United Kingdom

Contract Types

In the UK contracts can be for an indefinite period, also known as permanent, or for a fixed term. Additional types of contracts are casual, or zero hours contracts whereby there is no requirement to offer work, and freelance contracts for self employed contractors.

Probation

Most employers would set 3 to 6 months for probation. There is no legal limit on the length of the probationary period, but the usual maximum is 6 months.

Working Hours

Employers are free to set day to day working hours but by law, the maximum is 48 hours per week. Typically employees work 35 to 40 hours per week.

Overtime

Employers must ask for employee consent to work over 48 hours. Overtime pay must be agreed in the contract (but can be zero).

Other

Bonuses are at the discretion of the employer. Some operate structured bonus plans linked to corporate and/ or personal performance. A 13th month salary is not required. Monthly payroll is paid between the 25th and 30th of the month.

Corporation Tax 2024: 25%

Consumption Tax: 20%

Employers’ Social Security: 13.8%

Minimum Employer Pension Contribution: 3%

Employees’ Contributions: 10%

Income Tax Rates

Tax free allowance
Up to £12,570 – 0%

Lower rate
£12,571 to £50,270 – 20%

Higher rate
£50,271 to £125,140 – 40%

Top rate
Over £125,140 – 45%

Personal Allowance declines on taxable income over £100,000.

Note that different rates apply in Scotland. Employee taxation is via a pay as you earn system.

Notice

Statutory Notice periods are as follows:

• 1 month up to 2 years’ service – 1 weeks’ notice is required
• 2 to 12 years’ service – 1 weeks’ notice per year
• Over 12 years’ service – 12 weeks’ notice

However, typically notice periods are defined in the contract and could be up to 6 months.

Payment in lieu of notice is allowed.

Termination

When making redundancies a consultation process should be followed, with defined steps for more than 20 redundancies within a 90 day period. If an employee goes to court alleging unfair dismissal the compensation could be 1 year’s earnings or GBP 86,444, whichever is greater.

Zero hours contracts allow the employer to utilise the employee’s services on an ad hoc basis. Thus, no termination is required.

During Probation

With 1 weeks’ notice from either party.

Severance Pay

In cases of redundancy, employees are entitled to severance pay if they have been under contract for 2 years. Calculations for redundancy pay are capped at 20 years’ service and GBP525 weekly pay, though often employers are more generous.

Under 22 years old, 50% of weekly pay per full year of service

Aged 22 to 41 100% of weekly pay per year of service

Over 41, 150% of weekly pay per year.

National Public Holidays: 8

Paid Public Holidays:

Employers can choose whether to give public holidays on the allotted days, but 8 extra days of holiday must be given in addition to the minimum of 20 days annual leave. In practice employers give the public holidays on the allotted days.

January 1st – 1st January

Day Given in Lieu

Good Friday – 29-Mar

Day Given in Lieu NA

Easter Monday – 1st April

Day Given in Lieu NA

May Day (First Monday in May)- 6th May

Day Given in Lieu NA

Spring Bank Holiday (Last Monday in May) – 27th May

Day Given in Lieu NA

Summer Bank Holiday (Last Monday in August) – 26th August

Day Given in Lieu NA

Christmas Day – 25th December

Day Given in Lieu

Boxing Day – 26th December

Day Given in Lieu

Comment:

If the holiday falls on a weekend, a substitute weekday becomes a bank holiday, normally on the following Monday.

All leave entitlement is based on a 5 day working week. Public holidays falling on Sunday are not included.

Paid legal entitlement (working days)

20 days of paid vacation after 1 year of service plus public holidays. In the first year, leave accrues on a pro rata basis. Many companies will offer 25 days’ leave and senior employees can negotiate up to 30 days of vacation in addition to the 8 public holidays.

Carry over permitted

Employers must permit carry over of unused leave for 18 months if due to sick leave. Other than this there is no requirement for employers to allow employees to carry over unused leave, but it is common for employers to allow a portion to be carried over, often 5 days for 3 months.

Payment in lieu of leave allowed

Employers can pay for unused leave in excess of the statutory minimum if agreed in the contract. However, employers must encourage employees to use leave.

Sick

Statutory sick pay is provided for 28 weeks paid by the employer (GBP 116.75 per week). Sick pay starts when an employee has been out for 4 or more days in a row. In practice most companies would pay full pay when an employee is sick for at least 2 weeks and often much more.

Maternity

All employees get Ordinary Maternity Leave (OML) being 26 weeks to be taken any time from 11 weeks before birth. Those with 26 weeks’ service by 15 weeks before the due date qualify for Additional Maternity Leave (AML) of 26 weeks after OML. AML provides for a maximum 39 weeks of Statutory Maternity Pay (SMP); 6 weeks at 90% of normal earnings followed by a government set amount. Employers can recover 92%-100% of SMP. Most competitive employers would top up the SMP to provide employees with full pay for at least part of the maternity leave. A minimum of two weeks’ leave is mandatory after the birth. Annual leave continues to accrue during maternity leave and employees on maternity leave are also entitled to any pay rises given.

Paternity

Employees with 26 weeks’ service by 15 weeks before the due date are entitled to 2 weeks’ paid leave to be taken after the birth and before the 57th day after the birth in one block. 92%-100% of Statutory Paternity Pay is reclaimed by the employer from the government. Fathers are also entitled to unpaid leave to attend two antenatal appointments of up to six and a half hours each.

Parental

Up to 52 weeks between parents to be used in the first year. Statutory Shared Parental Pay is paid for 37 weeks being a government set amount the same as SMP and reclaimed from the government. Shared parental leave and pay is reduced by any maternity leave and pay taken. In cases of adoption employees are entitled to 26 weeks’ paid leave for one member of the couple (after 26 weeks service), paid at the same rate as maternity and paternity leave.

Bereavement

Employees can take up to 2 weeks’ leave for each child under 18 years who dies or is stillborn within 56 weeks of the event. This is paid up to a government set limit. Employers may give other paid or unpaid compassionate leave, but there is no statutory requirement for this.

In all cases a week’s leave is the same number of days which the employee usually works during a week.

Medical

The National Health Service provides free universal healthcare and standardised prescription charges. However, waiting times for treatment, especially for non-life threatening conditions can be lengthy, as can the wait for specialist appointments. Consequently medical insurance is commonly provided to professionals by competitive employers. The employee pays tax on the benefit in kind effectively at their top rate. Dental and optical cover is a valued option which is often included as all dental treatment is chargeable.

Life Insurance

Most employers provide life insurance covering death in service and sometimes Total and Partial Disability and similar additional products. The death benefit is typically 2 to 4 times annual salary.

Pension

The retirement pension is funded through social security from contributions from the employee and employers. Additionally it is mandatory for employees to offer a workplace pension scheme whereby the minimum contribution is 3% from the employer and 5% from the employee. Competitive employers would offer 5% or more. Employees can choose to opt out of this scheme.