What to Look for in a UK Employer of Record in 2026

Foreign companies often want to recruit in the United Kingdom before committing to a UK subsidiary. A UK Employer of Record (EOR) can provide a practical route: the EOR’s local employing entity enters into the employment contract, operates payroll and administers agreed employment obligations, while the overseas company directs the employee’s day-to-day work.

That convenience should not be mistaken for complete risk removal. An EOR can simplify employment administration, but it does not automatically eliminate the overseas company’s tax exposure, permanent-establishment risk, immigration responsibilities, health-and-safety duties or liability arising from its own decisions and conduct.

The right question is therefore not simply, “Can this provider put someone on payroll?” It is: “Does this arrangement give us a clear, compliant and commercially workable way to build our UK team?”

This guide explains what international companies should examine when comparing Employer of Record services in the UK in 2026.

Key takeaways

• Identify the legal employer. Confirm the full name of the UK employing entity, who operates PAYE and pensions, and whether any part of the service is subcontracted.
• Do not assume all risk disappears. The contract must allocate responsibilities clearly, but an EOR cannot contract away every statutory, tax or operational risk faced by the client company.
• Test payroll competence. For 2026/27, the standard rate of employer’s Class 1 National Insurance contributions is 15% above the applicable secondary threshold, subject to category-specific rules and reliefs.
• Demand genuine local HR support. A credible provider should be able to manage onboarding, absence, family leave, grievances, performance, disciplinary matters and exits with UK-specific expertise.
• Review the total price. Compare deposits, foreign-exchange margins, benefit costs, expenses administration, onboarding, offboarding and termination support—not only the headline monthly fee.
• Prepare for legal change. Important reforms take effect in October 2026 and January 2027, including longer Employment Tribunal claim limits, strengthened harassment duties and a six-month qualifying period for ordinary unfair-dismissal protection.
• Plan the exit before the hire starts. Agree how employees, accrued rights, data, benefits and payroll will move if the business later establishes its own UK entity.

What is an Employer of Record in the UK?

In a conventional UK EOR arrangement, the provider’s UK entity employs the worker and is named in the employment contract. The EOR normally:

• issues a UK employment contract and written particulars;
• registers and pays the employee through PAYE;
• deducts income tax and employee National Insurance;
• pays employer National Insurance and administers pension duties;
• manages statutory leave and pay;
• maintains employment records; and
• supports agreed HR and offboarding processes.

The client company normally remains responsible for the employee’s role, priorities, targets, supervision and commercial direction.

This structure can be useful when a company is:

• testing demand before incorporating in the UK;
• recruiting its first UK Sales Manager, Country Manager or specialist;
• waiting for its UK entity, bank account or payroll to become operational;
• employing a small local team for a defined initial phase; or
• consolidating cross-border employment administration.

An EOR is an employment solution, however not a substitute for market strategy, tax analysis or good management.

What has changed for UK employers in 2026?

A provider’s legal knowledge should be current, not based on a handbook written several years ago. The government’s Employment Rights Act implementation timetable identifies several developments relevant to companies hiring in late 2026.

Changes already in force from 6 April 2026 include:

• Statutory Sick Pay without the former lower-earnings threshold or waiting period;
• day-one Paternity Leave and Unpaid Parental Leave; and
• stronger protections connected with whistleblowing about sexual harassment.

Further changes are scheduled to include:

• 1 October 2026: the general time limit for bringing an Employment Tribunal claim increases from three months to six months, with a different commencement date for breach-of-contract claims in Scotland;
• 30 October 2026: employers must take “all reasonable steps” to prevent sexual harassment and must not permit third-party harassment; and
• 1 January 2027: the qualifying period for ordinary unfair-dismissal protection reduces from two years to six months, and the cap on compensatory awards is removed.

Existing day-one protections against discrimination and automatically unfair dismissal continue to apply. These employment-law reforms apply in England, Scotland and Wales; Northern Ireland has a separate framework.

For an EOR buyer, this creates a practical test. Ask the provider how it has updated its contracts, policies, manager guidance, anti-harassment measures, probation reviews and dismissal processes. A vague assurance that its service is “fully compliant” is not enough.

Ten questions to ask a UK EOR provider

1. Which entity will legally employ the worker?

Obtain the employing entity’s full legal name, Companies House number and registered address. Confirm that this same entity will:

• sign the employment contract;
• operate the PAYE scheme;
• fulfil workplace-pension duties;
• hold the required insurance; and
• appear on payslips and statutory documentation.

Ask whether the provider employs workers directly or uses another local partner. A partner model is not automatically unsuitable, but every additional party can create another hand-off. You should know who makes decisions, who holds employee data and who is accountable when something goes wrong.

2. How are responsibilities divided between the EOR and the client?

The service agreement should distinguish clearly between:

• legal-employer administration;
• day-to-day supervision;
• health and safety;
• expenses and equipment;
• working time and holiday approval;
• data protection;
• performance and conduct decisions;
• grievances and whistleblowing;
• dismissal, redundancy and settlement costs; and
• claims, indemnities and insurance.

Scrutinise exclusions and liability caps. In particular, establish who pays where a claim results from an instruction or decision made by the client, and who controls the defence or settlement of an employment dispute.

Avoid providers that market “complete liability transfer” without explaining the limits. Contractual indemnities can allocate financial responsibility between the parties, but they do not make the client’s own legal, tax or operational obligations disappear.

3. Can the provider demonstrate accurate UK payroll capability?

Payroll is more than sending a net salary once a month. For the 2026/27 tax year, HMRC states that the standard rate of employer’s Class 1 National Insurance contributions is 15% on earnings above the £5,000 annual secondary threshold, subject to category-specific thresholds, reliefs and exemptions.

The provider must also apply the correct tax code, employee National Insurance category and statutory deductions.

Ask how the EOR manages:

• payroll cut-off dates and late changes;
• bonuses, commission and equity-related payments;
• taxable benefits and benefits reporting;
• expenses and mileage;
• statutory payments;
• starters, leavers, P45s and year-end reporting;
• amended payrolls and error correction; and
• employee queries.

Request a worked cost illustration showing salary, employer National Insurance, pension, benefits, EOR fee, VAT treatment where relevant and any foreign-exchange charge. This is more useful than a headline percentage.

4. How are pensions, holiday and statutory pay administered?

For automatic enrolment, the statutory minimum under the usual qualifying-earnings basis is a total contribution of 8%, of which the employer must pay at least 3%.

For 2026/27, the qualifying-earnings band is £6,240 to £50,270 and the earnings trigger for automatic enrolment is £10,000. Contribution calculations can differ where a certified alternative basis is used, so “3% pension” should never be presented as 3% of total salary without qualification.

Most workers are legally entitled to 5.6 weeks’ paid holiday each year, equivalent to 28 days for someone working five days a week. Bank holidays can be included within those 28 days.

The provider should explain how it assesses pension eligibility, handles postponement and opt-outs, calculates holiday pay, manages carry-over and administers family-related and sickness payments. Ask who monitors statutory rate changes each tax year.

5. Is there experienced, accessible UK HR support?

Local support matters most when employment stops being routine. Find out who will handle:

• onboarding and contract changes;
• sickness and long-term absence;
• flexible-working requests;
• family leave;
• reasonable adjustments;
• grievances and whistleblowing;
• performance and probation;
• disciplinary investigations;
• redundancy; and
• dismissal or settlement discussions.

Ask whether the named HR contact is based in the UK, what their experience is and what response times apply. CIPD membership can be a positive indicator, but it is not a substitute for sound systems, appropriate legal advice and accountable case management.

For conduct and performance cases, processes should reflect the Acas Code of Practice. “Acas-compliant offboarding” is too broad a promise because different exit routes require different procedures.

6. Who completes right-to-work checks and handles immigration issues?

The employing entity must complete a prescribed right-to-work check before employment starts and retain the required evidence. Time-limited permission may require a follow-up check.

Ask the provider:

• which checking route it will use;
• who reviews the evidence;
• how records are retained;
• how expiry dates are monitored; and
• whether it has experience with the relevant immigration status.

Do not assume that every EOR can sponsor a Skilled Worker visa. Sponsorship requires a valid sponsor licence and compliance with the relevant Home Office duties. The proposed role and working arrangement must also be suitable.

This should be confirmed before making an offer to a candidate who requires sponsorship.

7. Are data protection and information security properly addressed?

An EOR processes sensitive employee, payroll, tax, pension and sometimes health information. UK GDPR compliance is therefore an operational requirement, not simply a logo on a sales presentation.

The contract and data-processing documentation should identify:

• which party acts as controller or processor for each data flow;
• where information is hosted and accessed;
• whether data leaves the UK;
• the safeguards used for international transfers;
• retention and deletion periods;
• access controls and security standards;
• breach-notification timescales; and
• how data-subject requests are handled.

Confirm whether the employing entity has paid the ICO data-protection fee where required. Registration or payment alone does not demonstrate full UK GDPR compliance.

8. Does the provider have appropriate insurance and financial resilience?

UK employers generally require Employers’ Liability insurance of at least £5 million from an authorised insurer. Ask for the current certificate and confirm that it covers the relevant workforce and activities.

Professional indemnity, cyber and directors’ and officers’ cover may also be relevant, although they are not universal statutory requirements. Review policy limits, exclusions and deductibles rather than accepting “fully insured” at face value.

The provider will receive money intended for salaries, taxes, pensions and expenses. Ask how client funds are handled, what payroll-continuity arrangements exist and what happens if the provider or one of its subcontractors becomes insolvent.

9. Does the EOR understand tax and permanent-establishment risk?

Using an EOR does not, by itself, prevent a foreign company from creating a UK taxable presence.

HMRC guidance confirms that a UK permanent establishment can arise through a fixed place of business or, depending on the circumstances, a dependent agent. The employee’s activities, authority to negotiate or conclude contracts, working location and the permanence of the arrangement can all be relevant.

The EOR should recognise this boundary and encourage the client to obtain appropriate tax advice. Be cautious if a salesperson claims that an EOR arrangement “guarantees no permanent establishment”. It cannot.

The same principle applies to VAT, transfer pricing, corporate residence and sector-specific registrations: the employment structure is only one part of the assessment.

10. What will the service cost and how can the company exit?

Compare the total landed cost. Request a schedule covering:

• monthly EOR fee;
• onboarding and implementation;
• payroll and payslip charges;
• deposits or security reserves;
• pension and benefits administration;
• expenses processing;
• exchange-rate methodology and margin;
• contract amendments;
• HR casework;
• offboarding and termination support;
• legal advice;
• minimum terms and annual price increases; and
• costs associated with transferring to a UK entity.

Plan the transition at the start.

Moving employees from an EOR to the client’s new UK entity may involve TUPE in some circumstances, but it should not be assumed to apply automatically. The parties may instead need another agreed transfer mechanism.

Case-specific advice should be taken covering continuity of service, contractual terms, accrued holiday, pensions, benefits, payroll records, restrictive covenants and employee consultation.

UK EOR provider evaluation matrix

Red flags when comparing UK EOR providers

Pause the process if a provider:

• will not identify the employing entity;
• uses “HMRC approved” or similar language without explaining what it means;
• guarantees complete legal or tax risk removal;
• cannot produce a worked payroll and total-cost calculation;
• says that a 3% pension contribution always means 3% of full salary;
• offers visa sponsorship without first assessing the role and arrangement;
• cannot explain who leads a grievance, dismissal or Tribunal response;
• hides exchange-rate margins or requires an unexplained deposit;
• has no plan for the October 2026 and January 2027 employment changes; or
• cannot describe how employees will transfer to the client’s own entity later.

When should a company move from an EOR to a UK entity?

There is no universal employee-number threshold. The decision should reflect cost, permanence and operating substance.

A UK subsidiary may become more appropriate where the company:

• expects a stable and growing local team;
• needs premises, licences or UK customer contracts;
• wants direct control over payroll, benefits and employee experience;
• has senior staff negotiating or concluding business in the UK;
• is making a long-term investment in the market; or
• finds that recurring EOR fees exceed the cost of establishing its own infrastructure.

A good EOR partner should be willing to help the client graduate from its service. A provider that makes departure deliberately difficult is solving for its own retention, not the client’s expansion.

How Expandys supports UK hiring and employment

Expandys helps international companies connect their UK hiring decisions with their wider market-entry strategy.

Support can include:

• assessing whether an EOR, overseas-employer arrangement or UK entity is the appropriate route;
• defining the role and recruiting UK-based talent;
• modelling salary and total employment costs;
• coordinating UK employment, payroll, pensions and HR administration through an appropriate EOR structure;
• supporting onboarding and ongoing local HR requirements; and
• planning the operational transition to a dedicated UK subsidiary when the business is ready.

The objective is not merely to place an employee on payroll. It is to create a practical employment structure that supports the individual’s success and the company’s longer-term development in the UK.

Frequently asked questions

Is using an Employer of Record legal in the UK?

An EOR arrangement can provide a lawful employment structure where the UK employing entity and both parties meet the employment, payroll, tax, pension, immigration and data-protection rules that apply.

The label “EOR” is not evidence of compliance by itself. The underlying entity, contracts and operating practices must be examined.

Does an EOR remove the need for a UK company?

An EOR can employ staff while the client has no UK subsidiary, but this does not guarantee that the client’s activities are free from UK tax, permanent-establishment, VAT or regulatory consequences. These issues depend on the circumstances.

Is a direct EOR model always better than a partner model?

Not necessarily. A direct model can reduce hand-offs, while a well-governed partner model can also operate effectively.

The important considerations are transparency, clear accountability, suitable local expertise and a contract that reflects the actual service-delivery chain.

Can a UK EOR sponsor a work visa?

Only where the employing entity holds the appropriate sponsor licence and the role and arrangement satisfy the immigration rules. Sponsorship should never be assumed from the EOR service alone.

How much does a UK EOR cost?

Providers may charge a fixed monthly fee or a percentage of payroll.

The meaningful comparison is the total cost after onboarding, deposits, foreign exchange, benefits, expenses, HR casework and exit charges have been included.

This article provides general information as at 9 September 2026. Employment, immigration and tax outcomes depend on the circumstances of each company and appointment. Specialist advice should be obtained where required.

Planning your first or next UK hire?

Contact Expandys to discuss the right recruitment and employment structure for your UK expansion.

Editorial sources

• HMRC: Rates and thresholds for employers, 2026 to 2027
• Department for Business and Trade: Employment Rights Act implementation timetable
• The Pensions Regulator: Making contributions to a pension scheme
• The Pensions Regulator: Earnings thresholds for 2026/27
• GOV.UK: Holiday entitlement
• GOV.UK: Employers’ Liability insurance
• Acas: Code of Practice on disciplinary and grievance procedures
• Home Office: Employer’s guide to right-to-work checks
• ICO: Data protection fee
• HMRC: UK permanent-establishment guidance"