Taxes and payrolls: the labour market in the United Kingdom
Each labour market has some peculiarities. It may be tricky for foreigners to understand fully the payment methods, the taxes and other benefits related. In TalentUp we are starting a series of different blog articles, one for each country. Now we choose the United Kingdom and we analyze its labour market.
Even if the national currency is the Pound Sterling (GBP), the whole article is in EUR to compare easily across countries and exchange rates.
General data about the British labour market
| Minimum hourly wage | – Age -18 and apprenctices : 6.10€ – Age 18-20: 8.66€ – Age 21-24: 11.77€ – Age +25: 12,05€ |
| Payment basis | Paid monthly, 12 times a year. |
| Payment | Between the 25th-28th of the month |
| Maximum working hours a week | 48h If you are under 18, the maximum hours a day is 8h and a week is 40h. |
| Working hours compensation | Overtime hours do not need to be paid as long as the average hourly pay does not fall below the minimum. |
Source: www.gov.uk
The apprentice pay is only received during the first year of the internship. After that period, everyone gets the minimum pay of their corresponding age range.
Payroll contributions in the United Kingdom
| Employer % | Employee % | Observations | Total % | |
| National Insurance Rate | 13.8 | 0 | Applied until 860€/month | 13.8 |
| 12 | Applied on amounts from 861€-4,986€/month | 25.8 | ||
| 2 | Applied on amounts above 4,987€/month | 15.8 | ||
| Pension fund | 3 | 5 | 8 | |
| Apprenticeship Levy | 0.5 | 0 | Only applied to employers with payslips over 3,589,635€ | 0.5 |
| TOTAL | 16.8 – 17.3 | 5.0 – 17.0 | 21.8 – 34.3 |
Source: https://papayaglobal.com/countrypedia/country/united-kingdom/
All contingencies are paid to HMRC (Her Majesty’s Revenue and Customs).
Once contributions are paid, employees need to pay an income tax. Most people pay Income Tax through PAYE (Pay As You Earn). This is the system the employers use to take Income Tax and National Insurance contributions before they pay wages or pensions. Each individual’s tax code tell employers how much to deduct.
The income tax is applied differently depending on the value. Each individual can earn a personal allowance without paying any taxes. The money that you earn after this personal allowance does have taxes applied. Taxes have a positive relationship with income: more income means more taxes.
| Tax Band | Taxable Income | Tax Rate |
| Personal Allowance | Less than 14,957€ | 0.00% |
| Basic Rate | 12,958€-59,827€ | 20% |
| Higher Rate | 59,828€-179,482€ | 40% |
| Additional Rate | More than 179,483€ | 45.00% |
Income tax rates are different in Scotland.
| Tax Band | Taxable Income | Tax Rate |
| Personal Allowance | Less than 14,957€ | 0.00% |
| Starter Rate | 12,958€-17,489€ | 19.00% |
| Basic Rate | 17,490€-30,168€ | 20% |
| Intermediate Rate | 30,169€-52,078€ | 21% |
| Higher Rate | 52,079€-179,482€ | 41% |
| Top Rate | More than 179,483€ | 46.00% |
To get the State pension in the UK individuals need at least 10 qualifying years on their National Insurance record. They do not have to be 10 qualifying years in a row. The pension received is a minimum of 215.79€/week.
Contingencies from self-employees
Self-employees need to be registered as a sole trader in the HMRC’s Self Assessment Scheme.
The self-employed quota increases progressively depending on the income.
| Annual gross salary | Self-employed fee |
| Less than 7,743€ | 0 € |
| 7,744€-11,361€ | 3.65€ / week |
| More than 11,362€ | 9% of the benefits until 59,794€ 2% of the benefits above 59,795€ |
Example of net salary in the United Kingdom
As a reference, we use the average salary of a software engineer. In the UK, on average, software engineers earn 64,500€ annually. We are assuming the worker is not from Scotland and it is not an apprentice.
| Employer | Employee | |||
| % | € | % | € | |
| Gross salary (annually) | 64500 | |||
| Gross salary (monthly) | 5375 | |||
| Insurance | ||||
| National Insurance Rate | 13.8 | 741.75 | 0 | 0 |
| 12 | 495 | |||
| 2 | 7.78 | |||
| Pension fund | 3 | 161.25 | 5 | 268.75 |
| TOTAL (monthly) | 16.8 | 903 | 14.35405 | 771.53 |
| TOTAL (annualy) | 10836 | 9258.36 | ||
| Income tax (basic rate) | 20 | 9373.8 | ||
| Income tax (higher rate) | 40 | 1869.2 | ||
| NET SALARY (annually) | 43998.64 |
The employer contributes 10,836€ to National Insurance and the employee 9,25836€.
After paying the income tax, the employee has a net salary of 43,998.64€ coming from a gross salary of 64,500€.
Papaya Global has the possibility to calculate automatically the net salary from the gross salary for any country and currency.
Unemployment regulation in the United Kingdom
There is no mandatory requirement but it is common to utilize a trial period of 3 to 6 months as a probation period.
The dismissal notice must be given based on what is stated in the employment contract or the statutory minimum, whichever is longer. The statutory redundancy notice periods are:
- At least one week’s notice if employed between one month and 2 years.
- One week’s notice for each year if employed between 2 and 12 years.
- Dismissal without notice can be utilized in cases of gross misconduct.
For workers under contract for at least 2 years, compensation is given:
| Age of the worker | Compensation |
| Less than 22 | Half a week’s pay for each full year |
| 22-41 | One week’s pay for each full year |
| More than 41 | One and a half week’s pay for each full year |
The maximum length of service considered is 20 years. And maximum weekly pay is 628.19€.
Different kinds of leaves in the United Kingdom
In England, Wales and Scotland there are 8 public holidays. In Northern Ireland, the public holidays go up to 10. Moreover, each year there have to be at least 28 days of paid leave.
Sick leave is paid after the 4th day of absence. The Statutory Sick Pay (SSP) entitles workers with a minimum of 112.77€ per week up to 28 weeks. This value can be higher depending on each company. When the sick leave is longer than 7 days (including non-working days), a doctor’s note should be given to the employer.
Maternity leave can last 52 weeks (one year) and is divided into:
- Ordinary Maternity Leave – first 26 weeks
- Additional Maternity Leave – last 26 weeks
The minimum maternity leave is 2 weeks after the baby is born birth (4 for factory workers). The earliest that leave can be taken is 11 weeks before the expected week of childbirth. The Statutory Maternity Pay (SMP) is paid by the employer and it consists on:
- Employees receive 90% of their average weekly earnings (before tax) for the first 6
- weeks
- Employees receive 177.90€ or 90% of their average weekly earnings (whichever is lower) for the next 33 weeks
For paternity leave, they can take up to two weeks’ leave and never before the birth.
The Statutory Paternity Pay is 177.90€ or 90% of their average weekly earnings (whichever is lower).
Tax and National Insurance are deducted for the leaves’ pay.
Common benefits offered in British companies
| Benefit | % of companies with this benefit |
| Health insurance | 10.6 |
| Professional development | 9.6 |
| Company events | 6.8 |
| Cutting edge technology | 6 |
| Work-life balance | 5.5 |
How to employ a British worker
Even if a company has only one worker in the United Kingdom, it should register as an employer with HM Revenue and Customs before the first payday. When registering, the PAYE of the individual will be given and the employer will know how much to retain.
The employer will follow British laws in respect to minimum wage, maximum working hours, pensions, leaves, etcetera.
Some platforms (Papaya Global among them) offer the Employer of Record (EoR) service helping companies hire countries where they do not have any office.
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