(Updated 9 July 2020)
If you’re an overseas business looking to build a presence in the UK, or a start-up about to hire your first employee, it’s worth taking a bit of time now to understand the legal framework that will apply when employing staff in the UK. While we can’t detail all employment law in one article, we can give you an overview of key areas.
First of all, the question on everyone’s lips ….
What will the impact of Brexit be?
A significant amount of UK employment law is grounded in EU law. The UK government has stated that all current and existing legislation will be transposed into UK law after Brexit, so we don’t expect to see any change to employment legislation or the law. What will change over time is the right of non-UK citizens to live and work in the UK.
At the moment, citizens of EEA member states, Switzerland and their family members can live, work and study in the UK with no restrictions and with access to social security, education, pensions and healthcare.
As things stand, the impact of Brexit will depend on whether the UK leaves with a deal that includes a transition period, or without a deal.
Anyone seeking to enter the UK from January 2021 will need to apply under new immigration rules and may need a visa. Employers will need to have in place the necessary sponsor licence so that they can assign a Certificate of Sponsorship to the individual looking to apply for a work visa.
Full details of the scheme and how to apply are available on the government’s website here.
What should I have in place before employing staff in the UK?
A legal entity
When setting up a UK office of an international company, you will need to decide whether to do so as a branch or a subsidiary. Have a look at our article Setting up in the UK? How to choose a branch or a subsidiary to see which would be right for you.
Employers’ liability insurance
Employers’ liability insurance is there to protect employers from compensation costs for illness or injury, which is a result of work employees do for you. It’s a legal requirement if your business employs one or more people and there’s a daily fine if you don’t have it.
Right to work and visas
The UK has rules in place to prevent businesses from employing illegal workers. If you know or have reasonable cause to know that you have employed an illegal worker, that is a criminal offence that can result in a prison sentence and/or unlimited fine. If you didn’t know but didn’t check, you can be fined up to £20,000 per illegal worker.
If you are employing staff in the UK, you should, therefore, check that a job applicant is allowed to work for you in the UK before you employ them. You should do this for every potential employee; even if they tell you they are a UK citizen.
The government has set out the documents and methods that can be used to carry out a lawful check. This will require either a physical check of identity documents or, for people who have a Biometric Residence Permit, an online check.
If you are checking physical documents, you must:
- have the original documents in your possession, and
- check the photo in the presence of the prospective employee (you can do this by live video link if necessary).
(Temporary arrangements are in place to allow this check to be carried out remotely during the COVID-19 crisis, but the physical check will have to be carried out and confirmed after these arrangements have been withdrawn).
If you want to employ someone who needs a work permit, you must first have a relevant Employer Sponsorship Licence. There are different licences available, including one for ‘Intra-Company Transfer’’ – ie for multinational companies that need to transfer an employee to the UK. The worker will need details of the sponsorship licence before they can apply for a visa – the visa will only be valid while they work for the sponsoring company in the job described in the certificate of sponsorship.
You must register as an employer with HM Revenue and Customs before your first payday. You will need to do this even if you’re the only employee! It can take up to five days to get the employer Pay As You Earn (PAYE) reference number that you will need to make sure all taxes are paid correctly.
What employment rights do I need to be aware of?
UK* law gives employees a range of rights and entitlements in relation to their employment. Some of these also apply to other workers, whose status might not be that of an employee. A business should always look to be clear on the status of the relationship they are looking to set up – will they be an employee, ‘worker’, self-employed contractor or agency worker? Some employment rights, employer obligations and the correct tax treatment will vary according to status.
What documents do I need to give an employee?
All employment relationships will be governed by a contract, whether written or oral. You don’t have to put it all in writing, but if you do so, you can clearly set out the protections and obligations that apply to both parties.
Employers now need to provide a written statement of the main terms and conditions before the individual’s start date. The law sets out the minimum information that must be provided, such as job title or description; location; pay; benefits; hours; holiday; notice period, training entitlements and requirements. They must also receive details of where to access information such as disciplinary and grievance procedures, pensions and pension schemes, sick pay arrangements. Most employers choose to cover all this, along with other terms of employment and company rules and policies, in a contract and employee handbook.
What are the core minimum terms?
If you are employing people in the UK they have a legal minimum entitlement to a number of key benefits, although employers may voluntarily provide enhanced contractual rights.
You must meet the minimum hourly pay rates, which vary according to age and employment status.
Paid holiday entitlement
5.6 weeks (pro-rated where appropriate). This can include bank holidays, of which there are typically eight in England and Wales.
Anyone who employs at least one person must meet the legal requirements of pensions auto-enrolment. From April 2019 a minimum of 8% of eligible earnings must be contributed to a qualifying pensions scheme, including at least 3% from the employer and any tax relief.
The notice an employer must give to end a contract (outside a disciplinary process) depends on the employee’s length of continuous service and ranges from one week (after one month) to 12 weeks. Employees must also give one week’s notice (after one month), although there is no legal requirement for this to increase.
What other issues are covered by employment law?
A range of legislation and case law regulates the minimum standards that apply in the employment relationship and, in some instances, the rights of other categories of worker. These include:
- the right not to be discriminated against in relation to a ‘protected characteristic’ (age; disability; gender reassignment; marriage and civil partnership; maternity and pregnancy; race; religion or belief; sex and sexual orientation);
- protection from unfair treatment for whistleblowing;
- the right to equal pay;
- the right to time off for various family reasons;
- the right to time off for other specified reasons;
- the right to request flexible working;
- rights in relation to how they are disciplined, dismissed (including redundancy) and how any grievances are handled;
- working hours and breaks;
- Sunday working restrictions;
- the right to an itemised pay statement;
- protection if the business is transferred to a new owner;
- employee consultation arrangements;
- specific rights for agency workers and those on part-time or fixed-term contracts; and
- rules relating to the processing of personal data.
In some instances, the minimum length of service criteria and/or the entitlement to statutory pay rates apply.
What if I get it wrong?
Employment-related disputes that are not settled or resolved beforehand are heard in the first instance by employment tribunals. Appealed cases can go through the court system up to the Supreme Court (highest UK court) and the European Court of Justice.
The maximum compensatory award for unfair dismissal is the lower of £88,519 or 52 times the claimant’s weekly pay, where the effective date of termination is on or after 6 April 2020. This amount typically increases annually on 6 April. No maximum applies where a person is regarded as unfairly dismissed for one of a number of reasons related to health and safety or for making a protected disclosure. Employers would also have to pay the ‘basic award’, which is calculated according to a formula and could be exposed to a costs award and/or an additional award if they refuse to comply with an order to reinstate or re-engage the individual.
In some cases, including discrimination and whistleblowing, there is no cap on the compensation award and additional awards, eg Injury to Feelings for discrimination, could also be made.
How can Isosceles help?
Isosceles support overseas companies to set up in the UK. We can provide the people related advice, documentation and practical support you need to establish, manage and run a UK subsidiary successfully.
We also offer Payroll, Accounting and Finance Services to meet your broader UK operating needs.
If you think we can help you, please do not hesitate to get in touch.