United Kingdom
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How to Hire Employees in the UK: The Complete Employer's Guide
You've decided you need someone in the UK. Maybe it's a sales director who knows the European market inside out. Maybe it's a developer who'll work alongside your London-based clients. Maybe it's your first hire outside your home country, and you're not quite sure where to start.
Here's the good news: hiring in the UK is absolutely doable. The UK has a flexible labour market, English-speaking talent, and a well-understood legal framework. The challenge isn't whether you can do it. It's choosing the right approach and making sure you comply with UK law from day one.
This guide walks you through the three main options for hiring in the UK, what each one involves, what it costs, and how to decide which is right for your situation.
What Are the Three Options for Hiring Employees in the UK?
When you want to bring someone on board in the UK, you have three fundamental choices. Each has different implications for cost, compliance, speed, and control.
Option 1: Set Up a UK Legal Entity
You incorporate a subsidiary or branch office in the UK, register it with Companies House and HMRC, and hire employees directly through that entity.
Option 2: Use an Employer of Record (EOR)
An Employer of Record employs your UK workers on your behalf. The EOR is the legal employer in the UK; you manage the worker's day-to-day role and responsibilities.
Option 3: Engage a Contractor
You engage a self-employed individual or freelancer under a services agreement. They invoice you for their work and handle their own tax affairs.
Let's look at each option in detail.
How Does Setting Up a UK Entity Work?
Setting up a UK entity means incorporating a limited company (the most common structure) through Companies House. This company becomes your UK employer.
The Process
This can be done online through Companies House in as little as 24 hours. You need at least one director, one shareholder, and a registered UK address.
Once incorporated, you register the company as an employer to get your PAYE reference.
You need a UK business bank account to pay employees and HMRC.
You need someone to run payroll, submit RTI returns, and manage deductions.
You must enroll eligible employees in a qualifying pension scheme.
This is a legal requirement under the Employers' Liability (Compulsory Insurance) Act 1969. You need cover of at least £5 million.
When This Makes Sense
Setting up a UK entity makes most sense when:
- You plan to hire a significant number of UK employees (typically ten or more)
- You need a permanent UK presence for commercial reasons
- You're committed to the UK market long-term
- You have the resources to manage UK compliance in-house
The Costs
Incorporation itself is cheap (£100 online through Companies House, from 1 February 2026), but the ongoing costs add up:
- Accountancy and payroll: £3,000 to £10,000+ per year
- Employers' liability insurance: £500 to £2,000 per year
- Registered office address: £200 to £1,000 per year
- Bank account fees: varies
- Management time: significant
Our EOR vs entity UK guide has a detailed cost comparison.
How Does an Employer of Record Work?
An Employer of Record is a third-party company that legally employs your UK workers on your behalf. The EOR has a UK entity, UK payroll, and UK compliance expertise. You tell them who you want to hire, and they make it happen.
The Process
You recruit, interview, and select the person you want to hire.
The contract is compliant with UK law, including the Employment Rights Act 2025 requirements.
PAYE, NICs, pension contributions, and statutory payments are all handled by the EOR.
Day-to-day management, performance reviews, and role responsibilities are yours. The EOR handles the legal employment framework.
Right to work checks, pension auto-enrolment, holiday calculations, and termination processes are all handled by the EOR.
When This Makes Sense
An EOR makes most sense when:
- You want to hire in the UK without setting up a UK entity
- You're hiring one to twenty UK employees
- You need to move quickly (hiring within days, not months)
- You want to test the UK market before committing to an entity
- You want to avoid UK compliance risk
The Costs
EOR fees vary by provider, but typically range from £300 to £700 per employee per month. This usually includes:
- Employment contracts
- PAYE payroll and reporting
- Pension auto-enrolment
- Statutory payments management
- HR support and compliance advice
Our EOR cost guide has detailed pricing breakdowns.
Our how to use an EOR in the UK guide walks through the process step by step.
How Does Engaging a Contractor Work?
Engaging a contractor means you enter into a services agreement with a self-employed individual (or their personal service company). They invoice you for their work and are responsible for their own tax and National Insurance.
The Process
Define what deliverables you need, the timeline, and the rate.
This should clearly define the relationship as one of independent contractor and client, not employer and employee.
You pay their invoices gross (no PAYE or NICs).
They register with HMRC as self-employed and file their own tax returns.
The IR35 Problem
Here's where it gets complicated. Since April 2021, medium and large private-sector clients are responsible for determining whether a contractor falls "inside" or "outside" IR35 (the off-payroll working rules).
If a contractor is inside IR35, you must treat them as an employee for tax purposes. That means deducting PAYE and NICs from their payments, and paying employer NICs. If they're outside IR35, you pay them gross.
The determination depends on factors like:
- Control: Do you control how, when, and where they work?
- Substitution: Can they send someone else to do the work?
- Mutuality of obligation: Are you obliged to offer work, and are they obliged to accept it?
If you control the work, don't allow substitution, and have an ongoing expectation of work, the relationship looks like employment, and the contractor is likely inside IR35.
Our IR35 explained guide and UK contractor to employee guide cover this in detail.
The Risks
Engaging contractors when the relationship is really employment is risky. If HMRC or a tribunal determines that your "contractor" is actually an employee, you face:
- Backdated PAYE and NICs (plus interest and penalties)
- Employment rights claims (holiday pay, sick pay, unfair dismissal)
- Reputational damage
This is not a theoretical risk. HMRC actively investigates disguised employment relationships. The public sector has seen widespread reclassification since the rules changed in 2017, and the private sector has followed since 2021. Companies like HMRC have pursued backdated tax bills running into millions of pounds.
There's also the worker's perspective to consider. If your "contractor" decides they want employment rights (holiday pay, sick pay, unfair dismissal protection), they can bring a claim to an employment tribunal. The tribunal will look at the reality of the relationship, not what the contract says. If the reality looks like employment, the contract label won't save you.
What Compliance Requirements Apply to All UK Hires?
Regardless of which option you choose, there are certain compliance requirements that apply to every person working for you in the UK.
Under the Employment Rights Act 1996 (as amended by the ERA 2025), you must provide a written statement of employment particulars on or before the first day of employment. This is a day-one right.
The statement must include the essentials: job title, pay, hours, holiday entitlement, notice periods, and more. Our UK employment contracts guide has the full list.
You must verify that every worker has the legal right to work in the UK before they start. This means checking original documents against Home Office guidance and retaining copies. The penalties for employing someone without the right to work are up to £60,000 per illegal worker.
Our right to work guide has the step-by-step process.
A common mistake international employers make is assuming that a verbal offer or email confirmation is enough. It's not. The right to work check must happen before the worker's first day, and it must follow the Home Office's prescribed process exactly. Using the online checking service (for workers with digital immigration status) or checking original documents in person are the two accepted methods. Photocopies or video calls are not sufficient for document checks unless you're using the official online service.
Every employer must operate PAYE and deduct income tax and NICs from employees' pay. This is reported to HMRC through the Real Time Information system. Our PAYE guide and National Insurance guide cover the details.
You must automatically enrol eligible workers in a qualifying workplace pension scheme from day one of employment. The minimum employer contribution is 3% of qualifying earnings. Our workplace pension guide has the full requirements.
Workers are entitled to a minimum of 28 days' paid annual leave per year, a maximum 48-hour working week (unless they opt out), and rest breaks during shifts. The Working Time Regulations 1998 set these rules.
Under the Health and Safety at Work etc. Act 1974, you have a duty to ensure the health, safety, and welfare of your employees. For remote workers, this extends to their home working setup.
What Does the Employment Rights Act 2025 Change for Hiring?
The Employment Rights Act 2025 is the most significant change to UK employment law in decades. Here's how it affects the hiring process.
Employees currently need two years' continuous service to bring an unfair dismissal claim. Under the Employment Rights Act 2025, this qualifying period falls to six months from 1 January 2027. This means you need to be more careful about hiring decisions and onboarding.
Paternity leave and unpaid parental leave are now day-one rights. You cannot require a minimum service period before these entitlements apply.
Workers on zero-hours contracts who regularly work more than their contracted hours have the right to a contract reflecting those regular hours. This affects businesses that rely on flexible staffing.
The right to request flexible working is now a day-one right. You must handle requests within two months and can only refuse on specific statutory grounds.
The practice of dismissing employees and re-engaging them on less favourable terms has been significantly restricted, making it automatically unfair except in very limited circumstances.
These changes affect all three hiring options, but they're most significant for direct employment and EOR arrangements. The day-one unfair dismissal right, in particular, means you need to be more thoughtful about hiring decisions. Getting the right person from the start matters more than ever, because letting someone go in the first few months now requires a fair process (even during the probation period).
One practical implication worth highlighting: if you're using an EOR, the EOR's contract templates and processes will already reflect the ERA 2025 requirements. If you're setting up your own entity, you need to make sure your employment contracts, HR policies, and dismissal procedures are all updated. This is one area where the EOR model genuinely reduces risk.
Our first UK hire checklist walks through everything you need to do
That's roughly 17% on top of the base salary. And that's before you factor in recruitment costs, equipment, and management time.
Our EOR cost guide compares the all-in cost of different hiring options.
What Is the Decision Framework for Choosing the Right Option?
Choosing between an entity, EOR, and contractor depends on several factors. Here's a simple decision framework.
Choose a UK Entity If:
- You plan to hire ten or more UK employees
- You need a permanent UK commercial presence
- You have the budget for setup and ongoing compliance costs
- You want full control over the employment relationship
Choose an Employer of Record If:
- You want to hire in the UK without setting up an entity
- You're hiring fewer than twenty UK employees
- You need to move quickly (days, not months)
- You want to test the UK market before committing
- You want to minimise compliance risk
Choose a Contractor If:
- The work is genuinely project-based and temporary
- You have no control over how, when, or where the work is done
- The contractor can send a substitute
- There's no ongoing obligation to offer or accept work
- You've had the arrangement assessed for IR35
The Hybrid Approach
Many companies start with an EOR for their first few UK hires, then transition to a direct entity once they reach critical mass. This lets you move quickly while minimising upfront investment. When the time comes to set up an entity, you can transfer employees from the EOR to your new company.
How Does an EOR Simplify the Hiring Process?
An Employer of Record takes the complexity out of UK hiring. Here's what the process looks like with an EOR.
You handle recruitment and selection.
The contract meets all UK legal requirements, including ERA 2025 provisions.
The EOR handles document verification against Home Office guidance.
Day one, fully employed, fully compliant.
PAYE, NICs, pension contributions, and statutory payments are all managed.
The EOR stays on top of legislative changes and adjusts accordingly.
If you need to end the relationship, the EOR manages the termination process in line with UK law.
The entire process can take as little as 48 hours from offer acceptance to employment start date. Compare that to the weeks or months it takes to set up a UK entity.
Our how to use an EOR in the UK guide has more detail on the process.
If your hire needs a UK visa, our EOR and UK visa sponsorship guide explains the options.
Agility EOR is far more than just a service provider. We’re flexible, innovative and focused on outstanding client service. Supporting you every step of the way – and valuing your people as the cornerstone of success.
Frequently Asked Questions
Yes. You can use an Employer of Record to employ workers in the UK without setting up a UK entity. The EOR is the legal employer and handles all compliance.
A staffing agency provides temporary workers who remain employed by the agency. An EOR employs your chosen worker on a permanent basis; you select them, manage them, and they work exclusively for you. The EOR simply handles the legal employment framework.
With an EOR, you can have someone employed within 48 hours. Setting up a UK entity typically takes two to four weeks (longer if you need a bank account). Engaging a contractor can happen immediately, but you need to be confident about IR35 status.
There's no legal requirement to offer benefits beyond the statutory minimums (pension, holiday, sick pay, etc.). However, competitive benefits packages help attract and retain talent. Common additions include private medical insurance, life insurance, enhanced pension contributions, and flexible working arrangements.
Under the ERA 2025, the unfair dismissal qualifying period falls to six months from 1 January 2027 (the final Act does not include a nine-month statutory probation period). Probation periods remain a contractual matter, and you cannot dismiss for automatically unfair reasons (discrimination, whistleblowing, etc.) at any point.
Ready to Hire Your First UK Employee?
Agility EOR makes it simple. We employ your chosen candidate on your behalf, handling contracts, payroll, tax, pensions, and full compliance with UK employment law.
No UK entity needed. No months of setup. Just the talent you need, employed and compliant from day one. Get started with Agility EOR.