U.K. Law for the U.S. Employer, Part I: Basic Principles, Contracts, and Minimum Benefits and Rights

The United Kingdom’s and the United States’ employment laws differ in a number of ways. This three-part blog series summarizing U.K. employment laws will introduce U.S. employers to key concepts of the U.K. law that may be unfamiliar to them. It will also provide a brief overview of the key issues for U.S. employers to consider when engaging staff in the United Kingdom.

Some Important General Principles of U.K. Employment Law

As an initial matter, U.S. employers should take note of the following general principles:

1. A number of U.K. employment laws are mandatory and apply to employees who work in the U.K., regardless of the employee’s nationality or the employer’s place of registration.
2. Generally, U.K. employment laws do not distinguish between senior and junior employees and U.K. employment laws apply to both.
3. These mandatory laws provide minimum rights for employees, which override any lesser contractual provisions that may be in place.
4. U.K. laws recognize three main categories of staff:
   1. employees;
   2. self-employed individuals (often referred to as contractors or consultants); and
   3. workers, broadly defined to include those who contract to provide work or services personally even if he or she is not an employee.
5. An individual’s employment status determines which employment laws apply and what the employer’s obligations are in relation to income tax and national insurance contributions (social security) on earnings. Treating an individual as self-employed when he or she is actually an employee can have significant financial consequences for the employer.
6. U.K. employment laws do not recognize the at-will employment concept. All U.K. employees have some rights, even if they are just the right to paid vacation or to receive notice of termination.

Employment Contracts

U.K. law requires employers to clearly define, in writing, the principal terms of employment, within two months of an employee starting work. This information is usually included in a written contract of employment and will be important in determining an employee’s rights. Therefore, employers should take care when draughting the document.

The statement of the terms of employment must include the following information:

• the name of the employer and the employee;
• the place of work;
• the employee’s salary;
• the hours of work.
• the employee’s entitlement to paid holiday (vacation) leave;
• sickness absence and pay entitlements;
• the length of notice required to terminate the employment;
• disciplinary and grievance procedures;
• provisions for a pension; and
• whether a collective agreement applies to the employment.

Minimum Benefits and Rights

1. National Minimum Wage

Most workers who work in the U.K. are entitled to be paid at least the National Minimum Wage. The minimum rate for workers who are at least 21 years old is currently £6.31 or approximately $10.50 per hour. Different rates apply for workers under the age of 21 and apprentices. There are also complex rules on overtime compensation, accommodation offsets, and on-call time that govern the national minimum wage.

The rate usually increases by the level of inflation in October each year.

2. Hours of work

Employees and employers are free to agree on any hours of work that they choose up to a maximum of 48 hours per week. It is possible for employees to opt out of this limit.

Generally, only those who genuinely have the right to choose what hours they work, such as senior executives or business owners, are exempted from this rule.

3. Holiday (Vacation)

Full-time employees are entitled to a minimum of 28 days holiday per year (based on a five-day workweek). This includes public and bank holidays. (England and Wales currently have eight public and bank holidays).

4. Sick pay and sick leave

Employees are entitled to receive a statutory sick pay entitlement, currently at the rate of £87.55 or approximately $145 per week, for up to 28 weeks. There is usually an inflationary increase to the rate in April each year.

5. Pension

U.K. pension laws are constantly changing. Depending on the number of employees, employers generally must designate a private pension scheme or enroll employees onto a workplace pension scheme to which employees can contribute. The employer is not required to contribute to the pension scheme on the employee’s behalf but new rules are coming into force over the next three years that will require employers to make a contribution towards an employee’s pension. Although this may change, current guidance issued by the U.K. government provides that employers will have to contribute up to 3 percent of the employee’s earnings between £5,564 ($9,260) and £42,475 ($70,680).

6. Family rights

Employees are entitled to maternity, paternity, and adoption leave with pay. They are also entitled to parental leave and time off for domestic emergencies without pay.  Employees with 26 weeks’ service can make requests for flexible working arrangements, which might involve changing the hours they work, the times they work or the location from which they work. Employers do not have to agree to these requests. They only have an obligation to properly consider the request and may decline a request if there is a genuine business reason for doing so.

The next post in this series on UK employment laws, “U.K. Law for the U.S. Employer, Part II: Discrimination, Data Privacy, and Termination Rights” will cover U.K. discrimination laws and employees’ privacy rights, and rights at termination of the employment relationship. Part three will follow with a discussion of tax, insurance, and immigration issues U.K. employers face.