In many ways, HR is the same the world over. HR teams in every country share concerns about issues like recruitment, employee engagement, professional development, performance management and payroll. That said, there are certain challenges that only HR personnel in the UK have to grapple with.
National Minimum Wage (NMW) legislation is complex to calculate; real time reporting requirements allow for no margin for error; extensive statutory leave means calculating pay owed for numerous reasons; classifying workers in the right categories can be challenging; and there are many deductions to be made for PAYE, student loan repayments, and more.
For companies in the UK, or international companies expanding into the UK, this means there’s a lot for you to keep track of. Here are some of the things you should know about running HR in the UK.
1. Minimum Wage Calculations
Many countries have national minimum wage requirements, but they are usually more simple than those in place in the UK. In the US, for example, there’s an hourly minimum wage which is simple to calculate pro rata.
Most EU member states fix minimum wages at a monthly rate, although Malta uses a weekly minimum, while Germany, France, and Ireland set minimum wages on an hourly basis. Monthly and weekly wages are generally calculated according to gross earnings, without the many deductions that make UK NMW such a headache.
NMW in the UK, however, is more complex. It looks at take-home pay rather than gross earnings, so deductions for mandatory training, uniforms, and even travel can drag bottom-line pay down below the threshold.
NMW legislation also gives a broad definition of “working time,” and sets a strict deadline for when workers need to be paid.
2. Employer Withholdings
The truth is that employer withholdings can be challenging wherever you work, and the UK’s PAYE system for deductions for income tax and national insurance (NI) contributions parallel similar requirements around the world. In Germany, for example, employers need to withhold pay for pension insurance, unemployment insurance, health insurance, long-term care insurance, and insolvency protections.
Employers in the US are required to make withholdings for federal income tax and Social Security and Medicare; pay their own contributions for each employee; and pay an Additional Medicare Tax for employees whose compensation exceeds a certain amount.
But employer deductions and withholdings in the UK can be more complicated to calculate. There are different rates for apprentices aged under 25 and employees aged below 21, while most countries only change the rates according to salary bands. What’s more, the UK government has set up “freeports” in some parts of the country, where different employer NI contribution rates apply. That means that if you have branches around the UK, you might have to pay NI at different rates for employees in those locations.
Manual payroll management systems often fail to keep up with all the many different factors involved in calculating employer withholdings and contributions in the UK. Pento’s automated payroll management tool can help you track deductions for each employee, every month, with more accuracy and less angst than manual calculations. The software also connects to your employee records to import all team members’ latest details and flag any anomalies that require human review.
3. Worker Classifications
In most countries around the world, people who work for your business are either “employees,” and thus entitled to all the protections offered to them by law, or “contractors” towards whom the company has very little — and sometimes no — responsibility.
Sometimes these contractors are called freelancers, gig workers, or temporary workers, but the category remains the same. But the UK has a third category of “worker,” with the rights to some protections and benefits but not as many as “employees.”
For example, unlike contractors, “workers” are eligible for pension auto-enrolment, entitled to statutory redundancy pay, and have the right to statutory maternity, paternity, adoption, and shared parental leave and pay.
HR teams accustomed to the norm in other countries might not expect this situation and could mis-classify people as contractors, which would make them non-compliant with UK workplace legislation.
4. Real Time Reporting
In the UK, organizations have to submit real-time PAYE information (RTI) electronically on the same day or the day before they issue payslips. There is no room for error, because mistakes can’t be corrected later.
This means that if you’re outsourcing payroll management, you need to get all the information about employee work hours, overtime, sick leave, and more far enough in advance for the outsourcing company to complete their calculations before the deadline. If something changes closer to payday, there’s often no way to adjust the data.
As a result, you’ll need to automate RTI reporting unless your company is very small. The government recognizes this and provides free RTI software to help you with payroll management, but it’s only designed for businesses with fewer than ten employees. For larger companies, Rippling’s suite of HR tools can automatically calculate withholdings and submit RTI to the HMRC.
While few other countries require real-time reporting, it is becoming more widespread and extending to more use cases, as part of a drive to combat fraud. In this case, HR teams internationally might want to learn from UK HR practices, to stay ahead of the trend.
5. Paid Leave
Allocations for paid leave, including the way that pay is calculated and the circumstances under which it’s accepted, vary from one country to the next. For example, if you’re used to the US, where there’s no federally mandated paid sick leave, maternity leave, or paternity leave, you’ll find UK legislation to be something of a surprise.
On the other hand, companies expanding into the UK from Japan, where shared parental leave is paid for up to 12 months, might be surprised to learn that UK fathers are only entitled to two weeks leave and can’t share their partner’s maternity leave.
While most of Europe mandates paid leave on a similar basis to the UK (although for differing periods of time and at varying pay rates), only the UK gives employees the right to caregiving leave for anyone who is dependent upon you for care, rather than only children.
UK employees are entitled to paid leave from their first day of work, and they can accrue annual leave even while on sick leave or parental leave. What’s more, all workers, including those with zero-hours contracts, irregular hours, and agency workers, have the same rights to statutory leave and pay, which can add more complexity to compensation calculations.
Keep HR Management Running Smoothly in the UK
Managing HR for UK employees can be challenging in all kinds of ways. If you’re already accustomed to payroll calculations, reporting rhythms, or leave allocations in other parts of the world, you could find the setup in the UK to be highly confusing. Fortunately, there are plenty of resources to help guide you, and a number of HR automation tools that can ease the pressure and make HR in the UK as close to effortless as possible.