If your business is based outside the UK and you want to hire someone here, there’s a problem that isn’t immediately obvious: you can’t just pay someone a salary. To employ someone legally in the UK, you need an employer — one that’s registered with HMRC, running a PAYE payroll, handling National Insurance, auto-enrolling the employee in a pension, and complying with UK employment law. If you have no UK legal entity, none of that is straightforward.
An employer of record solves this. But it’s not the only option, and for some businesses it isn’t the right one. This guide explains when it makes sense and what you need to know before you start.
Recommended Employer of Record
Why you can’t just pay someone informally
It’s worth being direct about this, because some businesses try it anyway.
Paying someone as a freelancer when they’re actually doing the work of a full-time employee is worker misclassification. HMRC applies a set of tests — based on control, substitution, financial risk, and integration — to determine whether a working relationship is genuine self-employment or disguised employment. If it’s the latter, the employer owes the unpaid income tax, National Insurance, and statutory entitlements that should have been handled through PAYE.
The risk is real. HMRC can investigate years of past payments and issue tax assessments and penalties. Employment tribunals can find that a contractor was actually an employee and award them retrospective rights. If you’re hiring someone to work full-time, under your direction, using your systems, on an ongoing basis — they’re almost certainly an employee in the eyes of UK law, and they need to be employed accordingly.
The options for a foreign business hiring in the UK
Incorporate a UK entity. Register a UK limited company, register as an employer with HMRC, set up payroll, enrol your employee in a pension, and employ them directly. This gives you full control and is the right answer at scale — but it takes weeks to set up properly, costs money to maintain, and is administratively demanding for a company with no UK operational experience.
Use a UK employer of record. The EOR already has the UK entity, the PAYE registration, the payroll infrastructure, and the pension scheme. You sign a commercial agreement, agree the employment terms with your new hire, and the EOR issues the contract and runs everything. Your employee is employed by the EOR and works for you.
Use a contractor arrangement where it’s genuinely appropriate. If the person is truly self-employed — multiple clients, controls their own schedule, invoices for deliverables rather than time — a contractor arrangement may be legitimate. But this is a narrower category than many businesses assume.
For most foreign businesses hiring their first UK employee, the real choice is between the first two options.
When an EOR makes sense
You need the person working quickly. Setting up a UK company and payroll from scratch takes at least four to six weeks done properly. An EOR can have someone onboarded and on payroll within a few days. If your hire has a start date that’s already agreed, an EOR is often the only realistic option.
You’re not sure the UK presence will be permanent. If you’re testing a market, hiring for a specific project, or not yet certain whether the UK will be a sustained part of your operation, setting up a UK entity is premature. An EOR lets you employ someone without making that structural commitment. If the operation grows, you can set up your own entity later and transfer the employee across.
You’re hiring one or two people. The overhead of maintaining a UK legal entity only makes sense above a certain headcount — usually around ten to fifteen employees, depending on salary levels. Below that, the overhead of running your own entity often exceeds what you’d pay an EOR in service fees.
You don’t have UK employment law expertise. The rules on unfair dismissal, statutory leave, redundancy pay, notice periods, and PAYE are not impenetrable — but they do require learning. An EOR handles compliance without you having to acquire that knowledge first.
What the arrangement actually looks like
You agree your employee’s terms with the EOR: job title, salary, start date, working hours, notice period, and any benefits above the statutory minimum. The EOR issues a UK employment contract in its own name. The employee signs with the EOR. You have a separate commercial agreement with the EOR that governs how you direct the employee’s work.
The EOR handles right-to-work verification, PAYE registration, pension enrolment, and monthly payroll. You receive a monthly invoice: gross salary, employer National Insurance (13.8% on earnings above £9,100 per year), the employer pension contribution (3% minimum), and the EOR’s service fee — typically £300–£700 per month.
You manage the employee’s day-to-day work and decisions about their role. The EOR manages everything administrative and compliance-related.
What you need to have ready before you approach an EOR
- The employee’s full name, address, and National Insurance number if they have one
- Their proposed start date
- Salary in GBP
- Job title and a brief description of the role
- Any benefits you want to offer above the statutory minimum
- Whether the employee has the right to work in the UK
You’ll also need to sort equipment. The EOR doesn’t provide laptops or software access — that’s your responsibility.
A note on right to work
Every employer in the UK — including EORs acting on your behalf — is legally required to verify that an employee has the right to work in the UK before they start. This check is not optional and cannot be waived.
For UK nationals and settled residents, the check is straightforward. For foreign nationals, or people with limited leave to remain, the process involves checking visa or immigration documents and is more involved. If your prospective hire doesn’t have the right to work in the UK, neither you nor the EOR can employ them legally. This is worth understanding before you get far into the process, particularly if the person you want to hire is not a UK or Irish citizen.
The EOR will carry out the check during onboarding. But knowing the position in advance saves time and avoids a difficult conversation later.
The cost in rough terms
For a UK employee on a £45,000 salary, the rough monthly all-in cost through an EOR:
- Gross salary: £3,750
- Employer NI: ~£430
- Employer pension (3%): ~£113
- EOR service fee: ~£400–£500
Total: approximately £4,700–£4,800 per month, or around £56,000–£58,000 per year.
If you were employing directly through your own UK entity, you’d pay the same employment costs but replace the EOR fee with the overhead of running and maintaining the entity — payroll software, professional advice, administrative time. For a single employee, the EOR is usually cheaper or comparable in total cost, with considerably less management overhead on your side.
For an introduction to EORs, read our guide to EOR services and, if you’ve worked through this and decided an EOR is the right route, our shortlist of the ten best EORs for UK businesses highlights some of the best providers.
