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The labour market in the United Kingdom

Each labour market has some peculiarities. It may be tricky for foreigners to fully understand the payment methods, taxes, and other benefits related to them. In TalentUp, we are starting a series of different blog articles, one for each country. Now we choose the United Kingdom and we analyse its labour market.

Even if the national currency is the Pound Sterling (GBP), the whole article is in EUR to easily compare across countries and exchange rates.

General data about the British labour market

British minimum wage and maximum working hours disclosure. Data for January 2024. Source: www.gov.uk

The apprentice pay is only received during the first year of the internship. After that period, everyone gets the minimum pay of their corresponding age range.

Payroll contributions in the United Kingdom

Share of contingencies applied to the gross salary in the United Kingdom. Source: https://papayaglobal.com/countrypedia/country/united-kingdom/

All contingencies are paid to HMRC (Her Majesty’s Revenue and Customs). 

Once contributions are paid, employees need to pay an income tax. Most people pay Income Tax through PAYE (Pay As You Earn). This is the system employers use to take Income Tax and National Insurance contributions before they pay wages or pensions. Each individual’s tax code tells employers how much to deduct.

The income tax is applied differently depending on the value. Each individual can earn a personal allowance without paying any taxes. The money that you earn after this personal allowance does have taxes applied to it. Taxes have a positive relationship with income: more income means more taxes.

Table of income tax rates in the United Kingdom. Source: https://papayaglobal.com/countrypedia/country/united-kingdom/

Income tax rates are different in Scotland.

Table of income tax rates in Scotland. Source: https://ins-globalconsulting.com/uk-payroll-tax/

To get the State pension in the UK individuals need at least 10 qualifying years on their National Insurance record. They do not have to be 10 qualifying years in a row. The pension received is a minimum of 215.79€/week.

Contingencies from self-employees

Self-employees need to be registered as sole traders in the HMRC’s Self Assessment Scheme.

The self-employed quota increases progressively depending on income.

Self-employed fee in the United Kingdom. Source: www.gov.uk

Example of net salary in the United Kingdom

As a reference, we use the average salary of a software engineer. In the UK, on average, software engineers earn 64,500€ annually. We are assuming the worker is not from Scotland and is not an apprentice.

From gross to net salary of a software engineer in the United Kingdom.

The employer contributes 10,836€ to National Insurance and the employee contributes 9,258 euros.

After paying the income tax, the employee has a net salary of 43,998.64€, coming from a gross salary of 64,500€.

Unemployment regulation in the United Kingdom

There is no mandatory requirement but it is common to utilise a trial period of 3 to 6 months as a probationary period. 

The dismissal notice must be given based on what is stated in the employment contract or the statutory minimum, whichever is longer. The statutory redundancy notice periods are:

  • At least one week’s notice is required if employed between one month and 2 years.
  • One week’s notice for each year if employed between 2 and 12 years.
  • Dismissal without notice can be utilised in cases of gross misconduct.

 For workers under contract for at least 2 years, compensation is given:

Unemployment benefit days from years worked. Source: https://papayaglobal.com/countrypedia/country/united-kingdom/

The maximum length of service considered is 20 years. And maximum weekly pay is 628.19€.

Different kinds of leaves in the United Kingdom

In England, Wales and Scotland there are 8 public holidays.  In Northern Ireland, the public holidays go up to 10. Moreover, each year there have to be at least 28 days of paid leave. 

Sick leave is paid after the 4th day of absence. The Statutory Sick Pay (SSP) entitles workers with a minimum of 112.77€ per week up to 28 weeks. This value can be higher depending on each company. When the sick leave is longer than 7 days (including non-working days), a doctor’s note should be given to the employer.

Maternity leave can last 52 weeks (one year) and is divided into:

  • Ordinary Maternity Leave – first 26 weeks
  • Additional Maternity Leave – last 26 weeks

The minimum maternity leave is 2 weeks after the baby is born birth (4 for factory workers). The earliest that leave can be taken is 11 weeks before the expected week of childbirth. The Statutory Maternity Pay (SMP) is paid by the employer and it consists on:

  • Employees receive 90% of their average weekly earnings (before tax) for the first 6
  • weeks
  • Employees receive 177.90€ or 90% of their average weekly earnings (whichever is lower) for the next 33 weeks

For paternity leave, they can take up to two weeks’ leave and never before the birth.

The Statutory Paternity Pay is 177.90€ or 90% of their average weekly earnings (whichever is lower).

Tax and National Insurance are deducted for the leaves’ pay.

Common benefits offered in British companies

Top 5 benefits offered by British companies. Datasource: TalentUp’s database.

How to employ a British worker

Even if a company has only one worker in the United Kingdom, it should register as an employer with HM Revenue and Customs before the first payday. When registering, the PAYE of the individual will be given and the employer will know how much to retain.

The employer will follow British laws in respect to minimum wage, maximum working hours, pensions, leaves, etcetera.