For overseas businesses looking to hire in the UK, an Employer of Record (EOR) is a quick way to get started. There’s no need to register a, manage payroll, or navigate UK employment law. You can hire in days rather than weeks or potentially months.

That convenience comes at a price though.

EOR providers generally charge fixed monthly fee per employee, typically around £500, or a percentage of payroll, often 10-15%. This is on top of the salaries, National Insurance, pension contributions and any other employment costs.

At the beginning, those fees are often worthwhile. When the priorities are speed and flexibility, they allow businesses to hire in the UK without making a long-term commitment.

Those fees grow along with headcount, and can quickly become a burden on your P&L.

A business employing ten people through an EOR could easily spend £60k per year in EOR fees. At that point, setting up your own UK company is often the more economical option.

The good news is that incorporating a UK company is relatively inexpensive. Companies House charges £100 to register a company online, although many businesses choose to use an accountant or formation agent. The online formation agents charge £30-£50 on top of the fee. If you want the guidance of an accountant, you can expect to pay around £200 on top of the fee.

 

 

What about employment law?

One reason businesses continue using an EOR is concern about UK employment law, but you don’t have to manage it alone.

There are many specialist HR consultancies that prepare compliant employment contracts, employee handbooks, disciplinary and grievance policies, and other essential documentation. A complete set of HR documents will typically cost around £1,500 as a one-off project. If you’d rather have ongoing support, retained HR services generally start from around £100 per month, depending on the size of your team and the level of advice required.

 

 

Cost isn’t the only consideration.

Having your own UK company gives you control over employment contracts, benefits, option schemes, banking, and your overall UK presence. It can also inspire greater confidence with customers, suppliers and investors who prefer dealing directly with a UK entity.

 

 

Transfer pricing

It’s worth considering the tax implications of your UK operation. If your UK company is part of a group, transfer pricing rules may apply. These rules require transactions between connected companies to be priced as if they were taking place between independent businesses, and the reasoning to be documented. While transfer pricing isn’t a concern for every business, it’s something to discuss with your accountant as your UK presence grows. Putting the right structure in place from the outset can help avoid unexpected tax issues later on. Basic transfer pricing documentation starts at around £1,500, although the costs can be considerably higher for a large group.

 

 

When should I look to incorporate in the UK?

As a general guide:

  • 1-3 employees: An EOR is often the quickest and simplest option.
  • 5-10 employees: It’s worth comparing your annual EOR fees with the cost of running your own UK company.
  • Long-term UK expansion: Incorporating is usually the more cost-effective choice and provides greater flexibility as your business grows.

An EOR is a great way to hire in the UK market. It just isn’t always the most economical way to stay there. Once your UK team starts to grow, the cost of incorporation and outsourced HR support is often significantly lower than continuing to pay EOR fees for every employee.