Table of Contents
As more businesses embrace the greater flexibility that digital technology continues to deliver and so look to engage global talent located across the world, it is increasingly important to understand that employment law varies from country to country.
What is permitted or encouraged in one jurisdiction can be outlawed in another. The differences in tax laws, leave, and other entitlements can make the conditions under which foreign workers are employed very different.
Indeed, the different aspects of employment laws can make all the difference in whether UK companies take on workers located here or instead opt to hire remote workers based overseas.
In the technology space in particular, UK businesses of all sizes can now access global talent, including workers based in the US, more easily and affordably than ever before. However, there are some significant differences between UK and US employment laws. Any British company taking on remote workers based in America must be aware of these to ensure they comply with pay rates, tax, deductions, leave entitlements, etc.
Below is a guide to the respective employment laws in the UK and the US and what British companies need to know before taking on workers in the States.
1. Minimum wage laws
The minimum wage in the UK (referred to as the national living wage) is £10.42 an hour for people aged 23 and over. This translates to an annual gross salary of £20,319, based on a 37.5-hour working week.
In the USA, the federal minimum wage is $7.25 per hour ($4.25 for people aged under 20), although individual states can set their own rates above this — for instance, the minimum wage in California is $15.50 per hour.
As of 1 July 2023, the federal rate in the US will be raised to $9.50 per hour.
2. Overtime laws
UK employees are not obligated to accept additional working hours, nor are employers obliged to offer overtime. Somewhat surprisingly, provided a worker’s wage does not fall below the national minimum wage, employers are not obliged to pay for additional hours worked, nor is there a statutory overtime pay rate.
Overtime terms, therefore, need to be explicitly stated in any employment contract. However, UK employers cannot force workers to work for more than 48 hours a week without a written agreement. Part-time workers must also be subject to the same overtime rules and pay rates as full time workers.
In the US, under the terms of the Fair Labor Standards Act (FLSA), employees are entitled to receive overtime pay when working more than 40 hours in a work week, with the rate being not less than time and one-half their regular rates of pay. A workweek is defined as a fixed and regularly recurring period of 168 hours, which equates to seven consecutive 24-hour periods.
3. Payroll payments
While it is easier than ever to engage workers based in the US, either as employees or independent contractors, it is important for any UK company looking to expand into the USA to understand that there is a range of different ways in which global payroll can be managed, which will impact how you pay your US employees.
For instance, you can engage the services of an Employer of Record (EOR), also known as a global PEO. This means that, rather than directly employing US workers, you work with a US-based partner who hires the staff or contractors on your behalf. The EOR ensures that foreign workers are properly classified, and payroll and HR are managed for you instead of it being done in-house. At the same time, you remain responsible for managing an individual’s workload.
An alternative way to pay US staff is through establishing a foreign subsidiary. However, setting up a legal entity in the US can be challenging, as each state has its own legal requirements.
In general, the first step is to choose the type of business entity you want to establish, i.e., a corporation or a limited company. The ownership structure will normally determine which will work best for you.
You then need to choose the state where you want to be incorporated and establish your headquarters. Some states are more open to foreign companies setting up legal entities than others, so it pays to look into this carefully before beginning the process.
Any foreign enterprise looking to set up a US subsidiary must also set up a corporate bank account to operate payroll. This process is not always straightforward, but setting up a legal entity is easier.
Another cost-effective method for hiring US remote workers is to engage them as independent contractors instead of employees. This has pros and cons, and whether it works for your organisation will depend on various factors.
Some of the advantages include the fact that onboarding is generally quicker and easier, you are not required to pay employee benefits, ending a working relationship is easier than it is with an employee, and you have greater staffing flexibility.
On the other hand, working with independent contractors does mean you have to be prepared to have less direct control over how work is done. You will also have to consider that freelancers will likely be working with other organisations and yours, so you may have to be more flexible regarding deadlines.
4. Leave Policies
In the UK, virtually all workers are entitled to 28 days of paid annual leave per year, which equates to 5.6 weeks of statutory leave. Part-time workers receive annual leave on a pro rata rate, e.g., someone who works 2 days a week will receive 11.2 days paid leave annually. In addition, employees can receive up to 28 weeks of paid sick leave to be paid at the minimum Statutory Sick Pay (SSP) rate of £99.35 per week.
Regarding maternity leave, new mothers in the UK receive 26 weeks’ unpaid Ordinary Maternity Leave plus a further 26 weeks’ Additional Maternity Leave (52 weeks in total). Eligible new mothers can receive Statutory Maternity Pay for 39 weeks, paid at 90% of average weekly earnings before tax (AWE) for the first 6 weeks, and then £156.66 per week for 33 weeks (or 90% of AWE, whichever is lower).
In addition, there are 8 public holidays in England, Wales and Scotland, while Northern Ireland has 10.
By contrast, there is no federally mandated requirement regarding paid holidays, vacation days or paid sick days in the USA. Instead, companies will establish their own paid time off (PTO) policies, with around 10 days paid annual leave being the national average (although it varies from state to state).
As for maternity leave, the US situation is very different from the UK. Expectant mothers can receive up to 12 weeks unpaid leave under the Family Medical Leave Act (during which time their jobs must be held open for them), although the average leave taken is only 8 weeks.
In addition, in the US, employers are not required to pay workers during maternity leave; only 23% of new mothers had access to paid maternity leave in 2022.
There are 11 federal holidays each year in the United States, with other holidays celebrated on a state or regional basis.
5. Health and safety regulations
In the UK, workplace mental health and safety falls under the auspices of the Health and Safety Executive (HSE), which enacts legislation, sets workplace safety requirements, and lays out employer responsibilities.
The HSE also delivers a wide range of training courses designed to support organisations in complying with relevant laws to keep workers healthy and safe and guide workers relating to their rights. These include the right to work in environments where risks are properly controlled and the right to be consulted by employers on health and safety matters. Workers in the UK are also entitled to free health and safety training and to be provided with free equipment and protective clothing as required.
In the USA, workplace safety is the responsibility of the Occupational Safety and Health Administration (OSHA). It sets policy, undertakes inspections, and sets the relevant safety standards and procedures for different industries and sectors.
The OHSA also sets out workers’ rights as they pertain to safety in the workplace, which includes the right to speak up about hazards without fear of retaliation, the right to receive workplace safety & health training and required safety equipment, and the right to access the results of tests regarding workplace hazards.
6. Discrimination and equal opportunity
In the UK, all people are protected from discrimination in the workplace (as well as in wider society) by the Equality Act 2010.
This means that people can not be discriminated against on the basis of what is known as ‘protected characteristics’. These include:
- age
- gender reassignment
- being married or in a civil partnership
- being pregnant or on maternity leave
- disability
- race including colour, nationality, ethnic or national origin
- religion or belief
- sex
- sexual orientation
The Equality Act 2010 protects people from discrimination at work, in education, as a consumer, when using public services, when renting or buying a commercial property, or as a member or guests of a private club or association.
In the US, the Equal Employment Opportunity Commission (EEOC) enforces federal law with regard to workplace discrimination. Under this legislation, it is against the law to discriminate against an employee or a job applicant on the basis of their:
- race
- colour
- religion
- sex (including pregnancy and related conditions, gender identity, and sexual orientation)
- national origin
- age (40 or older)
- disability
- genetic information
The laws apply to all aspects of employment, including onboarding and termination, remuneration, workplace training, and employee benefits.
7. Termination and severance
The termination process in the UK will depend on the employment agreement and/or collective agreement that has been put in place.
There is a statutory notice period when employees are being made redundant — at least one week’s notice must be given when a worker has been employed for between one month and 2 years, and then one week’s additional notice for each year of service between 2 years and 12 years of employment. Employers can give pay in lieu of notice.
Severance pay is required when a worker is made redundant (although not in cases of gross misconduct). The amount of severance pay depends on the worker’s age and how long they have been employed.
- Workers under the age of 22 are entitled to half a week’s pay for each full year worked (minimum 2 years)
- Workers aged between 22 and 41 years of age are entitled to one week’s pay for each full year worked
- Workers over 41 years of age are entitled to one and a half week’s pay for each full year worked
Weekly pay is capped at £571 per week, with a length of service capped at 20 years.
Under the Fair Labor Standards Act (FLSA) requirements, there is no statutory requirement for severance pay in the US. Instead, whether severance pay is paid on termination will be determined by an agreement between a worker and their employer. The length of employment generally determines the rate.
Employees who do not receive severance pay after their employment is terminated may be eligible for assistance through the Employee Benefits Security Administration (EBSA).
