Employing people in the UK is one of the first practical steps for any overseas business establishing a UK presence. It is also one of the areas where the gap between expectation and reality catches the most companies off guard.
UK employment law, payroll obligations and pension requirements differ materially from those in the US, France and most other jurisdictions.
Get them wrong and you face HMRC penalties, employee claims and reputational damage that can distract management at precisely the wrong time.
Below we outline the core obligations that apply to any overseas employer hiring staff in the UK, whether you are operating through a subsidiary, a branch, or as a non-resident employer.
Registering as an employer with HMRC
Before you pay anyone in the UK, you must register as an employer with HMRC and establish a PAYE (Pay As You Earn) scheme. PAYE is the system through which employers deduct income tax and National Insurance contributions from employees’ pay and remit them to HMRC. This obligation applies regardless of whether you have a UK-incorporated entity or not.
HMRC requires employers to report payroll information in real time through a system called Real Time Information (RTI). Every time you run payroll, you must submit a Full Payment Submission (FPS) to HMRC on or before the date you pay your employees. Late or inaccurate submissions trigger automatic penalties.
For US employers, the key difference is that UK income tax and National Insurance are calculated and deducted by the employer at source. It is not left to employee self-assessment. The employer carries the compliance burden, and HMRC holds the employer accountable for errors.
For French employers, the system is conceptually similar to the French prélèvement à la source, but the mechanics differ significantly, particularly around National Insurance (which combines elements of both French cotisations sociales patronales and salariales into a single employer and employee framework).
National Insurance contributions
National Insurance is a payroll tax paid by both employers and employees. From April 2025, the employer’s secondary Class 1 NIC rate is 15%, applied to earnings above the secondary threshold of £5,000 per year. The employee’s primary Class 1 NIC rate is 8% on earnings between £12,570 and £50,270, and 2% on earnings above that.
This is a significant cost that overseas employers frequently underestimate when budgeting for UK hires. On a salary of £60,000, the employer’s NIC liability alone is approximately £8,250 per year, on top of the gross salary. Factor in pension contributions and other statutory costs, and the true cost of employing someone in the UK typically runs 15–20% above the headline salary figure.
Auto-enrolment pension obligations
Every employer with staff working in the UK is required to enrol eligible employees into a qualifying workplace pension scheme. This applies to overseas employers just as it does to domestic ones. The Pensions Regulator is clear on this point: if your employees are working or ordinarily working in the UK, auto-enrolment duties apply regardless of where your company is headquartered.
An eligible jobholder is someone aged between 22 and state pension age, earning above £10,000 per year. For the 2025–26 tax year, the minimum total contribution is 8% of qualifying earnings (earnings between £6,240 and £50,270), of which the employer must contribute at least 3%.
The most common pension provider for new employers is NEST (National Employment Savings Trust), the government-backed scheme designed specifically to make auto-enrolment straightforward. However, many employers choose alternative providers depending on the level of service and flexibility required.
Failure to comply with auto-enrolment carries escalating penalties from The Pensions Regulator, starting at fixed penalties and rising to daily fines that can reach £10,000 per day for larger employers.
UK employment contracts and statutory rights
UK employment law provides a baseline of statutory rights that cannot be contracted out of, regardless of what your employment contracts in the US or France might say. These include:
Written statement of employment particulars, which must be provided on or before the employee’s first day of work. This is more detailed than many overseas employers expect, covering everything from pay and hours to notice periods and pension arrangements.
Statutory holiday entitlement of 28 days per year (inclusive of bank holidays) for a full-time employee. This is a minimum. Many UK employers offer more. For US employers accustomed to “at will” employment with limited or no mandated holiday, this is often a significant adjustment.
Statutory Sick Pay (SSP)
For the 2025–26 tax year, Statutory Sick Pay is £118.75 per week, payable for up to 28 weeks and typically starting from the fourth consecutive day of sickness.
However, from 6 April 2026 (2026/27 tax year), significant reforms take effect:
- The weekly SSP rate increases to £123.25, or 80% of the employee’s average weekly earnings if lower
- SSP becomes payable from day one of sickness (removing the previous three-day waiting period)
- The Lower Earnings Limit is removed, extending eligibility to all employees regardless of earnings level
These changes materially increase both cost exposure and administrative complexity for employers, particularly those with lower-paid or part-time workforces.
Statutory maternity and family-related pay
For 2025–26, Statutory Maternity Pay (SMP) is paid at 90% of average weekly earnings for the first six weeks, followed by £187.18 per week (or 90% of earnings if lower) for the remaining 33 weeks.
From April 2026, the standard weekly rate increases to £194.32. The structure remains:
- First 6 weeks: 90% of average weekly earnings
- Remaining 33 weeks: the lower of £194.32 or 90% of average weekly earnings
The Lower Earnings Limit for qualification increases to £129 per week.
The £194.32 weekly rate will also apply to Statutory Adoption Pay, Statutory Paternity Pay, Statutory Shared Parental Pay and Statutory Parental Bereavement Pay.
Paternity and parental leave reforms from April 2026
From April 2026, further structural changes apply:
- Paternity leave becomes a day-one right, removing the previous 26-week service requirement
- Unpaid parental leave also becomes a day-one right
- Paternity leave can be taken after a period of shared parental leave
- A new Bereaved Partner’s Leave right provides up to 52 weeks of leave where a partner dies during childbirth or within a year of birth
- For babies due between 5 April and 25 July 2026, a temporary reduced notice period of 28 days applies
Importantly, while paternity leave becomes a day-one entitlement, Statutory Paternity Pay still requires 26 weeks’ service. If leave is taken before this threshold is met, it is likely to be unpaid unless enhanced by company policy.
Statutory notice periods
Notice periods build with length of service: one week during the first two years, then one additional week for each year of continuous service, up to a maximum of 12 weeks.
Unfair dismissal protection
Employees gain protection against unfair dismissal after two years of continuous service. Unlike “at will” employment in the US, UK employers cannot simply terminate an employee without following a fair process and having a legitimate reason. The potential cost of getting this wrong at employment tribunal can be significant.
Common mistakes overseas employers make
Treating UK employees like US “at will” staff. UK employment law provides considerably stronger protections for employees. Dismissing someone without following a fair process, even during the first two years, can still give rise to claims for wrongful dismissal or discrimination.
Underestimating the total cost of employment. Employer’s NIC, pension contributions, holiday pay accrual, and statutory benefits add materially to the cost of a UK hire. Budget for a total employment cost of at least 115-120% of gross salary.
Missing auto-enrolment deadlines. The Pensions Regulator monitors compliance actively. Late enrolment triggers penalties, and the penalties escalate quickly.
Using US-style employment contracts. UK contracts must comply with UK legislation. A US employment agreement, even if adapted, will almost certainly miss required statutory provisions and may include unenforceable terms.
Not understanding IR35 and off-payroll working rules. If you engage contractors in the UK, the IR35 rules may require you to treat them as employees for tax purposes. Medium and large businesses are responsible for making this determination, and getting it wrong results in the employer bearing the unpaid tax, NIC, and penalties.
Setting up payroll correctly from day one
The practical steps for establishing compliant UK payroll are straightforward when approached in the right order. Register with HMRC as an employer, set up a PAYE scheme, choose payroll software or appoint a payroll provider, set up a qualifying pension scheme for auto-enrolment, issue compliant employment contracts, and begin RTI reporting from your first pay run.
Many overseas companies choose to outsource their UK payroll and employment administration entirely, particularly in the early stages when the UK team is small and the compliance learning curve is steep. This approach removes the risk of penalties while the business focuses on commercial growth.
How Wilson Partners supports overseas employers
Wilson Partners provides a fully integrated UK payroll and employment setup service for US companies expanding to the UK and French businesses establishing a UK presence. We handle HMRC registration, payroll processing, auto-enrolment pension setup, and ongoing compliance. We also coordinate with specialist employment lawyers to ensure contracts meet UK statutory requirements and reflect commercial objectives. Our clients typically start with a small UK team and grow from there. Our service scales with you, from a single employee to a fully outsourced finance function.
