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Payroll and benefits in UK

Managing payroll is one of the most fundamental parts of hiring employees — but it can be complex and time-consuming. And, like in all countries, payroll in the UK is subject to its own rules, regulations, and customs that you’ll need to know about as an employer. 

In this guide, we’ll take you through the complexities of payroll deductions like taxes, National Insurance and employer pension contributions. We’ll also cover the minimum wages that apply to different types of employees and the statutory benefits you’ll need to provide to your workers.

Minimum wage UK

Employers in the UK have to pay their employees at least the National Minimum Wage, or the National Living Wage for employees aged 21 and over. There are also different minimum wages in the UK for younger employees. 

As of April 2024, the National Minimum Wage is: 

  • £11.44 per hour for employees aged 21 and over (National Living Wage)
  • £8.60 per hour for employees aged between 18 and 20
  • £6.40 per hour for employees under the age of 18
  • £6.40 per hour for apprentices

For a full-time employee aged 21 or over, that amounts to:

  • £457.60 per week
  • £1,982.93 per month
  • £23,795.20 per year

Changes to the minimum wage in the UK

In the UK, the National Minimum Wage and the National Living Wage are reassessed every year and change on 1 April each year. Tax on minimum wage in the UK

The UK minimum wage rates listed above are the amount an employee on minimum wage earns before tax. Employees in the UK don’t pay any income tax on income up to £12,570 per year, which is called their ‘personal allowance’. That means a full-time employee earning the National Living Wage would only pay tax on their remaining earnings. In total, they would pay £2,245.04 in income tax for the year, leaving them with take-home pay of £21,550.16.

UK minimum wage for apprentices

Apprentices in the UK are paid the apprentice rate (£6.40 per hour) if they are either:

  • Aged under 19
  • Aged 19 or over and in the first year of their apprenticeship

After the first year, apprentices aged 19 or over are entitled to at least the minimum wage for their age. For example, a 19-year-old apprentice in the second year of their apprenticeship would be entitled to at least £8.60 per hour.

Deductions from minimum wages in the UK

In the UK, employers are allowed to deduct certain things from their employees’ pay, which may mean they take home less than the National Minimum Wage (or the National Living Wage). Specifically, employers are allowed to deduct:

  • Tax and National Insurance contributions
  • Payments to repay an advance or overpayment
  • Pension contributions
  • Trade union fees
  • Charges for accommodation

However, they are not allowed to deduct certain other expenses if it would take the employee’s pay below minimum wage. These include:

  • Tools and uniforms needed for work
  • Travel costs
  • Costs for mandatory training courses

For example, an employer might require an employee to purchase a work uniform, and deduct this expense directly from their pay. This is only allowed if the employee would still be left with at least the UK minimum wage after the deduction.

Payroll in the UK

In the UK, payroll is generally monthly, and employers usually pay employees between the 25th and 30th of each month. That means employees typically get paid in 12 equal instalments throughout the year. However, there is no legal requirement for this payroll frequency, and employers can use a different payroll process if they choose to. For example, you could pay your employees weekly or biweekly.

PAYE

Employers in the UK have to use a system called Pay As You Earn (PAYE) to collect Income Tax (UK payroll tax) and National Insurance contributions (NICs). National Insurance is a sort of social security payment that entitles employees to the State Pension and other state benefits, as long as they have made enough contributions over the course of their working life. 

Employers have to register for PAYE through the HM Revenue and Customs (HMRC) website, and then use payroll software to calculate deductions, report payments to HMRC and pay the necessary tax and National Insurance on behalf of their employees. 

Workplace pensions

All employers in the UK have to provide a workplace pension scheme and automatically enrol eligible employees into the scheme. They have to inform their employees that they have been enrolled in a pension scheme and provide details on how much both they and the employee will pay into it. 

By law, an employer and an employee must pay a minimum of 8% of the employee’s earnings into the pension scheme once they are enrolled. Of this, the employer must pay at least 3%, though they can choose to pay more. 

Employees can also choose to increase their contributions. The government also adds money to employees’ pension pots in the form of tax relief. Employees can also choose to opt out of their workplace pension, in which case neither they nor their employer need to make any payments. However, employers can’t force or encourage their employees to opt out. They also have to re-enrol employees into the scheme after three years. 

13th salary and bonuses

Unlike in some other countries, there is no statutory requirement for a 13th salary in UK payroll law. Employers can choose to give their employees an annual bonus, which is usually paid at the end of the year. Bonuses are taxed the same as an employee’s regular salary.

Statutory benefits UK

Statutory benefits are the minimum benefits that employers need to provide for their employees, according to employment law. In the UK, statutory benefits include various types of paid leave, protection against unfair dismissal, redundancy pay and the right to request flexible working. We’ll discuss some of these in more detail below. 

Differences in statutory benefits for UK workers and employees

In the UK, the statutory benefits that employers have to grant depend on whether a person is an employee or a worker. This is a specific employment status that typically refers to people who work on a more casual basis than full employees. 

Employers have to give both employees and workers the statutory minimum paid annual leave, which is 5.6 weeks for full-time employees. This applies to agency workers and workers with irregular working patterns as well as full-time and part-time employees. For part-time employees, annual leave is calculated based on the number of hours they normally work. 

Employees in the UK are also entitled to leave if they or their partner gives birth or adopts a child. Workers (casual employees) usually don’t get parental leave, though they may be entitled to pay. The amount of time employees can take off work depends on the type of leave they’re taking. For example, they could take: 

  • Statutory Maternity Leave: Up to 52 weeks
  • Statutory Paternity Leave: Up to two weeks
  • Statutory Adoption Leave: Up to 52 weeks
  • Shared Parental Leave: Up to 50 weeks shared between the two parents

Statutory sick pay

Employers have to pay their employees at least £116.75 per week for up to 28 weeks if they are too sick to work. Employers can choose to pay their employees more than the statutory minimum, but they can’t pay less. If you choose to offer a more generous sick pay package, this is known as contractual or occupational sick pay. It should be included in employees’ contracts. Workers are not entitled to Statutory Sick Pay.

Flexible working requests

Employees in the UK have the right to request flexible working arrangements. This includes flexibility in the number of hours they work, when they start or finish work and the days they work or where they work. For example, an employee could request to work remotely or to start and finish work later in the day to better fit their job around their childcare needs.

The rules about flexible working requests changed in 2024. Employees can now make a flexible working request from day one of employment, and they can make two requests in any 12-month period. When an employee makes a flexible working request, their employer has two months to respond. Employers have to properly consider all requests and must provide a valid business reason if they want to refuse.

Healthcare and social security

In addition to statutory benefits, the UK has a comprehensive social security system and free healthcare, which are both funded by general taxation and National Insurance. Under the social security system, citizens have access to various state benefits, including financial support for jobseekers, low-income earners, people with disabilities, families, carers and more. All employees also have access to the state pension as long as they make enough contributions into the system over their working life.

Healthcare in the UK is also free at the point of service, which means that employer-provided healthcare benefits are less common in the UK than in some other countries. However, some employers do choose to provide their employees with private coverage as an additional benefit.

Other employee benefits in the UK

Employers can choose to grant their employees additional benefits, even when they’re not part of the employee’s statutory rights. Building the right benefits package can be a valuable tool for attracting and retaining top talent in the UK. 

Additional time off

Employers can choose to give their employees more paid time off work than they are legally required to provide. For example, some employers give employees an additional day’s annual leave for each year they work at the company, up to a certain limit. Other companies have unlimited leave policies, which allow employees to take as much annual leave as they want to. 

Other employee benefits related to time off work include generous maternity, paternity, and parental leave packages. Employees are usually only entitled to a certain amount of pay when they take various types of parental leave, but employers can choose to top this up to their normal salary or pay them for longer than the Statutory Maternity Pay period. This can be a valuable additional benefit for young employees who want to start families. 

Private medical insurance

The UK’s National Health Service (NHS) provides free or significantly subsidised healthcare for all UK residents. That means that employers are not obliged to provide healthcare coverage as an employee benefit. However, unfortunately, the NHS is currently overstretched, which means that waiting times can be long and the quality of care provided may not always be adequate. 

This means that many employers in the UK choose to offer private healthcare insurance to their employees as an additional benefit. This may cover any healthcare needs that are not covered by the public system, or allow them to access higher quality healthcare when needed. 

Remote or flexible working

These days, more and more employees in the UK are interested in working according to a flexible schedule or in the location of their choosing. Giving employees freedom over when, where and how they work can be a valuable benefit, as it both demonstrates trust and allows them to work in the way that works best for them. 

Remote or flexible working is becoming a more popular employee benefit in the UK because it’s much more cost-effective for employers than other employee benefits but still provides value to employees. 

Employee assistance programmes

Employee assistance programmes (EAPs) are employee benefits programmes that provide employees with free and confidential advice and counselling. They can help employees with anything from legal issues to financial guidance to mental health support. Access to an EAP can be a highly valuable resource for employees because it allows them and their immediate family members to access support when they need it. Not only does this show employees that you value and care for them as an employer, but it can also make them more engaged and productive at work. 

Additional perks and benefits

There are all sorts of other benefits and perks that employers in the UK can offer their employees. For example, you could consider:

  • Company cars
  • Employee wellness resources
  • Learning and development budgets
  • Childcare benefits
  • Bike-to-work schemes
  • Gym memberships
  • Remote working expenses

Compliant, seamless payroll and benefits in the UK and beyond

Getting payroll and benefits right is not just a legal issue. Every country also has its own customs, norms and expectations about employee compensation. And if your operations aren’t in line with your workers’ expectations, they may not stick around for long.

Thankfully, we know what we’re doing. When you work with CXC to engage workers in the UK, we’ll handle everything from tax withholding to employee bonuses on your behalf.

Want to find out more?

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