Employing Foreign Workers in the UK – Payment Options
To employ foreign workers in the UK, there are several key steps to follow and areas to understand. We cover them all below.
Key Takeaways:
To employ foreign workers in the UK, there are several key steps to follow and areas to understand:
- Adherence to UK payment regulations, including PAYE, National Insurance, and IR35.
- Establishing appropriate payment structures, either through setting up a legal entity or using an Employer of Record.
- Understanding the complexities and options for cross-border payments and currency exchange.
- Providing accessible banking solutions, such as e-money accounts, to help migrant workers manage their finances in the United Kingdom.
- Compliance with the Immigration Skills Charge, the UK's strategy to balance skilled migration with training and hiring within the domestic workforce.
Understanding UK Payment Processes
Understanding payment processes in the UK for employees and contractors is vital for businesses employing foreign workers. In striving for fair conditions for workers and to ensure compliance with tax rules, the UK strictly enforces its laws concerning employee payments.
Employers must enroll employees in the PAYE (Pay As You Earn) system, through which income tax and National Insurance contributions are deducted before wages are paid. PAYE streamlines tax payments to HM Revenue & Customs and helps fund public services, including healthcare and state pensions.
For contractors, the IR35 legislation dictates tax status, affecting how they are paid and taxed, and is geared toward preventing tax avoidance. Employers are required to contribute to a workplace pension scheme for eligible employees, further tying social welfare into the employment framework.
These legal requirements are in place to ensure the ethical and legal payment of all workers. It is designed to create a compliant and supportive working environment with both the employee’s and the employer’s interests at the forefront.
Setting Up Payment Structures
In the UK, setting up payment structures for foreign workers calls for a broad understanding of laws to ensure abidance and avoid penalties. Businesses can opt to establish a legal entity in the UK, such as a subsidiary, which allows them to hire directly and manage payroll in accordance with regulations. This approach offers control over business operations but requires a thorough grasp of local employment rules, tax obligations, and administrative processes.
An alternative option, an Employer of Record (EOR) service provides a more streamlined solution. EORs act as the legal employer, handling payroll, taxes, and compliance. This reduces the administrative load on companies less familiar with UK regulations and is particularly attractive for companies looking to quickly deploy talent in the UK without establishing a permanent presence.
When paying workers as contractors, it’s important to accurately classify the worker relationship. Misclassification can lead to penalties, including back taxes and fines. Proper classification ensures compliance with IR35 rules, which distinguish between genuine contractors and those whose working arrangements resemble employment.
Deductions and Contributions
When employing foreign workers in the UK, implementing mandatory deductions and contributions from the workers’ salaries is essential. These include National Insurance (NI) contributions, which are key in financing state benefits such as the pension scheme and healthcare services (NHS).
Additionally, the PAYE system is used to withhold income tax and NI contributions directly from employees’ wages or salaries. This ensures that income tax liabilities are managed efficiently and contributes to public funding, including the NHS.
While specific rates change over time, employers and employees are both required to contribute, with rates depending on earnings and employment status. There is also a legal obligation for employers to enrol eligible employees in a workplace pension scheme, contributing a percentage of their qualifying earnings towards their retirement fund.
For the most current information on PAYE tax rates, NI contributions, and pension scheme requirements, consult the UK HM Revenue & Customs website.
Paying Seconded Employees
Paying employees seconded to the UK involves specific rules to ensure observance of tax and payroll regulations. Employers must use the appropriate tax code, which may differ based on whether they remain a tax resident in their home country, or become a UK tax resident.
Payroll records for seconded employees should detail earnings, tax, and National Insurance contributions, following the Real Time Information (RTI) system requirements. Under double taxation agreements, seconded employees might also be eligible for tax relief on earnings taxed in both their home country and the UK.
Paying Remote Workers from Abroad
For UK employers with remote workers based abroad, understanding tax residency and payroll implications is vital. The tax residency status of remote workers determines their UK tax obligations. Non-residents typically owe tax only on UK-sourced income.
Employers must navigate varying international tax laws, potentially requiring withholding taxes in the worker's country of residence. For payroll, this may entail reporting earnings and ensuring compliance with local employment laws, which may differ significantly from UK ones. To avoid double taxation, employers should consider bilateral tax treaties.
Cross-Border Payments
Cross-border payments facilitate the transfer of funds across international boundaries and serve as a key tool for UK employers paying overseas employees or contractors. There are several prevalent methods for international funds transfers:
Bank wire transfers: The most common option, offering secure but sometimes costly options.
International money transfer services: A rapidly growing area, featuring companies, like Payset, that provide quicker and more cost-effective solutions.
Blockchain-based payments: These come with low fees and fast transaction speeds but with varying levels of acceptance.
For UK employers, there’s a requirement to manage the complexities of currency exchange, as salaries must often be paid to employees in pounds sterling (GBP). This necessitates handling the conversion of GBP to the remote worker’s local currency, which can introduce fluctuations in the actual amount received due to varying exchange rates. To maintain trust and compliance in cross-border employment relationships, employers should ensure transparent communication with employees about how currency exchange is managed and how it might affect their net pay.
Payset’s multi-currency account solution addresses this issue by making it simple and cost-effective to pay employees in their chosen currency.
Banking Solutions for Migrant Workers
Migrant workers in the UK often come across hurdles in opening traditional bank accounts. This is most often due to stringent identification and proof of address requirements, which can be challenging for newcomers to meet. This situation has spurred the emergence of alternative banking solutions, such as e-money current accounts provided by fintech companies. These digital accounts often have less strict documentation requirements for setup, making them more accessible to people without a fixed residence or with a limited financial history in the UK.
E-money accounts offer several services akin to traditional banking, including the ability to receive wages, make payments, and transfer money internationally, often at lower fees than traditional banks. Adding to their accessibility, these accounts can often be entirely managed through a smartphone app. For migrant workers, this means easier access to financial services, the ability to manage finances in multiple currencies, and an overall smoother financial integration into their new country of residence.
Compliance with IR35 Rules
The UK government’s IR35 rules are designed to fight tax avoidance by contractors who supply their services through intermediaries, such as personal service companies (PSCs), but who would be employees if the intermediary was not used.
These rules ensure that contractors working in a similar manner to employees pay roughly the same income tax and National Insurance contributions as employees. Compliance with IR35 affects how contractors are paid. Those falling inside IR35 are subject to PAYE and NI deductions, akin to employment taxation. This has a major impact on contractors working through PSCs, as it potentially increases their tax liabilities and reduces their take-home pay. It calls for a careful assessment of contracts and working practices to determine their status under IR35.
Visa and Immigration Skills Charge
The Immigration Skills Charge is a fee levied by the UK government on employers who sponsor foreign workers under certain visa categories. It’s designed to encourage employers to train and hire the domestic workforce while still allowing international talent to support business needs. The charge can be a significant financial consideration for employers seeking to sponsor non-EEA nationals.
The cost varies depending on the size of the company. Small businesses and charities pay £364 per year for visa sponsorship, while larger organisations are charged £1,000 per year. This fee is in addition to other visa-related costs, such as application fees and the Health Surcharge.
Conclusion
Navigating the complexities of employing foreign workers in the UK requires strict adherence to payment regulations, including PAYE, National Insurance, and IR35 rules. Employers must carefully establish payment structures, manage cross-border payments, and steer migrant workers toward accessible banking solutions. Understanding the implications of the Immigration Skills Charge is another key component.
Compliance with these regulations is not just a legal requirement but a commitment to ethical employment practices, ensuring foreign workers are supported and effectively integrated into the UK labour market. This approach is designed to provide fair treatment for all workers while supporting the broader goal of a balanced and skilled workforce.
How Payset Can Help
To streamline your international payment processes and support your foreign workforce efficiently, consider opening a Payset account. Payset's tailored services simplify cross-border transactions and enhance your global employment strategy.
Payset allows you to send and receive up to 34 currencies to/from over 180 countries from a single multi-currency account as well as exchange affordably between 38 currency pairs.
Frequently asked questions
What is a multi-currency account/virtual IBAN?
A Payset multi-currency account allows you to receive money in 34 different currencies and send money in up to 38 currencies, all within the same account.
You can deposit and withdraw funds, convert currencies at competitive exchange rates, and hold your chosen currencies to capitalize on market movements.
A Payset multi-currency account allows startups and business owners to receive payments from clients virtually anywhere in the world and pay suppliers, staff, and contractors quickly and affordably in their chosen currency.
- Funds can be deposited and withdrawn from the account for a small fee.
- Account holders can send and receive money with other Payset users for free.
- Depending on your region, you can use various payment networks from your Payset account, including SWIFT, SEPA, ACH, Fedwire, Faster Payments, BACS, and CHAPS.
- Once you register an account, you will be provided with a Virtual IBAN (International Bank Account Number), which makes all of these transfers easy.
- We provide you with local payments and collections. For example, transactions in USD, EUR, CAD, and GBP are processed through the local payment networks, which is far cheaper and takes minutes as opposed to days
Are there limits on the amount of money I can send and receive?
No, there are no transaction limits on Payset multi-currency accounts.
However, higher-volume transactions may require additional anti-fraud verification. If you plan to make a large transaction, contact us in advance to avoid verification delays.
How is Payset regulated?
Payset is regulated as an authorized Electronic Money Institution by the UK Financial Conduct Authority. Our activities are also regulated by the Payment Services Regulation 2017 and the Electronic Money Regulation 2011 (SI 2011/99).
How do I add money to my account?
How do I send money from my account?
Once you have opened your verified IBAN account and added money to a balance, transferring funds is simple.
Simply log in into your account and add a beneficiary, then simply “make a transfer” in your preferred currency to that beneficiary.
Types of Multi-Currency Accounts
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