Hire Contractors In the UK

The UK has a highly educated workforce that makes hiring workers from this region much easier for organizations worldwide. 

According to a recent report, during the academic year of 2021/22, as much as 42% of all graduates in the UK completed STEM disciplines. 

For these reasons, the United Kingdom has been among the most sought-after destinations for hiring independent contractors. However, ensuring a smooth contractor onboarding process is easier said than done. 

You need to thoroughly understand the various labor laws that classify a worker as an independent contractor and the tax requirements of such workers and maintain compliance with them. 

To help you in this journey, here is a detailed guide on the various ways to effectively hire contractors in the UK (EOR/direct hiring) and the pros and cons of each so that you can find the perfect solution for your business.

How to Hire Contractors in the UK

Hiring an independent contractor in the UK can be done in either of the following ways:

• Direct Hiring: When directly hiring independent contractors in the UK, you become responsible for multiple crucial tasks.
  • These include clearly stating the project and business requirements, sourcing candidates based on those requirements, onboarding them, drafting proper agreements, and paying them on time. 
  • All of these responsibilities require thorough compliance with the labor and tax laws of the country, which can often get challenging, especially if you do not have an in-house team of professionals. 

• Hiring through contractor management software/AOR: An alternative to the direct hiring approach is to partner with contractor management software or an agency of record.
  • An AOR will take care of all the administrative tasks, including forming agreements, payroll, and compliance. 
  • This helps reduce much of the burden on your part and allows you to focus on your business's other needs. 

Hiring Contractors through Skuad AOR

• With expertise in over 160+ countries, Skuad’s AOR solutions enable businesses to hire international contractors effortlessly. 
• Skuad takes care of all your needs, whether drafting locally compliant contracts, making accurate and timely payments, or managing expenses and reimbursements. 
• Skuad’s built-in IP system also protects your company’s IP under UK laws. 

All you are required to do is partner with Skuad AOR to hire an independent contractor in the UK.

Now, let’s look at how to pay independent contractors in the UK.

How to Pay A Contractor in the UK

There are two ways of paying a UK independent contractor.

• You can pay directly through checks, deposits, money orders, or other online payments. 
• You can pay an independent contractor in the UK through contractor management software like Skuad AOR

If you choose the former option, please note that you will need to have a detailed understanding of the UK's various tax laws, the latest currency exchange rates, and other critical international payment nuances. 

However, if you choose the second option, you no longer need to worry about these compliance issues. 

Skuad AOR provides a robust payroll solution that features various capabilities such as the following,

• Payroll in 100+ currencies
• Streamlined payroll data consolidation
• Privacy and data security

Direct Hiring vs. Hiring Contractors with Skuad

If you are still confused about the two methods, here is a detailed comparison of hiring contractors directly in the UK and hiring contractors via Skuad AOR.

Cost of Hiring Contractors in the UK

The cost of hiring contractors in the UK can differ based on these three main factors:

• The project requirements: If you wish to hire contractors in the UK to complete tasks that require specialized skills in any domain, it is going to cost you more than any other generic projects.
• The experience level of the contractor: A UK independent contractor with many years of experience will charge you more for the amount of knowledge and expertise they bring to the table than someone who has just begun their career. 
• The industry: The cost of hiring contractors in the UK can also fluctuate greatly depending on the industry. The average rate of a UK independent contractor in the marketing domain is £ 16.67 per hour, whereas an individual specializing in finance usually charges £21.23 per hour.

How to Convert A Contractor into an Employee in the UK

Here is a detailed breakdown of the various steps in converting a contractor into an employee or switching from Form 1099 to W2.

• Learn about the various provisions laid down by the labor laws of the UK. For example, the maximum probationary period for an employee in this country is three months.
• Notify the worker about the transition and the change in their roles and responsibilities towards your organization. 
• Draft a proper contract per the employment laws of the UK that highlights all the details, such as working conditions, salary, and benefit entitlements.
• Add the employee to your existing payroll so that you can pay them accurately and on time.

Challenges of Hiring Contractors in the UK

Below are some factors that often pose significant challenges for businesses that wish to hire contractors in the UK. 

1. The Labor Laws of the UK

The UK has stringent labor laws that can often be confusing or difficult for businesses to understand, especially when it comes to classifying an individual as an employee or an independent contractor. 

In the UK, a contractor can be self-employed, have the employment status of a worker, or have the employment status of an employee if they work for a client and are employed by an agency. In general, an individual is considered to be self-employed if they meet the following criteria,

• They give quotes to get work.
• They are not under the employer's direct control when they are working.
• They pay their own National Insurance and tax
• They are required to submit invoices for the work performed.
• They operate under a contractor for services that use terms such as ‘self-employed’ or ‘independent contractors.’
• They are not entitled to holidays or sick pay. 

Understanding these provisions is crucial to establishing a clear distinction between an employee and a contractor in the UK. Without it, you will not only have to provide compensation for loss of rights, unpaid wages, or entitlements but also bear severe reputational damage. 

Most businesses seek contractor management software to avoid such complexities; however, it can be extremely costly for companies with budgetary constraints. 

2. Determining the IR35 Status for UK Independent Contractors

IR35, previously known as the Intermediaries Legislation, is essentially tax legislation enacted by HM Revenue and Customs (HMRC) in the UK. The primary purpose of this regulation is to determine how employment relationships are classified and taxed.

One of the key aspects of IR35 is the concept of ‘disguised employment.’ This term refers to labor relationships in which an individual hired for a client through an intermediary has working terms and conditions that are akin to an employment contract instead of independent contractors. 

The burden of this classification, whether someone is ‘inside IR35’ or ‘outside IR35’, is incumbent upon the employer or the business hiring contractors in the UK. 

Contractors in the UK fall under the latter category, directly affecting how they are paid and how taxes are handled. To ensure compliance, you (as an employer) must maintain consistency in the written contract and the working practices of an independent contractor relationship. 

Unfortunately, more often than not, determining the IR35 status can be highly complex for businesses, especially if they are directly hiring contractors in the UK. Therefore, most seek the services of automated payment software, or an AOR, which, although hugely advantageous from a legal perspective, can be extremely expensive.

3. Increase in Day Rate in the UK

Ever since the UK government implemented IR35 in the private sector, the tax burden on contractors has grown exponentially. To equalize this impact, most contractors are now seeking an increase in their day rate (20%). 

This is especially true for specialist roles or more senior positions in various domains such as health and safety. 

This phenomenon has proved to be quite an obstacle for businesses seeking to hire contractors in the UK. 

In addition to the legal and tax complexities and the high risk of legal penalties, employers now have to bear high fees when hiring contractors for specialized tasks in the UK.

Hire Contractors in the UK with Skuad

With over 600+ clients worldwide, Skuad has been the leading AOR for all your international hiring needs. 

It is an all-inclusive platform that features various capabilities, such as a team of legal experts to help to stay at par with the latest changes in the employment laws of the UK, a robust payroll system to manage international payments effortlessly, and a built-in IP system to safeguard your company’s IP. 

With Skuad, you can also easily switch your contractor to an employee without worrying about misclassification risks. It keeps all employment details and records intact to guarantee a smooth transition.

‍Join us today and get access to an infinite talent pool only with Skuad!

FAQs

Q1: Can I hire a contractor in the UK?

Ans: Yes, you can hire a contractor either directly or through contractor management software. If you choose the former option, please note that you will need to manage crucial tasks, from sourcing skilled contractors to paying them accurately, all while maintaining compliance.  

Q2: What is the equivalent of a 1099 in the UK?

Ans: IR35 is a tax initiative enacted by the HMRC in the UK to counteract tax avoidance among freelancers and contractors who deliver services to an organization, typically through an intermediary. It is equivalent to the IRS 1099 form.

Q3: How do contractors work in the UK?

Ans: Before performing any work, a UK independent contractor forms an agreement with the client organization that outlines the work agreed upon, the duration within which the work must be completed, the payment rate, and so on.

Q4: What is the average rate for contractors in the UK?

Ans: The average rate for a UK independent contractor is estimated at £25.64 per hour or £50,000 per year. However, please note that this might differ depending on the individual's experience level, skills, or the type of work they are required to perform.

Q5: How does Skuad help hire, pay, and manage independent contractors in the UK?

Ans: Skuad’s consolidated platform brings together all the critical aspects of international hiring under one roof. It enables you to draft locally compliant contracts, make accurate payments, effortlessly switch from contractors to employees, and manage reimbursements and expenses, all while maintaining compliance with the relevant legislation.