For overseas companies looking to expand into the UK, hiring local staff can be a major milestone. But doing so without using an Employer of Record (EOR) or properly setting up the employment structure carries significant and often hidden risks.

There are several pitfalls of hiring employees directly in the UK without the right compliance framework and partnering with a trusted UK‑specialist, like us at Paul Beare, can make the difference between smooth growth and costly missteps.

Employment law and employer responsibilities

When you hire staff in the UK, you step into a defined set of employer obligations. For example, you must provide employees with a written statement of employment particulars, ensure they receive the minimum holiday entitlement, provide payslips showing all deductions, manage rest breaks, register for payroll, and much more.

If you proceed without using an Employer Of Record or without local compliance support, you risk missing one of these obligations – leading to employment‑law claims, reputational damage and potential penalties. As a non‑UK company, if you treat a UK‑based person as a contractor when in fact they are an employee (or misclassify status), you may face back‑payments of pay and benefits.

Payroll, tax and social security risk

Operating UK payroll means registering with HMRC for the PAYE scheme, deducting income tax and National Insurance (NI), and passing the correct information on or before payday.

For companies that hire UK employees without using an EOR or a compliant UK payroll provider, potential mistakes include:

  • Failing to register as an employer in time.
  • Incorrect tax/NI deductions or late payments.
  • Not meeting pension auto‑enrolment duties (for eligible employees).
  • Unexpected liabilities if HMRC treats your arrangement as employment.

These risks are amplified if your overseas company does not have a local UK payroll structure or relies on an overseas entity to pay a UK individual without being the employer of record.

Immigration and right‑to‑work missteps

Another risk arises if you hire employees in the UK without a proper structure: the need to check the individual’s right to work in the UK. Employers must carry out right‑to‑work checks before someone starts and keep records. However, without a local employer entity or an Employer Of Record that handles the employment contract, you may expose yourself to civil penalties if you inadvertently hire someone without legal working status. In addition, visa and sponsorship obligations (for non‑UK nationals) may be overlooked. This can become a significant exposure for overseas parent companies operating UK‑based staff.

Liability and permanent establishment risks

When an overseas company hires UK employees directly (without local entity and without EOR support), they may inadvertently trigger UK tax and corporate obligations. For example, depending on where the employee is working, the oversight of the business may create a “UK presence” or permanent establishment risk, which in turn could create a UK corporation tax liability. Also, liability for employment claims in the UK (such as unfair dismissal, discrimination, holiday pay) may sit with the actual employing entity.

Without an EOR taking on the employer role in the UK, you may find legal exposure in unexpected areas. Insight from legal advisors indicates this risk is often under‑appreciated.

Hidden costs and misaligned benefits

Hiring in the UK without the right structure can bring hidden cost burdens. These may include:

  • Employer National Insurance (NI) contributions.
  • Pension auto‑enrolment contributions for eligible job‑holders.
  • Statutory leave obligations (maternity, paternity, sick pay).
  • Employers’ liability insurance (which is required).
  • Employment tribunal costs or settlement risks.
  • Higher administrative overheads when local compliance is retrofitted rather than built in.

What seems like a cost‑saving by hiring ‘simply’ in the UK may turn into a cost multiplier if you are later caught out on back‑dated liabilities or conversion of contractor status.

Governance, contracts and employment status

A key risk when you skip the EOR route is mis‑alignment in employment contracts and employment status. UK employment law distinguishes between employees, workers and contractors.

If you treat someone as a contractor but UK law determines they are in fact a worker or employee, you could face back‑pay obligations, holiday pay claims, and tax‑status challenges. Legal commentary highlights that service providers may be treated as employees depending on the control, personal service and mutuality of obligation. Without local expertise this can become a major exposure for foreign companies.

Reputation, operations and local credibility

Beyond pure legal risk, hiring in the UK without a local employing structure or EOR may impair your credibility with UK banks, clients or suppliers. Having a UK entity and local employment setup signals commitment, improves supplier confidence, makes opening a UK bank account simpler and supports your UK brand.

If you simply appoint UK staff through your overseas parent entity without a UK employer legal structure, you may face operational friction in all kinds of areas, from bank account opening and procurement to local contracting and employee recruitment.

How to Mitigate the Risks

If you are expanding into the UK and intend to hire UK employees, here are some pragmatic safeguards:

  • Assess whether setting up a UK entity or using an EOR is right for you. For overseas companies that want to hire quickly and without full entity set‑up, an EOR can assume local employer obligations while you focus on business growth.
  • Perform a compliance audit of employment obligations: right‑to‑work, contract terms, payroll registration, pension enrolment, insurance and employer contributions.
  • Ensure payroll is run through a UK‑compliant system with PAYE registration, correct NI, tax deductions and timely reporting to HMRC.
  • Review employment contracts and status of your UK hires – ensure they reflect UK law and that worker‑vs‑contractor classification has been considered.
  • Consider your global governance and entity structure – how does the UK hire fit with your overall group, how are duties managed, who holds risk and how are costs managed?
  • Use a specialist UK partner like Paul Beare who knows the UK context for overseas‑owned companies, can provide employment‑set‑up, payroll, compliance oversight and advisory support.

Why Choose Paul Beare to Support Your UK Hiring

At Paul Beare, we specialise in supporting overseas companies looking to enter or scale in the UK. Our employment‑and‑HR advisory covers entity structure, hiring UK employees, payroll, employer responsibilities, compliance and risk management.

We help you avoid the common mis‑steps outlined above and provide a seamless platform for employing staff in the UK so you can focus on your growth, not your compliance headaches.

If you’re ready to expand into the UK and want to ensure your hiring is done properly from the outset, schedule a call with us.