Employer of Record in the UK: A Comprehensive Guide for 2026

Introduction

An Employer of Record (EOR) in the UK is a company already registered as a UK employer that acts as the legal employer on your behalf, removing the need to register your own entity before you can hire.

UK employment rests on the Employment Rights Act 1996, the Equality Act 2010, the Working Time Regulations 1998, and the National Minimum Wage Act 1998, statutes that set the baseline for every hire, regardless of the employer's country of origin.

The Employment Rights Act 2025 is phasing in across 2026 and 2027, cutting the unfair dismissal qualifying period from two years to six months, effective 1 January 2027, so any hire today carries employment tribunal exposure sooner than most foreign employers plan for.

This guide covers employment contracts, statutory entitlements, right-to-work checks, termination and redundancy rules, work visa and sponsorship requirements, payroll and taxes, and how an EOR supports compliant UK hiring without a local entity.

UK at a glance

• Population: 69.97 million
• Currency: Pound Sterling (GBP, £)
• Capital: London
• Languages: English
• GDP: 3.69 trillion USD

How does employment regulation work in the UK?

UK employment is governed by a framework of statutes that set a floor employers cannot go below. The main ones are the Employment Rights Act 1996, the Equality Act 2010, the Working Time Regulations 1998, and the National Minimum Wage Act 1998. These cover contracts, pay, working hours, leave, and protection from unfair treatment and dismissal.

The Employment Rights Act 2025 is being phased in across 2026 and 2027, and it is the biggest overhaul of UK employment law in a generation, so a foreign employer should treat the UK baseline as a moving target and check the current position before each hire.

What are the types of employment contracts?

UK law recognises several contract types. The two that matter most when planning a hire are Indefinite and definite contracts.

• Indefinite: The standard ongoing contract with no fixed end date. It runs until either side ends it under the contract and the law. This is the baseline for full-time and part-time roles alike.
• Definite: Set to end on a specific date or when a task finishes. Fixed-term employees cannot be treated less favourably than comparable permanent staff. After four years of continuous fixed-term contracts, the role becomes permanent unless the employer has an objective reason to keep it fixed-term.

UK law also recognises part-time, agency, zero-hours, and freelance or contractor arrangements. Whatever the type, the employer must give every new employee and worker a written statement of the main employment terms on or before their first day, with any remaining particulars following within two months.

What are the statutory employee entitlements in the UK?

Every UK employee gets a set of statutory minimums covering annual leave, working hours, minimum wage, overtime, sick pay, maternity and paternity leave, workplace pension auto-enrolment, health and safety, and protection from discrimination and data misuse. Here's how each one breaks down.

What are the UK public holidays in 2026?

In the UK, bank holidays are the statutory public holidays, and the festive holidays are all included within the bank holiday list. There are no additional paid public holidays beyond these dates. An employer does not have to give paid leave on bank or public holidays, as these can count toward the statutory 5.6 weeks' annual leave entitlement.

The number of bank holidays and specific dates differ across the four nations.

What is the difference between contractors and full-time employees?

Employment status is the core difference between contractors and full-time employees. It decides what rights the person has, how they're taxed, and who carries the obligations.

A full-time employee works under an employment contract with statutory rights and protections; a contractor works independently, outside those protections, and handles their own tax.

Where a contractor provides services through their own limited company, often called a personal service company, the off-payroll working (IR35) rules can apply, making sure a contractor who would be an employee if engaged directly pays broadly the same Income Tax and National Insurance as an employee.

For medium and large private-sector clients, and all public-sector clients, the client must determine the contractor's status, and if the contractor falls within the rules, Income Tax and employee National Insurance are deducted from the fees.

The UK's IR35 off-payroll rules place the classification decision on medium and large clients, and getting it wrong means the business and the worker can owe unpaid Income Tax and National Insurance from the point the status was incorrectly assessed.

Whether you engage contractors for project-based work or hire full-time employees for ongoing roles, each model carries different classification and compliance obligations. Skuad supports both hiring models from a single platform:

EOR for full-time employees

• Acts as the legal employer across 160+ countries, so you can hire without setting up a local entity
• Supports employment contract generation aligned with local labor laws across supported markets
• Facilitates statutory contribution workflows covering applicable social insurance and pension obligations
• Supports payroll processing in 70+ currencies with automated tax withholding and year-end reconciliation
• Helps administer statutory benefits, paid leave, and parental entitlements in line with local requirements
• Assists with termination and offboarding, including notice periods and severance calculations as required locally

Contractor management

• Helps onboard contractors with locally compliant agreements that reduce misclassification exposure
• Supports invoice generation, approval workflows, and payment processing
• Helps flag classification risk before it becomes a compliance issue with built-in worker classification checks
• Facilitates multi-currency payouts across 70+ currencies
• Helps manage contractor records, contracts, and payment history from a single dashboard alongside full-time employees

Hiring full-time employees or contractors in the UK? Skuad supports both. See pricing

What are the probation and termination rules in the UK?

The UK doesn't require a probation period by law, employers set one by contract, typically three to six months. Ending employment lawfully means giving statutory minimum notice that scales with length of service, having a fair reason for dismissal, and paying statutory redundancy if the role is being cut and the employee has two years' service or more.

How does termination of employment work in the UK?

The statutory minimum notice an employer must give for termination is:

• At least one week if the employee has been employed between one month and two years
• One week for each year if employed between two and twelve years
• Twelve weeks if employed for twelve years or more

Dismissal

A dismissal is fair only if the employer has a valid reason and acts reasonably, with a consistent and properly investigated process. The fair reasons are capability or performance, conduct, redundancy, a statutory restriction where continuing to employ the person would break the law, and some other substantial reason.

Employees can bring an ordinary unfair dismissal claim once they have two years' continuous service. Under the Employment Rights Act 2025, this drops to six months from 1 January 2027.

Some dismissals are unfair regardless of service or process, such as dismissing someone for taking maternity leave or for whistleblowing.

Statutory redundancy pay

Employees with two years' service or more receive statutory redundancy pay, set by age, weekly pay, and length of service, and capped at £751 a week and £22,530 in total for redundancies on or after 6 April 2026.

The UK's termination framework carries real liability for foreign employers who miss the process. Notice periods scale with length of service, dismissals must have a valid reason and a properly investigated process, and redundancy pay has various caps.

Skuad's Shield compliance layer helps your team stay aligned with termination and offboarding obligations across supported markets, without independently tracking every regulatory update. Here is what Skuad supports:

• Termination and offboarding support aligned with local labor requirements across supported markets
• Notice period and severance calculations in line with statutory obligations
• Employment documentation and record-keeping that supports compliant offboarding
• Monitoring of regulatory and labor law changes across supported markets
• Probation period tracking and contract management within a single platform

Why use an EOR in the UK for hiring?

An EOR lets a business hire in the UK without registering its own entity or becoming an employer itself, since the EOR is already set up as a UK employer and hires the worker on the business's behalf.

Hiring directly means registering with HM Revenue and Customs (HMRC), running PAYE, handling employer National Insurance and pension auto-enrolment, completing right-to-work checks, and meeting the full set of statutory entitlements, notice, and redundancy obligations yourself.

The Employment Rights Act 2025 adds to this load as it phases in through 2026 and 2027, so the compliance burden of hiring directly keeps growing rather than staying fixed.

What are the benefits of hiring through an EOR in the UK?

• Fast market entry: A company avoids the lead time of forming an entity and setting up an employer payroll scheme before it can pay anyone.
• Payroll and tax supported: The EOR processes PAYE, deducts Income Tax and National Insurance, pays employer National Insurance, and supports pension auto-enrolment.
• Compliant onboarding: The EOR issues a UK-law employment contract, provides the written statement of terms, and supports the right-to-work check before the start date.
• Lower compliance risk: The EOR supports statutory entitlements, notice, and redundancy obligations, along with the right-to-work duty with a civil penalty.
• Intellectual property (IP) stays with the business: UK law gives the employer ownership of IP that an employee creates on the job, and the EOR's contract passes that to the client company.

Skuad acts as the legal employer across 160+ countries, so your company can hire in the UK and stay aligned with statutory requirements without setting up a local entity first. Here is what Skuad helps with:

• Employment contract generation aligned with local labor laws and statutory requirements across supported markets
• Statutory contribution workflows across supported markets, covering applicable social insurance and pension obligations
• Payroll processing in 70+ currencies with accurate tax withholding and statutory deductions
• Work permit and visa support for foreign nationals joining your team
• Termination and offboarding support aligned with local labor requirements across supported markets

See how Skuad supports EOR hiring in the UK.

How do EORs protect your company's IP in the UK?

Under the Copyright, Designs and Patents Act 1988, IP an employee creates in the course of their job belongs to the employer by default, not the employee. Since an EOR is the legal employer of record, its employment contract passes that ownership straight through to your company as the client, not to the EOR itself.

This default only applies to employees. If you engage a contractor instead, IP ownership isn't automatic and depends on the contractor agreement, so a missing or poorly drafted assignment clause can leave your company without clear rights to the work.

An EOR hire avoids that gap: because the EOR issues a UK-law employment contract on your behalf, standard IP assignment terms apply from day one, without you needing to negotiate a separate clause for each hire.

How do EORs support compliance with UK labor laws?

An EOR supports UK compliance by becoming the actual employer, so the obligations under the Employment Rights Act 1996, the Equality Act 2010, the Working Time Regulations 1998, and the National Minimum Wage Act 1998 sit with the EOR's own processes rather than something your company has to track from scratch.

In practice, this covers issuing a UK-law employment contract and written statement of terms, applying statutory entitlements like annual leave, sick pay, and parental leave, running the right-to-work check that gives the employer a statutory excuse from civil penalties, and supporting IR35 classification if you're also engaging contractors.

It also means staying aligned with the Employment Rights Act 2025 as it phases in through 2026 and 2027, including the drop in the unfair dismissal qualifying period from two years to six months, effective 1 January 2027. Skuad's Shield compliance layer supports this by tracking regulatory and labor law changes across supported markets, so your team isn't independently monitoring every update.

What are the types of work visas in the UK?

UK work visas fall into two groups for employers: sponsored routes, where the employer holds a sponsor licence and issues a Certificate of Sponsorship, and unsponsored routes, where the worker already holds the right to work and applies on their own.

Below are the routes where the employer sponsors the worker, holds a sponsor licence, and issues a Certificate of Sponsorship:

Below are the routes with no sponsorship. The worker already holds the right to work and applies themselves:

For short-term needs, the UK also has Temporary Worker routes such as Seasonal, Creative, and Charity Worker visas.

What is the work permit process in the UK?

The UK does not issue a standalone work permit. To employ someone who does not already have the right to work, the employer sponsors them through a work visa route, which means the business holds a sponsor licence and gives the worker a Certificate of Sponsorship.

A licence is needed to employ someone from outside the UK, including citizens of the EU, Iceland, Liechtenstein, Norway, and Switzerland who arrived after 31 December 2020. No sponsorship is needed for Irish citizens or for anyone with settled or pre-settled status or indefinite leave to remain.

The process runs in this order:

1. Check that the business and the job are eligible for sponsorship.
2. Apply for the sponsor licence online and pay the fee. UK Visas and Immigration (UKVI) may visit the business. Most decisions take less than 8 weeks, or an extra £750 buys a decision within 10 working days.
3. Assign a Certificate of Sponsorship, an electronic record, to the worker. They use it to apply for their visa within 3 months.
4. Meet the ongoing sponsor duties once the licence is live.

Note: Sponsoring someone does not guarantee they will get a visa.

How do payroll and taxes work in the UK?

To pay employees in the UK, an employer registers with HM Revenue and Customs (HMRC) and runs payroll through PAYE (Pay As You Earn). PAYE lets HMRC collect Income Tax and National Insurance from employees' pay. Payroll software works out what to deduct each payday, and the employer reports it and pays it to HMRC. Employer National Insurance is paid on top of each salary.

How does income tax work in the UK?

Income tax comes out of an employee's pay automatically through PAYE, deducted before they receive their salary. In England, Wales, and Northern Ireland, the first £12,570 a year is tax-free under the Personal Allowance, and tax applies only to earnings above that threshold. Scotland sets its own rates and bands on top of the same Personal Allowance, covered further below.

Scotland sets its own income tax rates and bands. An employee who is a Scottish taxpayer is taxed under these rates, on earnings above the same £12,570 Personal Allowance:

How does National Insurance work in the UK?

National Insurance is the same across the UK, and it is a separate deduction collected through PAYE. The employee pays their share out of gross pay, and the employer pays employer National Insurance on top of the salary.

Payroll also runs workplace pension auto-enrolment, where the employer deducts the employee's contribution and adds the employer's minimum, covered in the entitlements section above.

The total employer cost in the UK runs above gross salary once employer National Insurance, pension auto-enrolment contributions, and Income Tax withheld through PAYE are added, across bands that differ between England, Wales, Northern Ireland, and Scotland.

Skuad's employee cost calculator helps estimate the cost of hiring across supported markets, including employer social and tax contributions, statutory deductions, and net-to-gross conversion, so finance teams can model headcount costs before committing to a hire.

How to set up a subsidiary in the UK?

In the UK, an overseas company usually sets up a private limited company, known as an Ltd. It can be wholly owned by the parent company, since the UK sets no local shareholding requirement, and it needs only one director and one shareholder to exist. It is registered with Companies House, which is quick and low-cost compared with many markets.

What are the steps to incorporate a subsidiary in the UK?

• Choose a company name and check that it is available.
• Give a registered office address in the UK, where Companies House and HMRC send official mail.
• Appoint at least one director; a company secretary is optional. Have at least one shareholder, which can be the overseas parent company.
• Identify anyone with significant control, for example, anyone with more than 25% of the shares or voting rights.
• Prepare the memorandum of association, articles of association, and statement of capital, and choose a Standard Industrial Classification (SIC) code that describes the business.
• Verify the identity of each director and person with significant control with Companies House through gov.uk One Login, a one-off step.
• Register with Companies House. Online costs £100 and is usually done within 24 hours. By post, using form IN01, it costs £124 and takes 8 to 10 days.
• Companies House issues the certificate of incorporation, and the company is usually set up for Corporation Tax at the same time.

Setting up a private limited company through Companies House is relatively quick by international standards, but it still requires registering as an employer with HMRC, setting up a PAYE scheme, arranging pension auto-enrolment, and meeting ongoing filing and compliance obligations before the first person is paid.

For teams that need to hire in the UK without that commitment, Skuad acts as the legal employer, so you can onboard employees without incorporating a local entity first.

Customer story: How PureRED onboarded 65 employees across six countries with Skuad?

PureRED is a marketing and advertising company that needed to build a distributed team across multiple countries, including the UK. The challenge was managing localized employment contracts, multi-currency payroll, and ongoing compliance across six jurisdictions at once. Skuad supported the onboarding process through its EOR platform, helping with employment contracts, payroll, and compliance across all six markets. The result was 65 employees onboarded with compliant contracts and payroll in place.

Skuad made our team expansion possible, helping with the complex onboarding and payroll processes across six different countries with ease. Their local expertise ensured our compliance, letting us focus on what we do best: serving our clients.

- Brian Butcher, EVP Corporate Development, PureRED

Read the full case study here.

What is a Professional Employer Organization (PEO) in the UK?

A Professional Employer Organization (PEO) is an HR outsourcing arrangement where the provider runs payroll, benefits, and HR administration for a company's staff while the company stays the employer. The company and the PEO share employer responsibilities, which is why the model is called co-employment: the company keeps day-to-day control of its people, and the provider handles the back-office HR.

The co-employment PEO model comes from the United States. To use a PEO, a company has to be the employer in the country where the staff sits, which means it needs its own UK entity and must register as an employer with HMRC to run payroll. Providers advertised as an "international PEO" in the UK usually operate as an Employer of Record, since the US-style co-employment model does not map onto UK employment law.

What is the difference between a PEO and an EOR?

The difference comes down to who the legal employer is and whether the company needs its own UK entity.

A company with no UK entity that wants to hire and pay someone quickly uses an EOR, which acts as the legal employer, so no entity is needed, as covered in the EOR section above.

What happens if you hire in the UK without an EOR?

Hiring directly in the UK without an EOR means every compliance obligation, and every penalty for getting it wrong, sits with your company rather than a partner tracking the UK's rules for you.

• Right-to-work penalties: Skipping or mishandling the right-to-work check means losing the statutory excuse that protects you from civil penalties, which run up to £45,000 per illegal worker for a first breach and £60,000 for repeat breaches. Knowingly employing someone without the right to work carries up to 5 years in prison and an unlimited fine.
• IR35 misclassification liability: If you engage contractors and you're a medium or large business, you carry the classification decision yourself. Getting it wrong creates backdated Income Tax and National Insurance liability from the point the status was incorrectly assessed, for both the business and the worker.
• Growing statutory exposure under the Employment Rights Act 2025: The unfair dismissal qualifying period is dropping from two years to six months, effective 1 January 2027, so a hire made today carries employment tribunal exposure sooner than most foreign employers plan for.
• Redundancy and termination missteps: Notice periods scale with length of service, and dismissals need a valid reason and a properly investigated process. Redundancy pay is capped at £751 a week and £22,530 in total for redundancies on or after 6 April 2026, but getting the process wrong, not the cap, is what typically creates liability.
• Payroll and pension shortfalls: Direct hiring means registering with HMRC, running PAYE, paying employer National Insurance at 15% above £5,000, and auto-enrolling eligible staff into a pension at a minimum 3% employer contribution, all before the first payday, with no partner absorbing the setup time or the compliance risk if something's missed.

An EOR, like Skuad, takes on this compliance burden directly, acting as the legal employer and tracking these obligations on your behalf, so the risk doesn't sit with you.

EOR vs. local entity vs. contractor: which fits your UK hire?

How to choose the best EOR provider for the UK?

Not every EOR handles the UK the same way, and the gaps that matter most are the ones tied to UK-specific compliance rather than general HR admin. Here's what to check before picking one.

• Does it run payroll through its own UK entity? An EOR should register for PAYE and run payroll directly, not subcontract to a third party. That affects how quickly your first hire can start and who's accountable if something goes wrong with HMRC.
• Does it support right-to-work checks properly? A correctly done check gives the employer a statutory excuse from civil penalties, which run up to £45,000 per illegal worker for a first breach and £60,000 for repeat breaches. Confirm the provider builds this into onboarding rather than treating it as optional.
• Can it support IR35 classification for contractors? If you're also engaging contractors alongside EOR hires, the provider should help assess employment status upfront, since a wrong call under the off-payroll working rules creates backdated Income Tax and National Insurance liability for medium and large clients.
• Does it hold a sponsor licence for visa routes? If any hire needs sponsorship, such as the Skilled Worker or Health and Care Worker route, the EOR needs its own valid sponsor licence and the ability to issue a Certificate of Sponsorship. Without this, a foreign hire simply can't start.
• How does it track the Employment Rights Act 2025 rollout? The unfair dismissal qualifying period is dropping from two years to six months, effective 1 January 2027, alongside other phased changes through 2026 and 2027. Ask how the provider keeps contracts and notice periods aligned as each phase takes effect.
• Does the employment contract assign IP to your company? UK law gives IP ownership to the employer by default, so the EOR's standard contract should pass that ownership through to you as the client, not leave it ambiguous.
• Is pricing transparent? EOR fees in the UK are usually a flat monthly rate per employee or a percentage of payroll, sitting on top of gross salary, employer National Insurance at 15% above £5,000, and the minimum 3% pension contribution. Get the full cost breakdown before comparing providers.

Ready to hire in the UK without setting up an entity?

The UK is one of the most active hiring markets globally, but the compliance layer is substantial. PAYE registration with HMRC, employer National Insurance at 15%, pension auto-enrolment, right-to-work checks with civil penalties, sponsor licences for foreign hires, and an Employment Rights Act 2025 that is actively reshaping the baseline through 2027. Each of these obligations applies from the first hire, with or without a local entity.

An Employer of Record model helps simplify this by enabling companies to hire in the UK without setting up a local entity, while Skuad supports contracts, payroll across 70+ currencies, statutory contributions, onboarding, and work permits across global markets through its EOR capabilities.

The next step is to align your hiring plans and evaluate how an EOR setup can support your expansion into the UK in a structured and compliant way.

Start hiring in the UK without entity setup. Book a demo.

FAQs

1. What is an Employer of Record (EOR) in the UK?

An Employer of Record (EOR) in the UK is a company already registered as a UK employer that legally employs staff on your behalf, so you can hire without setting up your own entity or registering as an employer with HMRC. It processes PAYE payroll, supports employer National Insurance and pension auto-enrolment, runs right-to-work checks, and takes on statutory compliance across annual leave, sick pay, and termination obligations.

2. How much does an EOR in the UK cost?

An EOR in the UK typically charges either a flat monthly fee per employee or a percentage of payroll, rather than the upfront cost of registering a UK entity through Companies House and HMRC. That fee sits on top of the employee's gross salary, employer National Insurance at 15% above £5,000, and the minimum 3% workplace pension contribution the employer must make.

3. Can a foreign company hire in the UK without a local entity?

A foreign company can hire in the UK without a local entity by using an Employer of Record (EOR) instead of registering with Companies House and HMRC. The EOR acts as the legal employer, registers for PAYE, processes payroll, supports right-to-work checks, and meets statutory entitlements like annual leave and sick pay, while you manage the employee's day-to-day work.

4. What is the risk of getting IR35 classification wrong in the UK?

Under the UK's off-payroll working (IR35) rules, medium and large clients, not the contractor, must determine whether a contractor would count as an employee if engaged directly. Getting that decision wrong means both the business and the worker can owe backdated Income Tax and National Insurance from the point the status was incorrectly assessed, adding real financial exposure to any misclassified engagement.

5. How does an EOR differ from a PEO in the UK?

An Employer of Record (EOR) acts as the legal employer, so you can hire in the UK with no local entity of your own. A Professional Employer Organisation (PEO), a model that originated in the US, is co-employment instead: it keeps your company as the legal employer, which means you still need your own UK entity registered with HMRC to use one.

6. How quickly can an EOR onboard a hire in the UK?

Onboarding depends on the worker. A UK national with the right to work can usually be onboarded through an EOR in days once the right-to-work check and employment contract are complete. A non-UK national who needs sponsorship waits on the visa route instead, since a sponsor licence and Certificate of Sponsorship must be in place before the worker can start.