Hiring international employees is an exciting step for any UK business. Expanding your talent pool beyond borders gives you access to specialist skills, cultural diversity, and new market opportunities. But with that opportunity comes complexity – different employment laws, tax obligations, and payroll challenges.
Getting it right isn’t just about making sure employees are paid on time. It’s about compliance, avoiding legal risks, and ensuring your business is structured properly for international expansion. In this guide, our payroll team break downs what UK businesses need to consider when hiring and paying international employees. We also cover the things international companies need to consider when hiring in the UK.
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Can UK businesses hire international employees?
Yes, but the approach depends on whether the employee is relocating to the UK or working remotely from another country. If they’re moving to the UK, they may need a visa, and your business must comply with UK employment laws. If they’re staying in their home country, you need to comply with local labour laws, tax regulations, and payroll requirements.
Generally, UK businesses have four options for hiring international employees. You can:
- Set up a local entity in the employee’s country, meaning your business is officially registered and can run local payroll.
- Use an Employer of Record (EOR), a third party that acts as the legal employer on your behalf.
- Engage workers as independent contractors, though this comes with legal risks if misclassification occurs.
- Pay them through a UK payroll system, but only if tax laws allow it.
Each approach has pros and cons, and the right one depends on your long-term hiring strategy.
Understanding employment laws and compliance
Employment regulations vary by country. Some countries require formal contracts with specific terms, while others have strict rules on benefits, working hours, and termination. Failing to comply with local laws can lead to fines or even legal action.
Tax is another key consideration. If your employee is based abroad, where do you pay income tax and social security? Some countries require tax to be deducted at source, while others expect employees to handle their own tax filings. The UK has double taxation treaties with many countries, preventing employees from being taxed twice, but you’ll need to check the details for each location.
You’ll also need to consider intellectual property (IP) rights and data security. If an employee is working remotely from another country, does their contract explicitly state that work created belongs to your business? Are you compliant with GDPR and other data protection regulations? These details may seem small, but they can have major legal implications.
How to pay international employees
Paying international employees isn’t as simple as transferring their salary each month. Exchange rates, tax withholding rules, and local payroll regulations all play a role in how payments are processed. The best method depends on where your employees are based and how many you’re hiring.
One option is running international payroll, which means setting up a compliant payroll system in the employee’s country. This ensures taxes and benefits are handled correctly but requires local expertise.
Another route is using an Employer of Record (EOR). An EOR is a third-party provider that acts as the legal employer in the country where your employee is based. They handle payroll, tax filings, and compliance, making this a simple, low-risk option for businesses hiring abroad.
Some businesses prefer to engage international workers as contractors. While this offers flexibility, it comes with the risk of misclassification. Many countries have strict laws defining the difference between an employee and a contractor. If a contractor is deemed an employee, you may be responsible for back pay, benefits, and unpaid taxes.
For businesses scaling quickly, global payroll platforms can help automate payments and tax compliance. These platforms integrate with your UK payroll system and ensure salaries are processed in the correct currency, with tax deductions applied according to local rules.
What UK employers need to know about tax and payroll
When paying international employees, tax and payroll compliance is one of the biggest challenges. If an employee is on UK payroll but works abroad, their tax liability depends on their residency status and where they physically perform their work. Some countries require UK employers to register for tax locally, while others allow employees to report their own income.
Payroll tax withholding is another consideration. In some cases, UK businesses must deduct and remit tax in the employee’s country, even if the business has no legal entity there. Double taxation treaties can help avoid employees paying tax in two jurisdictions, but these treaties vary by country.
Currency exchange is another factor. Will you pay employees in GBP or their local currency? Fluctuations in exchange rates can impact salaries, so businesses need to decide on a payment structure that works long-term.
International companies hiring in the UK
Setting up to employ staff in the UK
If a foreign company wants to hire employees in the UK, it must first establish a legal presence. This doesn’t necessarily mean opening a physical office—it could involve setting up a UK subsidiary or registering as an overseas employer. The company must also register with HMRC for PAYE (Pay as You Earn) to handle tax deductions, National Insurance contributions, and pension obligations.
UK employment laws apply to all workers based in the UK, regardless of where the employer is headquartered. That means compliance with minimum wage requirements, statutory benefits, and right-to-work checks is essential. Foreign employers may also need to consider whether they have a permanent establishment in the UK, which could create additional tax liabilities.
Payroll and tax obligations for foreign companies
Once a business is set up to hire in the UK, it must process payroll correctly. UK payroll includes automatic tax deductions for income tax (PAYE) and employee National Insurance contributions. Employers must also contribute to National Insurance and enrol eligible employees into a workplace pension scheme.
International businesses, without a UK presence but with employees in the UK, can set up DPNI payroll schemes in the name of the employee. This is a good way for international companies to employ UK residents while ensuring they pay the tax and NI due to HMRC.
For businesses without a UK entity, an Employer of Record (EOR) can act as the official employer on their behalf, ensuring compliance with tax and employment laws. Alternatively, some international companies choose to engage workers as independent contractors, but they must be careful to avoid misclassification risks.
How Gravita can help
At Gravita, we help businesses manage payroll for international employees, ensuring tax compliance, accurate payments, and a smooth hiring process. Whether you’re hiring one employee abroad or building a global team, our experts simplify payroll management so you can focus on growing your business.
Final thoughts
Hiring international employees is an excellent way to expand your business and access top talent. But it requires careful planning to navigate employment laws, tax obligations, and payroll challenges. By understanding your options and working with the right partners, you can build a global workforce while staying compliant.
