Setting Up a UK Workforce Without a UK Entity: A Compliance Guide for Foreign Companies

Expanding into the UK is a strategic move for many international businesses. However, hiring UK-based staff without a local legal entity creates real compliance obligations from day one. Foreign companies must handle PAYE registration, employer National Insurance contributions, right-to-work checks, and statutory entitlements. Fortunately, a qualified UK payroll provider removes most of this complexity. This guide explains every core obligation clearly so your business can hire with confidence.

What UK Employment Law Requires from Overseas Employers

When a foreign company employs someone in the UK, HMRC expects compliance immediately. Therefore, the company must register as an employer with HMRC before paying any staff. PAYE (Pay As You Earn) allows the employer to deduct income tax and National Insurance from each salary. Missing this registration leads to financial penalties. Workforce administration for overseas companies becomes far more manageable when these obligations are understood upfront.

How a UK Payroll Provider Handles PAYE and National Insurance

A qualified UK payroll provider registers your business with HMRC on your behalf. They then calculate and submit PAYE deductions monthly through Real Time Information (RTI) submissions. Employer National Insurance contributions are 15% on earnings above the secondary threshold of £5,000 a year (2026/27). A payroll provider ensures accurate calculations every pay cycle. In turn, your business avoids underpayments, penalties, and missed filings. As a result, your UK team stays fully compliant from the very first payslip.

Right-to-Work Checks and Statutory Entitlements Every Employer Must Meet

UK law requires all employers to verify a worker’s right to work before employment begins. This applies to every hire, regardless of nationality or contract type. Failing to conduct correct checks carries civil penalties of up to £45,000 per illegal worker. Additionally, UK employees are entitled to statutory minimums from day one. These include the National Living Wage, 5.6 weeks of paid annual leave, statutory sick pay, and parental leave entitlements. Workforce administration for overseas companies must account for all of these rights. A reliable UK payroll provider monitors these requirements continuously on your behalf.

Why a UK Payroll Provider Eliminates Entity Setup Complexity

Setting up a UK legal entity takes time, money, and local expertise. However, many foreign companies want to hire quickly and test the UK market first. A UK payroll provider, or employer of record, acts as the legal employer in the UK on your behalf. Therefore, you can onboard employees within weeks, not months. The provider manages employment contracts, payroll processing, HMRC filings, and statutory benefits. Importantly, you retain full control over your team’s day-to-day work, salary levels, and objectives throughout.

Choosing a UK Payroll Provider: Key Obligations to Understand

Before selecting a UK payroll provider, it helps to understand exactly which obligations they should cover. Below are the core requirements that apply when employing UK staff without a local entity.

PAYE Registration: You must register with HMRC before paying your first employee. A UK payroll provider handles this registration directly.

Employer National Insurance: Employers pay 15% NI on earnings above the secondary threshold of £5,000 a year (2026/27). Your provider calculates and submits this every month.

Real Time Information (RTI): HMRC requires RTI submissions on or before each payday. Late submissions trigger automatic penalties. Therefore, timing matters significantly.

Statutory Sick Pay (SSP): Statutory sick pay is due from the first day of sickness. Since 6 April 2026, eligible employees receive the lower of £123.25 a week or 80% of their average weekly earnings.

Annual Leave: UK workers receive a statutory minimum of 5.6 weeks of paid annual leave per year. This applies from the first day of employment.

Pension Auto-Enrolment: Employers must automatically enrol eligible workers into a qualifying pension scheme. Minimum employer contributions stand at 3% of qualifying earnings.

Employment Allowance: how UK employers can reduce their National Insurance bill

The Employment Allowance lets eligible employers reduce their annual employer National Insurance bill by up to £10,500 for 2026/27. It is claimed through payroll software and is not applied automatically. Therefore, a foreign company that sets up its own UK entity should check eligibility before its first payroll run.

Two rules often catch foreign-owned companies. First, connected companies, such as several UK subsidiaries of one group, share a single allowance. Second, a company whose only employee is also a director cannot claim it. Our guide to the Employment Allowance for 2026/27 explains eligibility in more detail.

Statutory sick pay and other changes under the Employment Rights Act 2025

The Employment Rights Act 2025 changes several day-to-day employer duties in stages. The first changes already apply to statutory sick pay. Other changes, such as a shorter qualifying period for unfair dismissal claims, follow from 2027. Foreign employers should therefore build these dates into their UK plans now.

• Statutory sick pay since 6 April 2026. SSP is payable from the first day of sickness, and the lower earnings limit no longer applies. Employees receive the lower of £123.25 a week or 80% of their average weekly earnings.
• Unfair dismissal from 1 January 2027. Employees will be able to claim unfair dismissal after six months of service, instead of two years.
• Flexible working. Employees can request flexible working from their first day, and the Act will require employers to show that a refusal is reasonable. Read our guide to handling flexible working requests.

For a wider view of what the reforms mean for overseas employers, see our article on the UK employment rights reforms.

Sponsoring overseas workers in the UK

A UK employer that wants to hire people who need a visa must hold a sponsor licence. Most skilled hires use the Skilled Worker route, which comes with salary thresholds and an Immigration Skills Charge. Because the licence takes time to obtain, plan it before you make international offers.

Our guides explain how to apply for a UK sponsor licence, the real cost of the Immigration Skills Charge and the current Skilled Worker salary thresholds.

UK entity, employer of record or payroll provider: which route fits?

Foreign companies have three main ways to employ people in the UK. The right choice depends on how many people you plan to hire, how quickly you need them, and whether you want a long-term UK presence.

Route	Legal employer	What you need first	Best for
Own UK entity with in-house payroll	Your UK company	Company registration, HMRC employer registration and a payroll system	A long-term presence with a growing team
Own UK entity with a payroll provider	Your UK company	Company registration and HMRC employer registration; the provider runs payroll	Companies that want their own entity without building a payroll team
Employer of record	The employer of record	An agreement with the provider	First hires, market tests and hiring before an entity exists

Whichever route you choose, contractors need separate care. Under the off-payroll working rules (IR35), medium and large UK clients must decide whether a contractor would be an employee for tax purposes. Our guide to contractor misclassification in the Netherlands and the UK explains the risks.

How Octagon Acts as Your UK Payroll Provider

Octagon Professionals International has supported international organisations across Europe and the UK for over 38 years. As a trusted UK payroll provider and employer of record partner, Octagon manages the full employment lifecycle for companies without a local entity. This includes PAYE registration, RTI submissions, right-to-work verification, statutory entitlements, and ongoing HR compliance. Clients include Shell International, Europol, and the OPCW — organisations that require compliant, professional workforce administration for overseas companies.

Octagon reduces the specific risks that overseas employers face: HMRC penalties, misclassification exposure, missed statutory obligations, and employment law errors. Clients retain complete control over their workforce throughout. Salary levels, benefits, and working arrangements remain entirely the client’s decision. Octagon removes the administrative complexity so that your business can focus on growth.