Hiring in the UK explained

How to Hire UK Employees Without Setting Up a Legal Entity

If you have found the right person for a role in the United Kingdom, but you do not have a UK company, you might be wondering how to actually employ them. The good news is that you have options. The less good news is that each option comes with its own set of costs, risks, and compliance requirements.

For many international employers, the choice comes down to three paths: setting up a UK legal entity, engaging independent contractors, or using an Employer of Record. The right one depends on how many people you plan to hire, how quickly you need them to start, and how much ongoing compliance you are prepared to manage.

This guide breaks down each option, compares the costs and risks, and explains how an Employer of Record can help you hire in the UK without the complexity of setting up your own entity.

Can you hire UK employees without a legal entity?

Yes, you can. The UK does not require a foreign company to establish a local subsidiary before employing someone. There are three ways to do it, and each one has different implications for cost, compliance, and control.

The most common route for companies hiring small teams (typically fewer than 15 employees) is to use an Employer of Record. The EOR becomes the legal employer in the UK, handles all payroll, tax, and compliance obligations, and your company manages the employee's day-to-day work.

If you plan to hire a larger team or need a permanent UK presence, setting up a subsidiary may make more sense in the long run. And if you only need someone for a short-term project, engaging a contractor might be the simplest option, though it comes with significant compliance risks.

Three ways to hire employees in the UK

Option 1: Set up a UK legal entity

Setting up a subsidiary in the UK means registering a company with Companies House, opening a UK bank account, registering for PAYE and National Insurance with HMRC, and taking on all the obligations of a UK employer.

The process typically takes four to eight weeks and costs between £1,000 and £5,000 in legal and registration fees, depending on the complexity of your business. Once the entity is set up, you have ongoing obligations including annual accounts, corporation tax returns, payroll, and compliance with UK employment law.

This option makes sense if you plan to hire a significant number of employees (typically 15 or more) and need a permanent UK presence. For smaller teams, the setup and ongoing costs can be disproportionate.

Option 2: Use an Employer of Record

An Employer of Record is a third-party organisation that becomes the legal employer of your UK-based workers. The EOR issues UK-compliant employment contracts, operates PAYE and National Insurance, manages pension auto-enrolment, and ensures compliance with UK employment law.

Your company retains control over the employee's work. You decide what they do, how their performance is managed, and what projects they work on. The EOR handles the legal and administrative side.

The cost is typically a monthly fee per employee, ranging from £300 to £700 depending on the provider and the level of service. There are no upfront setup costs, and you can have someone employed within days rather than weeks.

This option makes sense for teams of one to 15 employees, for companies testing the UK market before committing to a subsidiary, or for businesses that want to hire quickly without the administrative burden of entity setup.

The EOR also handles ongoing changes to the employment relationship. If you want to give the employee a pay rise, change their working hours, or update their job title, the EOR processes the variation and ensures it is documented correctly. If you need to end the employment, the EOR manages the notice period, redundancy process, and any tribunal risk. This is particularly valuable in the UK, where employment termination is heavily regulated and getting it wrong can be expensive.

Option 3: Engage independent contractors

Hiring a contractor in the UK means you are not employing them at all. They are self-employed, invoice you for their work, and handle their own tax and National Insurance. You do not need a UK entity, and you do not have the ongoing obligations of an employer.

This sounds simple, but it carries significant risk. The UK has strict rules about employment status, and if HMRC determines that your contractor is actually working as an employee, you could face backdated tax, National Insurance contributions, interest, and penalties.

The IR35 rules are particularly relevant here. Since April 2021, medium and large businesses have been responsible for determining the employment status of their contractors. If the contractor is deemed to be inside IR35, the business must deduct PAYE and National Insurance as if they were an employee.

Contractors make sense for genuinely project-based work where the contractor has multiple clients, controls their own working methods, and can send a substitute. For ongoing roles that look like employment, the risk is too high.

Comparison table: Entity vs EOR vs Contractor

How an Employer of Record works in the UK

The EOR process is straightforward:

1. You select the candidate. You find the person you want to hire, agree on the role, salary, and start date.
2. The EOR issues a UK-compliant employment contract. The contract includes the principal statement required by the Employment Rights Act 1996, covering job title, pay, hours, holiday entitlement, and notice periods.
3. The EOR handles payroll, tax, and benefits. This includes PAYE, National Insurance, pension auto-enrolment, statutory sick pay, and statutory maternity/paternity pay.
4. You manage the employee's day-to-day work. You decide what they do, how their performance is measured, and what projects they work on. The EOR handles the legal and administrative side.

The whole process can be completed in a matter of days, which is significantly faster than setting up a UK entity.

UK compliance requirements you cannot avoid

Regardless of how you hire in the UK, certain compliance obligations apply to every employer.

PAYE and National Insurance: Every employer must deduct income tax and employee NI from wages and pay employer NI on top. These are reported to HMRC through the PAYE system via Real Time Information (RTI) submissions.

Employment contracts: Every employee is entitled to a written statement of their principal terms on or before their first day of work. This includes job title, pay, hours, holiday entitlement, and notice periods.

Right to work checks: Before employing someone, you must verify their right to work in the UK. This involves checking original documents (such as a passport or biometric residence permit) and keeping copies. The penalty for employing someone without the right to work is up to £60,000 per illegal worker.

Pension auto-enrolment: Every employer must automatically enrol eligible employees into a workplace pension scheme. The minimum contribution is 8% of qualifying earnings, with the employer paying at least 3%.

Statutory leave and pay: UK employees are entitled to a minimum of 5.6 weeks of paid annual leave (28 days for a full-time employee, including bank holidays), statutory sick pay (£116.75 per week for up to 28 weeks), and statutory maternity/paternity pay.

Working Time Regulations: The working week is capped at 48 hours unless the employee opts out in writing. Employees are also entitled to rest breaks and at least 11 consecutive hours of rest between working days.

IR35 and contractor misclassification risk

If you are considering using contractors in the UK, IR35 is the single biggest risk you need to understand.

IR35 is tax legislation that determines whether a contractor is genuinely self-employed or is, in reality, working as an employee. If HMRC decides that a contractor falls inside IR35, the business that engaged them must pay backdated income tax, National Insurance contributions, interest, and penalties.

The penalties for getting it wrong are severe. There is no cap on the amount HMRC can reclaim, and in serious cases, criminal charges can apply. The Uber Supreme Court ruling in 2021 and the Deliveroo Court of Appeal case in 2023 have both reinforced the principle that employment status is determined by the reality of the working relationship, not by what the contract says.

For international employers, the safest approach is to use an EOR for any ongoing role that looks like employment. Contractors should only be engaged for genuinely project-based work where they have multiple clients and control their own working methods.

Employment Rights Act 2025: what changes

The Employment Rights Act 2025 introduces several changes that affect how employers hire and manage staff in the UK. The changes are being phased in between April 2026 and January 2027.

From April 2026:

• Day-one rights for paternity leave and parental leave
• Statutory sick pay from day one of illness (removing the three-day waiting period)
• Doubled protective awards for failure to inform and consult on collective redundancies
• Establishment of the Fair Work Agency

From October 2026:

• Restrictions on fire-and-rehire practices
• Enhanced duty to prevent sexual harassment
• Restrictions on zero-hours contracts, including a right to a guaranteed-hours contract

From January 2027:

• Unfair dismissal qualifying period reduced from two years to six months
• Removal of the compensation cap for unfair dismissal

These changes make it more important than ever to get employment contracts, onboarding processes, and compliance procedures right from the start.

For international employers, the Employment Rights Act 2025 also introduces new risks around zero-hours contracts. If you have been using zero-hours arrangements in the UK, the new rules may require you to offer guaranteed-hours contracts after a qualifying period. This is worth considering when you are planning your UK hiring strategy, particularly if you are using flexible working arrangements.

How much does it cost to hire in the UK?

The total cost of employment in the UK is typically 175% to 200% of the employee's gross salary. On top of the salary itself, you are paying:

• Employer National Insurance at 15% on earnings above £5,000 per year
• Pension contributions (minimum 3% of qualifying earnings)
• Apprenticeship Levy (0.5% if your pay bill exceeds £3 million)
• Holiday pay (5.6 weeks per year)
• Any additional benefits you choose to offer (private health insurance, life insurance, etc.)

If you are using an EOR, the monthly fee per employee covers all of these costs in a single payment. If you are setting up your own entity, you will need to budget for payroll software, an accountant, and the time spent managing compliance.

It is also worth considering the cost of getting it wrong. A HMRC compliance review can result in backdated tax, National Insurance, interest, and penalties. An employment tribunal can award compensation for unfair dismissal, discrimination, or breach of contract. These costs are difficult to predict, but they can be significant. Using an EOR transfers much of this risk to the EOR provider, which can make budgeting more predictable.