending on the reasoning and conduct of the termination.
In the United Kingdom, notice periods are outlined with the employment contract or the statutory minimum, whichever is longer.
For redundancy the statutory notice period is at least one week’s notice if an employee has been employed for between one month and 2 years, and one week’s notice for each year of service above 2 years up to a limit of 12 weeks’ notice.
In the case of gross misconduct, a dismissal without notice is possible.
Employers can pay in lieu of notice.
Severance pay is only required in the case of redundancy. The amount of severance is dependent on the age of the employee, if they have served at least two years of service:
- Half a week’s pay for each full year for employees under the age of 22
- One week’s pay for each full year for employees between the ages of 22 to 41
- One and half weeks’ pay for each full year for employees over the age of 41
- Length of service is capped at 20 years
- Weekly pay is capped at 571 GBP
Severance is not required in regular termination cases.
There are no statutory provisions for probation periods in the United Kingdom; these are outlined in the employee’s employment contract. Commonly, probation periods last between three and six months.
- Annual Leave – common to give at least 25 working days off per year.
- Sick pay – pay regular salary during the first three days of sickness and pay above the SSP rate for further sickness.
- Paternity Leave – Full payment for the two week leave period or additional paid leave (some companies even offer up to 3-6 months paid paternity).
- Special Leave – additional leave policies for:
- Marriage Leave – 1 to 2 weeks paid is common
- Study/Exam Leave – 1 week paid per exam period is common
- House Moving leave – 1 to 2 days paid is common
- Bereavement Leave – 3 to 5 days paid is common for a close family with additional unpaid leave if needed, 1 day paid to attend the funeral of non-immediate family.
- Sabbatical/Career break – 6 months to 1 year unpaid is common after a certain length of service has passed.
- Pension – enhanced contribution to NEST pension e.g. 4 or 5% contribution instead of 3%. Some companies might also choose to offer a private pension plan.
- Healthcare – private insurance is common. Costs can vary with a common range between 700 to 1,500 GBP per year for individual cover and 2,500 per year for family cover. Some employers will offer plans in which the worker can include their spouse/partner/children at their own expense (deducted through payroll).
- Dental Insurance – 70%-100% paid by the company.
- Vision Insurance – 70%-100% paid by the company.
- Interest Free Loans – Provide employees with an interest free loan of up to £10,000 in any tax year – a benefit often used to allow employees to buy an annual or seasonal travel card (usually cheaper than buying daily, weekly, or monthly tickets).
- Life insurance – Life insurance cost varies depending on the worker and scope of insurance.
- Cycle to Work Scheme – Government initiative in which employers must sign up to a provider for that offers employees an opportunity to obtain bikes and accessories tax free.
- Car Benefits – companies might offer Electric Car or Company Car Schemes or a fixed monthly Car Allowance (600 to 800 GBP per month is common).
- Wellness Benefits – such as gym memberships or fitness products. Around 70 GBP per month is common.
If employers want to recruit from outside the UK, workers need to meet certain requirements and apply for the appropriate visa first; each visa has different requirements. Employers need to have a sponsor license to hire most workers outside the UK – which can take several weeks to process. Following the end of the Brexit transition period, from 1 January 2021, the free movement of persons between the UK and EU has ended.
The UK has introduced an immigration system that treats all applicants equally, regardless of their country. Also effective from this date, citizens of the European Union, Switzerland, Norway, Iceland, and Liechtenstein can apply for the EU Settlement Scheme. Foreigners can visit the UK for up to 6 months without a visa to travel, visit family and friends, undertake short-term studies, attend job interviews, etc.
For longer stays, foreigners need to apply through the UK immigration points-based system via the UK government to score the necessary points for entry eligibility criteria must be met. This system aims to prioritize skills and talent over where someone comes from.
Irish citizens need not apply for a work permit to live and work in the UK, as free movement, rights, and privileges between these countries continue to be protected by the Common Travel Area arrangements. In most cases, to be eligible to come and work in the UK, a confirmed job offer is required or written confirmation of transferring to the employer’s UK office.
There are many types of work visas for the UK, for both short- and long-term stays. All require different information regarding the foreigners’ skills and qualifications depending on the job being offered/sponsorship, the type of work involved, and whether there will be a requirement to bring the family.
The most requested long-term work visas in the UK include:
Skilled Worker – allows holders of this visa to live or stay in the UK and work in a qualifying role with an approved employer. The visa is valid for up to 5 years before renewal is needed. To be able to get this type of visa, a confirmed job offer is essential. The role must also be in a reported list of eligible occupations on the government website.
Intra-company – Transfer or Graduate Trainee – these are the visas for foreigners being transferred to the UK. There’s also an intra-company visa specifically designed for graduate trainees being transferred as part of a program for managerial or specialist roles.
The role must also be in a reported list of eligible occupations on the government website. The amount of time allowed to stay depends on many factors, as detailed on the government website.
Health and Care Worker – a long-term visa designed for medical professionals coming to the UK for an eligible job with the NHS, an NHS supplier, or adult social care. There are minimum criteria that an employee must meet to be eligible, together with a confirmed job offer. This role is valid for five years before renewal.
A ‘certificate of sponsorship’ from the Home Office, approved by an employer, is also a prerequisite for all these visas.
The process takes between 3-8 weeks, and the costs associated with applying for the right to work in the UK differs depending on the type of visa or permit but are usually made up of an application fee, a healthcare surcharge, and a minimum amount of money as initial settlement/support.
The UK government has announced the implementation of a new visa scheme for ‘high potential individuals’ to allow people from top universities to work in the UK for 2 years – or 3 years if they hold a PhD – and to switch to other long-term employment visas at the end of this period if they meet certain requirements. The scheme is open to all eligible graduates, regardless of nationality, and a prior job offer is not required.
The standard rate of VAT in the United Kingdom is 20.00%
Companies looking to hire in the U.K without a foreign subsidiary can check out our full U.K payroll service.
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Minimum wages have increased.
Questions & Answers
Public Holidays Calendar
|Sunday||Jan-1||New Year’s Day|
|Monday||Jan-2||New Year's Day Holiday||Day Off in Lieu|
|Tuesday||Jan-3||New Year's Holiday||Scotland only|
|Friday||Mar-17||Saint Patrick’s Day||Northern Ireland only|
|Monday||May-1||May Bank Holiday|
|Monday||May-8||Coronation of King Charles III|
|Monday||May-29||Spring Bank Holiday|
|Wednesday||Jul-12||Battle of Boyne||Northern Ireland only|
|Monday||Aug-7||August Bank Holiday||Scotland only|
|Monday||Aug-28||Summer Bank Holiday||England, Northern Ireland & Wales only|
|Thursday||Nov-30||St Andrew's Day||Scotland only|