For a business with no UK payroll experience, the alphabet soup of UK employment tax compliance — PAYE, RTI, NI, AE, SSP — can look impenetrable. One of the core arguments for using an employer of record is that you don’t have to become an expert in any of it. The EOR handles it.
But “the EOR handles it” is a slightly unsatisfying answer if you don’t know what “it” actually involves, what you’re paying for, and what (if anything) remains your own responsibility. This guide goes through each element of UK payroll compliance and explains what the EOR does with it.
PAYE
PAYE — Pay As You Earn — is the system through which income tax is collected from employees before they receive their salary. The employer deducts it, then remits it directly to HMRC.
To run PAYE, you need to be registered with HMRC and issued a PAYE reference number. Every employee gets a tax code — a number telling the employer how much tax-free income the employee is entitled to before tax applies. The standard code for 2025/26 is 1257L, reflecting the £12,570 personal allowance.
The EOR is registered with HMRC under its own PAYE scheme. When a new employee is onboarded, the EOR adds them to this scheme, HMRC is notified, and the employee receives their tax code. From that point, the EOR calculates the correct PAYE deduction every payroll run and remits it to HMRC.
In practice: your employee receives their net salary, the EOR pays the tax to HMRC, and you pay the EOR an invoice that includes the gross salary (from which income tax and NI have already been calculated). You never deal with HMRC directly for that employee’s income tax.
Real Time Information (RTI)
RTI is how HMRC receives payroll data. Under RTI, employers must submit a Full Payment Submission (FPS) to HMRC on or before each payday — not monthly, not annually, but every single time an employee is paid.
The FPS tells HMRC the employee’s details, gross pay for the period, income tax deducted, employee NI deducted, and employer NI due. HMRC uses this to reconcile tax records in real time.
Missing an RTI submission or submitting it late triggers an automatic penalty. It starts at £100 per month for small employers and increases with employer size and the length of the delay. Most EOR providers have automated RTI submission as part of the payroll run — it’s not a separate manual step that someone might forget.
For you, RTI is effectively invisible. It happens automatically, on your behalf, every payday.
National Insurance
NI contributions come in two forms: employee and employer. Both flow from the employment relationship, but they work slightly differently.
Employee NI. For 2025/26, employees pay 8% on earnings between £12,570 and £50,270 per year, and 2% on earnings above that. Deducted from gross pay as part of the payroll run.
Employer NI. From April 2025, employers pay 15% on employee earnings above £5,000 per year (the secondary threshold dropped from £9,100 to £5,000 in the Autumn Budget 2024). For a UK employee on £40,000, employer NI is approximately £5,250 per year. That’s a meaningful cost that sits on top of the gross salary — not instead of it.
The EOR calculates both figures every payroll run, deducts the employee contribution from net pay, and includes the employer NI in your monthly invoice. Both amounts are remitted to HMRC along with the PAYE.
Employer NI is not absorbed by the EOR. It passes straight through to you, as a separate line on your invoice.
Auto-enrolment pension
Auto-enrolment requires employers to automatically enrol eligible workers into a qualifying workplace pension and make minimum employer contributions.
Eligibility: aged 22 to 66, earning above £10,000 per year, working in the UK. Workers who don’t meet all three criteria may still have the right to opt in.
The minimum employer contribution is 3% of qualifying earnings (earnings between £6,240 and £50,270 per year). The minimum employee contribution is 5%. You can offer more as part of the employment terms — some businesses use enhanced pension as a benefit.
The EOR manages all of this: enrolling eligible employees in its qualifying pension scheme (typically NEST, People’s Pension, or similar), sending the required enrolment notifications, calculating and deducting the employee contribution from gross pay, and including the employer contribution on your invoice. The EOR also handles re-enrolment — a separate obligation that requires employers to re-enrol certain workers every three years, which is the kind of thing that slips through the net when businesses run their own payroll without proper reminders.
Like employer NI, the employer pension contribution is not the EOR’s cost. It’s yours, passed through.
Statutory payments
The EOR also manages statutory payments — the amounts UK law requires employers to pay employees in specific circumstances.
Statutory Sick Pay (SSP). From April 2026, SSP is payable from day one of absence, not day four. The current rate is £116.75 per week. The EOR calculates and pays SSP when an employee is off sick and has notified absence correctly.
Statutory Maternity Pay (SMP). Eligible employees receive SMP for up to 39 weeks: 90% of average weekly earnings for the first six weeks, then £184.03 per week (2025/26 rate) or 90% of average earnings if lower, for the remaining 33 weeks. The EOR manages the calculation and payment throughout maternity leave.
Statutory Paternity Pay (SPP). From April 2026, paternity leave is a day-one right. The EOR administers SPP in line with the statutory framework.
Smaller employers can recover some or all of their SMP costs from HMRC (employers with annual NI bills under £45,000 can recover 103%). The EOR handles this recovery process.
Year-end
At the end of each tax year, the EOR issues P60s to all employees in employment at 5 April (by 31 May), submits P11D returns for any benefits in kind, and issues P45s for employees who leave. All of this happens without you needing to think about it.
What remains your responsibility
The EOR handles the mechanics. What stays with you:
The employment relationship. Performance management, disciplinary decisions, working arrangements, pay increases, role changes — yours. The EOR can advise on process, but it doesn’t manage your employees.
Providing accurate information. The EOR can only produce a correct payroll from correct inputs. Salary, start date, working hours, benefit arrangements — if you provide wrong information, you get wrong payroll, and HMRC gets wrong data. The errors are fixable, but they create hassle for the employee and compliance risk for you.
Benefits above the statutory minimum. Enhanced pension, private health, additional leave — you decide, the EOR administers. The cost and the decision are both yours.
This division is what makes the relationship work. The EOR is a compliance manager, not a passive payslip printer. But it can only manage compliance around a working relationship that you’re running coherently on your side.
For an introduction, read our guide to EOR services and our shortlist of the ten best EORs for UK businesses covers each provider’s offer in more detail.
