«Labor and Employment Client Service Group To: Our Clients and Friends May 2014 Employing Staff in the UK This briefing sets out the main employer ...»
Labor and Employment Client Service Group
To: Our Clients and Friends May 2014
Employing Staff in the UK
This briefing sets out the main employer responsibilities in the UK and is primarily aimed at non-UK
businesses establishing an initial presence in the UK. It is not intended to replace tailored legal
advice but has been prepared to give Bryan Cave clients and friends an initial overview of the main issues that arise when businesses establish themselves in the UK.
Immigration As a general rule, most overseas nationals from outside the European Economic Area and Switzerland require approval from the UK Border Agency (“UKBA”) to work in the UK, although there are some exceptions.
The UKBA has a points-based system which is used to determine whether overseas applicants will be
allowed to enter and work in the UK. There are five tiers in the points-based system as follows:
Tier 1: High-value migrants, post-study workers, investors, entrepreneurs and exceptional talent Tier 2: Sponsored skilled workers with a job offer (previously work permit holders) Tier 3: Low skilled workers (although this tier has never been activated) Tier 4: Students Tier 5: Temporary or exchange workers (e.g. sponsored researchers and Youth Mobility Scheme) Each tier requires an applicant to score a sufficient number of points to gain entry clearance or to extend his or her leave to remain in the UK. Points are awarded for various criteria specific to each tier.
All migrants applying under tiers 2-5 are required to have sponsorship from a licensed sponsor (an employer or educational institution). Tier 1 migrants do not require sponsorship.
There are also certain other visa options for certain classes of person. For example, Commonwealth citizens with UK ancestry (e.g. a grandparent born in the UK) may be able to apply for permission to live and work in the UK for a period of up to five years without restrictions.
This Client Bulletin is published for the clients and friends of Bryan Cave LLP. Information contained herein is not to be considered as legal advice.
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Bryan Cave LLP America | Europe | Asia www.bryancave.com In addition, temporary visitors are normally allowed to enter the UK for brief periods of time (up to six months) for business purposes.
Setting up a local employer There is no requirement under UK law for there to be a local entity to employ staff in the UK (or for a foreign entity to establish a UK branch or other presence). However, a failure to have a local UK entity as the employer may complicate immigration applications (see above) and tax matters (see below). In addition there are a number of mandatory laws (such as unfair dismissal and discrimination - see below) that apply to employees working in the UK, regardless of the employee’s nationality or the employer’s place of registration. Such mandatory laws cannot be contracted out of.
Employees –vs- self-employed contractors The UK adopts a similar distinction between employees and self-employed contractors as the United States.
New staff sometimes ask to be hired as self-employed contractors, rather than employees, because they expect to make significant personal tax savings in doing so. This can be easily documented but the contractual relationship between the ‘employer’ client and the contractor must be set up correctly.
It is important that the distinction between employee and self-employed contractor is correctly established, but is it not always easy to determine. If a self-employed contractor relationship does not meet certain tests on a day-to-day basis in respect of how it operates, there can be significant tax and other disadvantages for both parties.
The rest of this briefing deals with employees rather than self-employed contractors.
Written contracts of employment There is no requirement in the UK for any employee to have a written contract of employment, but it would be very unusual not to have one. It is also advisable because if there is no written contract of employment, UK courts will imply certain terms and conditions that may be vague or not suit the employer.
However, by law all employers must provide employees with a written summary of the employee’s key terms of employment within two months of commencing employment (this is called a “Statement of Particulars”). A failure to provide a Statement of Particulars may lead to the employer receiving a penalty of two-four weeks capped pay per affected employee.
whether the employee will be required to work outside the UK for more than one month The UK uses the term “continuous employment” to refer to the date an employee started with the employer or (if earlier) an associated entity (including entities acquired by the employer or its group). Most UK rights which depend upon length of service depend upon length of this “continuous” service.
An employer must also provide the employee with a written statement of any change in the particulars within one month of that change.
Written contracts of employment will normally contain the Statement of Particulars. Written contracts of employment in the UK can be formed by offer letters and/or separate agreements. For executives, they are often called a “service agreement” instead of a “contract of employment” but there is no substantive difference between the two.
Health and safety All employers must take appropriate precautions to protect the health & safety of their staff in the workplace (and that of any visitors to the workplace).
In addition, employers must insure against liability for personal injury or disease sustained by employees and arising out of and in the course of their employment in Great Britain. UK law currently requires employers to insure for at least £5,000,000 in respect of claims relating to any one or more employees arising out of any one occurrence. In practice, most policies available in the market are for liability of up to £10,000,000 per claim.
Tax and social security contributions In the UK, “pay-as-you-earn” (i.e. “PAYE”) is the statutory system of deducting income tax from the employment income of an employee at the time they are paid.
Bryan Cave LLP America | Europe | Asia www.bryancave.com Employers effectively act as the tax collector for HM Revenue and Customs (“HMRC”). In the event of any shortfall, HMRC is entitled to recover the loss against the employer directly (plus a penalty based on a sliding-scale percentage of the underpayment). The employer can then seek to recover from the employee concerned, if possible.
New employers in the UK usually set up a relationship with a payroll service provider to undertake the administration of paying remuneration and liaising with HMRC. We can refer you to such a provider if required.
The PAYE system applies to all payments of employment income assessable to income tax in excess of defined limits. The limits are known as the PAYE thresholds and are laid down from time to time by HMRC. The PAYE thresholds for 2014 to 2015 are set out below.
Employers are also charged with remitting national insurance contribution payments (“NICs”) to HMRC. There are two main types of NICs which employers need to remit in respect of employment income – a charge on employees, deducted from their wages (12%, but subject to limits) and a charge on the employer which the employer is unable to pass on to employees (13.8%, again subject to limits).
There are other types of NICs payments which apply to (for example) self-employed contractors rather than employees.
If the employing entity is not present in the UK but has other associated companies in the UK, the UK-based associates may be liable to account for NICs to HMRC under legislation which deems them to be local ‘sponsors’ of the employee.
Minimum terms and conditions required by law There are three key minimum terms required by UK law: the statutory minimum wage, annual holiday, and statutory minimum notice periods.
The statutory minimum wage is reviewed each year and changes from 1 October. The statutory minimum wage for adult employees (aged 21+) is currently £6.31.
The minimum annual holiday benefit for full-time workers is 28 days, including eight “bank” (i.e.
public) holidays. This equates to a minimum annual holiday entitlement of four weeks (plus the eight bank holidays). In London and in some industries (e.g. the financial services industry) an annual entitlement of five weeks plus bank holidays is more common than the statutory minimum.
Any provision of a contract that is less beneficial to an employee in respect of the statutory minimum terms, is not unlawful but is superceded by the benefits set out above.
Other ‘standard’ terms and conditions for UK employment contracts Set out below is a list of the usual terms and conditions contained within UK employment contracts,
in addition to the requirements of the Statements of Particulars (see above):
bonus arrangements health insurance, medical insurance and pension benefits car entitlement restrictive covenants (e.g. non-competes, non-solicits) provisions dealing with suspension and ‘garden’ leave intellectual property and confidentiality provisions data protection permissions Sickness, working time limits, and special time off Statutory sick pay Employers are responsible for paying Statutory Sick Pay (“SSP”) to their employees for up to 28 weeks of absence due to sickness during any three year period. The current rate of SSP is £87.55 per week (as of April 2014). Employers can choose to pay more than SSP.
Working Time Regulations Employers must take all reasonable steps to ensure that workers do not work more than an average of 48 hours a week over a 17 week period. Employees over 18 may opt-out of the limit in writing, and it is common for contracts of employment to contain appropriate opt-out provisions. Generally, those employees who genuinely have the right to choose what hours they work, such as senior executives or business owners are exempted from this rule.
Time off work Employees have a statutory right to time off work in certain circumstances.
Bryan Cave LLP America | Europe | Asia www.bryancave.com Employees who (i) have agreed to accompany a colleague to a disciplinary or grievance hearing; (ii) have public duties (e.g. membership of statutory tribunals or local authorities); or (iii) are members of a recognised trade union and involved in industrial relations duties must also be allowed a reasonable amount of paid time off to fulfill these responsibilities. Members of recognised trade unions are also allowed reasonable time off to take part in trade union activities which do not constitute industrial action, but there is no statutory right to pay.
Employees are also allowed paid time off: (i) if they have two or more years’ continuous service, are being dismissed because of redundancy and need to look for new employment or training; or (ii) are pregnant and attending antenatal appointments.
Family friendly Maternity leave and pay In the UK, all mothers are entitled to 52 weeks’ statutory maternity leave (“SML”).
If a woman satisfies certain conditions she is entitled to receive statutory maternity pay (“SMP”). In particular, she must have been continuously employed by that employer for 26 weeks up to and including the 15th week before the expected week of childbirth and have stopped working.
Paternity leave and pay Eligible employees can take up to two weeks’ paid statutory paternity leave (“SPL”) to care for their new baby and support the mother. Statutory Paternity Pay (“SPP”) is the same as the standard rate of maternity pay, i.e. £138.18 per week, or 90% of the weekly average earnings if lower.
Employers can recover the amount of SPP they pay out in the same way that they can claim back SMP. Additional statutory paternity leave (“ASPL”) and additional statutory paternity leave pay (“ASPLP”) is also available up to 26 weeks if certain condition are met, including that the mother has returned to work.
A new flexible parental leave regime is being introduced in 2015 under which parents will be able to choose how they share care of their child in the first year after birth. Mothers will still be entitled to SML. However, parents will be able to opt to share the leave.
The above rules apply where a child is newly placed for adoption.
Parental leave Employees are entitled to take a total of 18 weeks’ unpaid leave for each child before its fifth birthday, or for a disabled child before its eighteenth birthday.
Parental leave is in addition to maternity leave and paternity leave and the period of leave already taken carries over from one employer to the next.
Flexible working Employees with 26 weeks’ service can make requests for flexible working arrangements, which might involve changing the hours they work, the times they work or the location from which they work. Employers do not have to agree to these requests. They only have an obligation to properly consider the request and may decline a request if there is a genuine business reason for doing so.
Bryan Cave LLP America | Europe | Asia www.bryancave.com Bonuses UK employers often choose to incentivise an employee by way of a variable bonus, as well as a fixed base salary. Bonus schemes vary significantly and can contain discretionary and nondiscretionary elements.
In recent years, the UK courts have dealt with a number of high-value bonus claims, particularly in the context of discretionary payments. As a result, the UK courts place certain implied restrictions on the exercise of a discretion in the context of bonus payments.
In addition, the UK regulator of financial services businesses, the Financial Conduct Authority (the “FCA”) has recently introduced new rules on remuneration, aimed at ensuring that remuneration is aligned with appropriate risk-management strategies. The rules affect around 2,500 businesses operating in the financial services industry (including overseas businesses with a presence in the UK).