Benefits & Compensation In The UK

What are Employee Benefits?

Employee benefits, also known as fringe benefits or perks, are services provided to employees above and over their wages and salaries. Employee benefits packages usually include medical insurance, profit sharing, vacation, overtime, and retirement benefits, alongside many other services.

Offering employee benefits is a great way to show your employees that you are investing in the employee's future. Also, it is vital to have a solid employee benefits program to help attract and retain talent. 

Employee benefits serve as a great way to engage employees in the workplace by organizing well-being programs, and with healthier employees comes a reduced cost of healthcare. A well-functioning employee benefits program means employees take fewer sick days and dedicate more time to the functioning and well-being of the company. 

Compensation Laws in the UK

In the United Kingdom, the National Minimum Wage or NWM is a critical part of the compensation law and lets employers pay a fair and legal wage to employees based on their age. The NWM controls the equal pay, minimum wage, overtime pay requirements, and record-keeping of employees.

As per the NVM, specific guidelines that employers must follow are as follows:

  • ~The mandated work hours are set to a 48-hour workweek. This mandate is flexible as employees can opt-out of this for overtime work. However, it is necessary to know the employees' schedules and plan daily schedules accordingly.
  • ~The minimum wage structure in the UK is subject to an increase in April each year. 
  • ~Since the minimum wage structure in the UK is flexible depending on the age of the employee, there are set wages for different age groups. For example, the age group of 23 and over gets a minimum wage of £8.91, the age group between 21-22 gets £8.36, the age group between 18-20 gets £6.56, under 18s get £4.62, and apprentices get £4.30.
  • ~Since the UK doesn't have statutory requirements for a severance package or pay, excluding redundancies, any employee who has worked constantly for two years or more holds the legal right to a statutory redundancy payment (SRP).

How to Design an Employee Benefits Program for Employees in the UK?

Designing and implementing a good employee benefits program is one of the most crucial steps in the proper functioning of the workplace. An efficiently designed employee benefits program helps employers reduce expenditure that goes into creating compensation packages in the UK. 

Step 1: Determine a clear goal and budget

As the employer, your first step will cover the evaluation of the available resources of the business to plan out a proper employee benefits program. Budget restraints should also be considered during this step as it will help you analyze the current benefits costs and the predicted costs. 


Some of the primary objectives mandated in the creation of employee benefits plans are:

  • ~To comply with state and national laws.
  • ~To attract new employees and retain old ones.
  • ~Improving the engagement rates of employees.
  • ~To create a name for yourself in the competitive market.

Step 2: Assess your needs

An in-depth understanding of a company's work culture is essential for employers to familiarize themselves.

To create a competitive plan with the rest of the market, you will need an internal and external assessment of the market and what employees want. During this stage, you can interview employees about their preferences and acquire information on their expectations from the current benefits program. Alternatively, you can inquire employees about which benefits are specifically necessary to them. 

Step 3: Create an employee benefit and compensation plan

Once you analyze and understand the loopholes in your existing employee benefits plans, you can use your research to create a better benefits program that prioritizes the key benefits that employees can use for their well-being. You should also include additional costs of employee contributions, cost containment features, outsourcing requirements, and administration costs in preparing a better benefits program.

Step 4: Make existing and potential employees aware of the benefits plans

You can communicate the benefits plans with current employees and collect their feedback. If the input is positive, you can continue with your existing program. However, if the feedback is primarily negative, it gives you an insight into the work conditions and helps you shape the plan according to your employees' needs.

Step 5: Evaluate the value of your compensation and benefits plans

Assessing the effectiveness and understanding of your employee benefits plan is ideal for learning more about the program and checking its usefulness in the workspace.  

Types of Guaranteed Benefits in the UK

The national legislation sets the compensation laws; however, compensations can vary according to the employment sector and the international company regulations. 

Some benefits and compensation guaranteed by the UK national legislation include the following.

Minimum wage

All employees in the UK are qualified to receive the minimum wage, which is split into two sections that vary by age. 

  • ~National Living Wage - for employees over 23.
  • ~National Minimum Wage - for employees under 23 but over school-level age.

Social Security

Both employers and employees must contribute to the National Insurance Scheme, which depends on the category and salary of employees. Social Security in the UK falls under the NIS, which provides cash benefits for unemployment, sickness, retirement, or the death of a partner. These compensation and benefits are acquired only through contributing to the NIS. 

Healthcare & insurance

The National Health System (NHS) is the free publicly-funded healthcare system in the UK. The usage of taxation as a means of operation differentiates the NHS from other countries that use health insurance. In 2017, the UK spent a staggering £197.4 billion on its healthcare. 

While the NHS provides basic coverage for all UK residents, many employers offer private insurance options to cover the costs of services such as vision and dental benefits. The Employee Health Insurance provided by your company allows employees to receive medical care at private institutions and, in turn, go around the NHS waiting lists. 

Maternity and paternity leave

Employees are also provided with paternity and maternity benefits in the UK. Employers are expected to pay 1 or 2 weeks of paid paternity leave benefits and paternity pay when partners of employees have a baby, adopt a child, or make surrogate arrangements. Employees’ employment rights also compensate them on leaves by guaranteed pay rises, return to work, and accrued holidays. 

Holidays and annual leave

Employees are entitled to 5.6 weeks’ paid holiday each year and including workers with irregular hours, agency workers, and workers on zero-hour contracts. The statutory annual leave requires 28 days’ paid leave annually for employees working a 5-day week. This sums up to 5.6 weeks of holidays. Part-time employees are entitled to 5.6 weeks’ paid holiday, which amounts to less than 28 days. 

Sickness and disability leave

In the UK, employers are legally bound to force employees to take annual leaves when entitled to sick leaves. Employees can take time off work during sickness, but they must provide proof of illness from a medical professional to their employers if they are off for more than 28 days. 

If employees change their holiday to sick leaves, they are paid statutory sick pay, which will accrue in the holiday pay. The only exceptions are employees who do not qualify for the Statutory Sick Pay and those who already paid occupational sick pay when off work.

Pensions

The UK offers workplace pensions, a method arranged by employers where a fixed part of the income percentage is dedicated to a pension scheme after every payday. These pensions are also known as work-based, company, or occupational pensions. In most cases, employers also deposit money into the pension scheme for the employee.

Employee Benefits for Expatriates

Ex-pats in the UK are not guaranteed employee benefits and compensation, but there are various benefits that ex-pats can claim in the UK. Some of these claimable benefits are as follows:

  • ~Pensions
  • ~Care allowances
  • ~Income-based support
  • ~Council Tax reductions
  • ~Housing benefits
  • ~Maternity allowance
  • ~Universal credit
  • ~Statutory Sick, Paternity, or Maternity day.

How are Employee Benefits Taxed in the UK?

Employees in the UK must pay taxes on company benefits like loans, accommodations, and cars. Employers charge the taxes they are owed through the Pay As You Earn tax return condition. 

The amount of tax paid by employees is proportional to the types of benefits provided. Employee benefits like canteen meals and childcare are usually tax-free in some cases.  

The amount you pay depends on the type of benefits you receive and their value, which your employer works out.

Employees have to pay National Insurance and tax on commodities paid in cash, as they fall under earnings. 

Restrictions for UK Benefits and Compensation

Some limitations can affect benefits and compensation in the UK that might affect the workforce of the country's various sectors. Some of these limitations are as follows: 

  • ~Employers must duly compensate employees in the local currency instead of US dollars.  
  • ~Employers are required to cover the employee under a travel insurance policy if the employee is traveling to any other country on a work-related trip.  

If all this feels overwhelming, you can consider outsourcing UK benefits and compensation. A global employment solution such as Multiplier can help you deal with the stress-inducing work of maintaining compensation and benefits.

Supplemental Benefits for Employees in the UK

In addition to the benefits mentioned above, employers provide various other additional compensation and benefits in the UK. Some of the supplemental benefits are as follows: 

  • ~Life assurance
  • ~Income protection (long-term disability)
  • ~Critical illness insurance
  • ~Health cash plan
  • ~Employee assistance programs
  • ~Dental insurance
  • ~Employer-sponsored retirement savings
  • ~Private medical insurance offerings

How Can Multiplier Help With Benefits Management in the UK?

The employer is responsible for the distribution and management of compensation and employee benefits that adhere to the rules and regulations set by the country. Allocating and deciding employee benefits and compensation is challenging as you must regularly update yourself with the rules and regulations of the country you wish to operate in. 

Outsourcing is a common way to deal with issues such as benefits management. You, as an employer, can get the help of a global employment solution such as Multiplier, as our team of experts located in local regions will ensure the proper following of rules and regulations in the country by remaining updated about the employment laws.

#1 Global Employment Solution
Build a global brand
Local HR experts for global teams
Market entry in minutes
90% lesser expansion costs
Increase employee satisfaction
Zero employment risks
Save with no local entities
24x7 HR & Payroll support
Automated employee contracts
One-click payrolling
Pay employees in local currency

Enjoyed reading this?
Save it for future reference

Download PDF

Frequently Asked Questions

What is covered in relocation benefits provided to ex-pats in the UK?

Expats in the UK receive relocation expenses covering flight costs, temporary accommodation, work permits, visas, and international removals. These are provided to employees in a lump sum to cover any expenses in most cases.

What factors are considered while planning the ex-pats benefits and compensation package in the UK?

Factors like housing and living costs, tax implications, dependent education, and health care are considered when creating a benefit and compensation package for expats.

What is the minimum wage according to the UK compensation law?

The minimum wage, according to the UK Compensation law, is £8.91 for people who are 23 and over (National Living Wage).

Need Reliable Help In Obtaining A Work Visa?

Get Expert Help Now

World’s Preferred EOR/PEO Platform for a Global Workforce

Get Expert Help Now