What Are The Responsibilities Of Being An Employer In The UK

Previously we shared an article explaining how employers should apply for sponsorship, if employers want to hire oversea employees. We have also given you a detailed overview of the process and documentation required to apply for sponsorship license, you are more than welcome to click here for further details.

In addition to applying for sponsorship license and guaranteeing jobs for overseas employees, employers have many obligations to employees. In today’s article we will give you a comprehensive introduction to the responsibilities of employers.


Employers’ Liability Insurance

As long as you become an employer in the UK, you must purchase employer liability insurance from an insurance company authorised by the UK government before you can formally hire an employee, and the value of the policy must be at least £5 million. If an employer hires only one family member as an employee, or hires only one employee outside the UK, employer liability insurance may not be required.


Employer’s liability insurance can protect employers’ benefits in a number of ways, such as helping employers pay compensation when their employees need compensation for work injuries or illnesses. If the employer does not purchase insurance then it will face £2500 per day, accumulating from the date of no insurance. The UK government also checks the employer’s certificate of insurance and could also be fined £1,000 if the employer fails to show the certificate of insurance or refuses to provide it when requested by the inspector. Employer liability insurance will vary depending on the business activities of the company, we recommend that employers consult a professional before purchasing employer liability insurance.


Register PAYE (Pay As You Earn)

In addition to purchasing employer liability insurance, employers are also required to register with the HM Revenue & Customs in order to pay taxes and national insurance for their employees through PAYE, the UK’s system for collecting income tax and national insurance. Therefore, the employer must register before the first payday, but the registration date cannot be earlier than two months before the payday. It usually takes 5 working days from registration to getting your employer’s PAYE reference number.


Employers are required to report employees’ payments and deductions to HMRC on or before each payday. Tax arrears and national insurance amounts are generally calculated through payroll software, which includes employer national insurance premiums for employees earning more than £170 per week.


If the employer is not familiar with the UK tax system, it is advisable for the employer to seek help of an accountant to handle such business.


Register for a Pension scheme

Under the Pensions Act 2008, every employer in the UK must include certain employees in their workplace pension and pay a fee, a liability that begins on the day the employer’s first employee starts working, which is known as ‘auto-registration’. The UK has a dedicated pensions regulator to ensure that all employers comply with workplace pension laws.


In the scheme, the employer’s main responsibility is to monitor the age and income of the employees each time they are paid to determine whether they need to be included in the pension plan and how much the employer needs to pay.

In addition to paying pensions, employers are also obliged to pay the following two fees on behalf of employees.


Income Tax

Personal income tax is a tax levied by the government on personal income, and there are many types of income within the scope of taxation, including:

  • Wage income;
  • Self-employment income;
  • State or social welfare;
  • Pension income, including state pensions, corporate and personal pensions, and retirement annuities;
  • Rental income;
  • Benefit bonuses earned at work;
  • Trust income, etc.


Among them, personal income tax expenses arising from wage income and work benefit bonuses need to be deducted from the wages or bonuses by the employer before paying the wages or bonuses, and then the employer pays taxes to the UK government through PAYE. Employers need to calculate how much income tax deduction is required based on the employee’s Tax Code.


The standard Personal Allowance is £12,570, and income exceeding the exemption is taxed at a different rate in each range. The specific income tax rates for the current tax year (from 6 April 2021 to 5 April 2022) are as follows:

Personal allowance Under £12,570 0%
Base tax rate £12,571 to £50,270 20%
High tax rates £50,271 to £150,000 40%
Additional tax rates Over £150,000 45%


If an employee applies for a marriage allowance or a blind allowance, the income tax exemption will be higher. If an employee earns more than £100,000, the income tax exemption will be lower.


National Insurance

Same as personal income tax, employers are obliged to deduct national insurance from wages before paying their wages and then pay them to the UK Government via PAYE.


The national insurance premium is paid to individuals who have reached the age of 16 and meet the following two conditions:

  • Employees earning more than £184 per week;
  • Self-employed earn £6,515 or more per annum.


Employees earning more than £184 a week and who are under the national pension age are subject to Type I state insurance, which is automatically deducted from wages by the employer. In the first category of national insurance, the amount required by the employer to withhold varies depending on the letter code of the employee’s national insurance category. For the current tax year, the specific Category 1 national insurance rates are shown in the chart below:

Note that in the next tax year, from 6 April 2022 to 5 April 2023, the national insurance premium will increase by 1.25%, and the scope of the increase includes categories 1A and 1B national insurance.


In addition to withholding income tax and national insurance premiums from employees, employers are required to provide employees with pay slips on a monthly basis, indicating the breakdown of income tax and national insurance premiums deducted for the current month. Similarly, if the employer is not sure how each employee’s pension, income tax and national insurance should be calculated, it is recommended that the employer seek the help of a professional accountant.

Immigration skills charge

When a sponsored employer provides a letter of sponsorship (COS) to an overseas employee applying for a Skilled Worker Visa or an Intra-company Transfer Visa, the employer is usually required to pay an immigration skills fee for the employee.


Generally speaking, employers are required to pay an immigration skills fee for overseas workers in the following two cases:

  • Overseas employees applying outside the UK for a work visa for more than 6 months;
  • Overseas employees applying within the UK for a work visa for any length.


However, if the overseas employee is applying for an in-house graduate trainee work visa, or if the overseas employee is converted from a student visa to a skilled worker visa or an internal personnel transfer work visa, the employer is not required to pay the immigration skills fee.


Also, if the employer is sponsoring overseas workers engaged in the following occupations, they are not required to pay the immigration skills fee.

  • Biological scientist and biochemist;
  • Physical scientist;
  • Social and humanities scientists;
  • Other natural and social science professionals;
  • Research and Development Manager;
  • Teaching professionals in higher education;
  • Clergy;
  • Sports athletes;
  • Sports coach, instructor or official.


The specific amount of immigration skills fees that employers need to pay is as follows:

Length of work for employees Small or charitable organisations Medium or large institutions
The first 12 months £364 £1000
For every 6 months extension £182 £500

In addition to the above-mentioned responsibilities, employers are obliged to provide maternity and annual leave to employees. Almost all workers are legally entitled to at least 28 days of paid leave (also known as annual leave) per year. However, employers can count Bank Holidays and public holidays (e.g. New Year’s Day, Christmas, Easter, etc.) as part of statutory annual leave.


If you have questions about employer-related legal liabilities, please contact our Immigration and Employment Law team.