Top 10 Risks When Hiring in the UK

Hiring international employees provides businesses with a large pool of skilled labor, increased innovation throughout the workforce, and the chance to access and grow within large economies. A global team also helps you develop a more inclusive workplace, improve employee engagement, increase productivity, and foster an environment where different perspectives thrive.

The United Kingdom is home to one of the world’s leading economies and highly skilled workers with specialized knowledge in various industries. However, expanding in this region isn’t always easy. Companies can face several hurdles before experiencing sustained international success.

Risk management refers to the process of identifying, assessing, and controlling any potential risks that are associated with your company’s legal, financial, and security well-being. Businesses that hire internationally are susceptible to various risks that can impede long-term business growth.

However, a global Employer of Record (EOR) offers expert-level legal and regulatory compliance support to navigate the specific requirements of local labor laws. EORs also provide companies an efficient way to streamline administrative duties such as processing payroll and calculating wages across borders, filing or reporting taxes, analyzing hiring data, managing employment contracts, offboarding employees, and more when managing a dispersed team. This guide will inform you about the most significant risks associated with hiring in the UK and how an EOR reduces legal and financial risks. 

Hiring in the United Kingdom

Companies that want to grow and access new markets should consider recruiting workers from the United Kingdom when hiring internationally. The UK’s massive market and talent pool offers several significant benefits that support growing enterprises.

Certain perks such as the ability to access and grow in a massive economy, recruit from a pool of talented workers to drive innovation, and strong legislation to support growth make the UK an ideal place to expand business operations. 

However, many risks also exist that can impact a company’s strategic goals. 

Massive Economy

The United Kingdom is home to a massive and stable economy, allowing businesses to grow in a robust market. In 2024, the UK ranks as the sixth-largest economy in the world in terms of GDP, which also gives companies access to a diverse consumer base and additional growth opportunities, such as the ability to network with professionals across industries or secure new investors.  

Economic Stability

The UK’s economy is relatively stable. While changes or fluctuations will happen occasionally, the United Kingdom market has remained fairly stout throughout the years and has experienced consistent growth. This stability helps companies implement optimal risk management strategies and successfully plan for the future as they won’t need to navigate drastic changes in economic conditions or political upheaval.  

Skilled Workforce

The United Kingdom also offers a deep pool of talent with specialized knowledge in most notable industries. In 2024, the UK boasts a population of roughly 68 million people, providing companies with ample opportunities to find qualified candidates for each position and add diverse or unique perspectives to their workforce. 

Specialized Knowledge

The UK also has a range of world-renowned educational institutions such as Oxford University, the University of Cambridge, and Imperial College London. This means companies can recruit highly educated workers with relevant expertise to drive innovation and creativity. 

Hiring talented employees with the right skill sets can maximize productivity and significantly streamline the onboarding process by quickly picking up the requirements of the job. 

Regulatory Framework

Companies that hire in the UK also benefit from a stable regulatory landscape that supports business growth and development. The United Kingdom ranks eighth on the global index for ease of doing business, which measures factors such as how easy it is to start a business, register property, get credit, and more. 

This means new businesses will generally face fewer hurdles when setting up a business and procedures are relatively transparent with clear guidelines and standards. 

Business-Friendly Laws

The UK also has a strong legal landscape with regulations that are designed to protect businesses and facilitate growth. For example, the United Kingdom has strict laws regarding intellectual property (IP) protection to safeguard innovative operations, along with reasonably business-friendly tax laws. 

Ten Risks Associated with Hiring in the United Kingdom

While companies that hire in the UK gain access to benefits such as a massive economy and skilled workforce, several challenges can arise when hiring internationally. Understanding the risks of hiring in the UK helps companies navigate complexities and implement strategic workforce planning processes. 

An Employer of Record is a third-party organization that acts as the legal employer of international employees and assumes full responsibility for employment-related issues. An EOR offers a wide range of services to support the client company’s growth in new markets, including administering locally compliant benefits packages for employees, accurately calculating social security contributions and tax amounts, paying employees in the correct currency, providing support with managing contracts, and more. An Employer of Record handles HR-related tasks on behalf of the client, allowing growing organizations to streamline the hiring process and spend more time and energy on refining core business operations without sacrificing control over day-to-day processes. 

Partnering with an EOR also helps your business access a wider pool of talent, access new markets faster, and hire employees from around the world without needing to set up a local entity in the United Kingdom, which can be a lengthy and resource-intensive process. Your EOR partner can also help you understand what risks to consider when hiring in the UK to support your growth and mitigate any financial or legal liabilities that may arise, such as failing to comply with local employment laws. 

Risk 1: UK Employment Law and the Post-Brexit Market

On January 31, 2020, the United Kingdom formally withdrew from the European Union–an event known as Brexit, short for “British exit.” While the United Kingdom generally has a stable economy, this marked a massive shift in policy regarding employment practices and standards. It’s important to understand Brexit’s impact on the labor landscape for successful risk management. 

One of the most significant impacts of Brexit was the elimination of free movement rights between nations. Previously, freedom of movement allowed individuals to visit, live, work, or study in other EU member states without legally requiring a visa or work permit. As of 2020, individuals from outside the country who want to live or work in the region will need documentation. 

Ultimately, UK companies can still hire EU employees, but the process has additional administrative hurdles. 

Right-to-Work Checks

Businesses will also need to conduct right-to-work checks to avoid legal or financial ramifications, including potential criminal sanctions. A right-to-work check is done to verify the eligibility of an employee or contractor to legally work in the region, and companies will be legally responsible for gathering the necessary documentation. 

Risk 2: Labor Shortage

The current labor shortage in the region is another significant risk. This refers to the number of unemployed people who are not actively seeking work and not waiting to start a job among individuals aged 16 to 64. 

Ultimately, these shortages make it difficult for international companies to hire top talent because of the increased demand for skilled labor. 

The UK’s current labor shortage has various contributing factors that can impact the supply of available candidates. In addition to Brexit, which eliminated free movement rights and removed around 330,000 people from the workforce, the COVID-19 pandemic also had a significant impact on the labor market. The pandemic led to drastic changes in how employees work and had significant economic implications that are still being felt. 

The rise in early retirements is another major contributing factor, as companies are unable to fill vacant positions with qualified young talent. 

Offer competitive benefits and perks to stand out during the recruitment process. 

Risk 3: Data Privacy, Protection, and Regulation

Companies that want to hire in the United Kingdom will also need to have an understanding of the region’s strict data protection policies. Legislation such as the Data Protection Act 2018 dictates how personal information can be used by organizations, businesses, and the government. 

Under this law, all information must be:

• Used fairly, lawfully, and transparently
• Used for explicit purposes
• Used in a way that’s limited to relevant information
• Accurate and up-to-date
• Kept for only a necessary amount of time
• Protected and secure

Cybersecurity

With the rising popularity of remote work and the increased digitization of business operations, companies need to consider cybersecurity risks when protecting information. This includes IT outages, potential data breaches, and ransomware attacks, with UK businesses being the third most common target of ransomware attacks globally. 

Data breaches can also have significant implications for businesses, including

• Potential fines
• Penaltiesegal costs
• Reputational damage among consumers. 

Understand the importance of cybersecurity to implement better strategies and address weaknesses in internal systems or vulnerable links. 

Risk 4: Business Interruption

The potential for business interruption is another major risk that companies in the United Kingdom must plan for. Business interruption refers to reduced profits, revenue, and operational growth because of a direct or indirect loss caused by unexpected or external factors.  

Supply Chain Issues

Despite measures being taken globally, the COVID-19 pandemic caused several lingering economic issues, including widespread disruptions in supply chains. Additionally, macroeconomic conditions such as international conflicts and cyber attacks also have severe implications for the global supply chain. This has resulted in decreased access to vital components or materials and increased pricing. 

Losses caused by business interruption are significant and severely impact a company’s financial well-being. Effective risk management includes planning for potential disruptions and creating effective contingency plans to avoid operational hurdles.  

Risk 5: Legal Compliance with UK Employment Laws

Companies that want to hire workers in the UK must remain compliant with all relevant local labor laws. Failure to adequately meet all employment standards can result in significant penalties and financial ramifications, including legal fees, compensation or back pay for benefits owed to employees, and reputational damage. 

Companies may also be subject to significant fines, such as a civil penalty of up to £45,000 per employee for failure to establish the right to work. 

Misclassification

In the UK, employees and contractors have different employment rights and tax obligations, meaning companies should understand the differences to mitigate potential risks and employee misclassification. 

For example, employers are required to withhold tax and social security contributions from each employee, while independent contractors are responsible for filing taxes and handling other administrative duties themselves. Employers are also obligated to provide statutory benefits to each employee but not to contractors. 

Alternatively, international companies can choose to hire through a UK EOR platform, which provides expert-level expertise and guaranteed compliance with local labor laws in the region. EORs help mitigate employment-related liabilities, handle bureaucratic requirements like paperwork, and assist with legal workers’ compensation claims when necessary to help keep your company out of trouble at all stages. By providing ironclad administrative support, an Employer of Record can ensure employees are classified properly and receive all statutory requirements.  

Risk 6: Taxation Obligations

International companies looking to recruit skilled British workers must know the region’s tax structure to comply with all tax requirements. 

Common penalties for inaccurate reporting can include fines and interest payments for any outstanding balance. More significant punishments can include legal issues and potential seizure of assets. Employers in the United Kingdom are responsible for remitting the accurate amount from each employee’s paychecks and keeping up-to-date records. 

In 2024, the United Kingdom’s income tax brackets are:

• 0% tax on earnings up to £12,570
• 20% tax on earnings between £12,571 and £50,270
• 40% tax on earnings between £50,271 and £125,139
• 45% tax on earnings over £125,140

Companies will also need to pay attention to region-specific tax requirements to successfully mitigate risks and avoid noncompliance. For example, the income tax brackets in Scotland are different than in England. 

Risk 7: Accurate Payroll Processing

Payroll processing in the UK includes adhering to the federal minimum wage requirements, providing payment in the correct currency, and deducting all necessary social security contributions. 

As of January 6, 2024, employers in the United Kingdom are responsible for withholding: 

• 10% towards National Insurance
• A minimum of 3% of wages towards the State Pension
• £60 for Employers’ Liability Insurance for one office worker, or up to £210 for each worker
• 0.5% of an employer’s annual pay bill as an Apprenticeship Levy

A global Employer of Record can handle all payroll requirements on your behalf, ensuring all contribution deductions are accurate and all employees are paid within a monthly or weekly payroll cycle, reducing a company’s overall risk. 

Businesses can face similar consequences as tax noncompliance for failure to adequately meet all standards. 

Risk 8: Unlawful Terminations

Companies hiring in the United Kingdom are likely primarily focused on building an innovative workforce, but organizations should also consider the region’s termination regulations to mitigate legal and financial risks.

In the United Kingdom, employment relationships are not considered at-will, meaning companies will need to provide a reason for dismissal when terminating an employee. Failure to follow the proper termination procedures can lead to financial penalties and impact your brand’s reputation. 

Employers must give terminated employees a valid reason for dismissal, which can include:

• Performance-related reasons
• Misconduct, such as theft or insubordination
• Employee Retirement
• Redundancy due to economic reasons, such as business closure
• Statutory or legal restrictions that would make it illegal for the employee to perform the job’s requirements
• Additional substantial reasons, such as if the employee rejects a company reorganization that changes any employment terms

Notice and Severance

Employers must also provide a notice period of at least one week for one month to two years of service, one week's notice for each year for individuals with two and 12 years of service, and 12 weeks of notice for employees with tenure of more than 12 years. 

However, the notice period for dismissal, along with severance pay requirements, are usually stipulated in the employment contract. 

Risk 9: Issues with Employee Engagement and Morale

Building a team of skilled and engaged workers is vital for expanding business operations and maximizing efficiency. However, keeping employees satisfied also carries some legal and financial risks that companies should understand. 

International organizations that don’t prioritize employee well-being will find it difficult to retain skilled workers. High employee turnover rates inhibit productivity, create skill gaps in important positions, and lead to higher recruitment costs. 

Companies can mitigate this by creating a positive company culture that fosters growth, professional development, and inclusivity. Prioritizing employee experience and satisfaction reduces the risk of burnout among your team–a type of job-related stress that can impact employee performance and motivation. 

Providing competitive benefits packages is also important for retaining employees, though it’s also important to consider local compliance requirements when administering benefits. 

Risk 10: Failure to Innovate or Adapt

Over the last few years, external conditions and significant technological advancements have caused profound changes in the labor market. Companies that don’t adapt to changing market dynamics or consumer preferences are at risk of being left behind by competitors.

For example, companies that fail to stay current with technology trends in the employment landscape can hinder productivity and operational efficiency. Implementing new technologies, such as artificial intelligence and AI-driven payroll systems, can automate basic tasks while improving accuracy. 

This also applies to a changing regulatory and legislative landscape. Companies need to respond to changing dynamics in the market and adhere to ever-changing employment laws to remain compliant and successfully plan for the future. 

How Can an Employer of Record Help You Hire in the UK?

An Employer of Record is an organization that legally employs international workers. In contrast to companies that register a local entity with the local authorities, companies that partner with an Employer of Record can build a productive team while remaining compliant with relevant employment laws throughout the hiring process. EOR platforms allow companies to outsource time-consuming or complicated administrative HR tasks while retaining control over operations, standards, and managing teams. 

This makes it significantly easier for growing companies to hire workers in the United Kingdom, as companies can quickly explore new markets and save costs without the long-term financial obligations associated with entity setup. Additionally, companies can tap into a wider pool of talent and source qualified candidates from around the world with greater flexibility and agility, allowing companies to effectively scale operations. 

It’s important to consider various factors when choosing the right EOR for your company’s needs, such as the EOR’s reputation and expertise in the country of hire, pricing structures, customer service availability, and more. 

Ultimately, partnering with an EOR in UK can free up resources and time, allowing business leaders to focus on managing staff and fostering innovative operations to remain competitive, making it easier for leaders to implement optimal growth strategies. 

Risk Management Assistance

Your Employer of Record of choice will also assist in risk management. 

A global EOR company takes on full legal responsibility for all complicated employment-related administrative requirements, meaning companies that partner with an EOR implement better regulatory and HR practices to reduce financial or legal risks. An EOR will also remain up-to-date on changing employment laws to keep you compliant with all relevant rules or regulations. 

With an Employer of Record’s guidance and expertise, you can successfully plan for, assess, and mitigate any risks associated with hiring in the United Kingdom while remaining compliant at all stages. 

Why Borderless AI?

Borderless AI is bringing AI agents to every part of the HR stack. An EOR takes care of administrative tasks that include but are not limited to tax filing, benefits administration, visa processing, and even managing employment contracts. An EOR is a great solution for businesses that are rapidly growing and wish to quickly explore new markets.

Borderless AI enables businesses to compliantly hire and manage talent worldwide without establishing a foreign entity. We alleviate the complexities and risks associated with hiring global employees with zero deposits, dedicated in-house support, and AI-powered global employment law resources.

Streamline the Hiring Process

Partnering with Borderless AI can help your company significantly streamline the recruiting and onboarding process. 

Contact us today to see how we can connect you with top talent from around the world and build a significant market presence in the United Kingdom. 

_Disclaimer

_{Borderless does not provide legal services or legal advice to customers, contractors, employees, partners, or the general public. We are not lawyers or paralegals. Please read our full disclaimer here.}

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