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.
In a conventional UK EOR arrangement, the provider’s UK entity employs the worker and is named in the employment contract. The EOR normally:
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:
An EOR is an employment solution, however not a substitute for market strategy, tax analysis or good management.
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:
Further changes are scheduled to include:
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.
Obtain the employing entity’s full legal name, Companies House number and registered address. Confirm that this same entity will:
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.
The service agreement should distinguish clearly between:
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.
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:
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.
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.
Local support matters most when employment stops being routine. Find out who will handle:
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.
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:
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.
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:
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.
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.
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.
Compare the total landed cost. Request a schedule covering:
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.
|
Area |
Evidence to request |
Warning sign |
|---|---|---|
|
Employing entity |
Legal name, company number, contract and PAYE responsibility |
The legal employer is unclear or disclosed only after signing |
|
Payroll |
Worked cost model, payroll calendar and escalation process |
Headline price without NI, pension, FX or statutory costs |
|
HR support |
Named UK contact, relevant experience and response times |
Generic global helpdesk with no accountable case owner |
|
Employment law |
Updated 2026 policies and January 2027 readiness |
Reliance on “full compliance” claims without supporting detail |
|
Right to work |
Documented checks, record retention and follow-up controls |
Responsibility is passed back to the client without clarity |
|
Data protection |
Data map, DPA, transfer safeguards and breach process |
No clarity about hosting, subprocessors or controller roles |
|
Insurance |
Current Employers’ Liability certificate and relevant additional cover |
Expired certificate or unexplained exclusions |
|
Tax boundaries |
Clear permanent-establishment caveat and referral process |
Guarantee that an EOR removes all corporate tax exposure |
|
Pricing |
Full fee schedule, FX method, deposit and exit costs |
Low monthly fee accompanied by opaque additional charges |
|
Transition |
Written migration plan and continuity analysis |
No process for moving staff to the client’s future entity |
Pause the process if a provider:
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:
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.
Expandys helps international companies connect their UK hiring decisions with their wider market-entry strategy.
Support can include:
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.
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.
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.
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.
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.
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.