US Employee Benefits compared to those in the UK

12 April 2023

Setting up in the UK and hiring local employees is an exciting time for any US headquartered company, but there are important local requirements and trends which you should keep in mind.

We have highlighted some of the key areas you need to consider when creating a locally compliant, globally aligned employee benefits programme.

When employing people in the UK, it is important to understand the local employee benefits landscape; however, from a holistic benefits perspective, you need to consider what is offered to your employees in other jurisdictions including at HQ and in the US.

Employers’ Liability Insurance

Although it’s not considered an employee benefit, Employers’ Liability Insurance is a mandatory insurance in the UK for all employers with at least one employee.

It is designed to compensate an employee who is injured or becomes ill because of the work they do for you.

Employers’ Liability Insurance is equivalent to Workers’ Comp in the US and must be taken out as soon as you become an employer. Your policy must cover you for at least £5 million and be issued by an authorised insurer in the UK.

Employers’ Liability Insurance is often paired with an Office Insurance policy, as this tends to reduce the premium of a standalone policy. The Office policy tends to include cover of the business premises and equipment in the event of theft, accidents or business interruption.

Workplace Pension Plan ‘Auto-enrolment’

In the UK, eligible employees are automatically enrolled in an appropriate Workplace Pension Plan with set contribution rates. In many industries in the UK, it will be anticipated that this is on a matching basis up to a specific threshold. Employer contributions are a minimum of either 3% of ‘qualifying earnings’ (earnings between two thresholds), total earnings or 4% of base salary. It is common for employers to contribute around 4-5%, regardless of the certification selected.

Unlike the US, where it may be possible to provide a “vested” benefit package granted to an employee once they have reached a certain milestone in terms of service, the UK does not recognise this approach. Workplace Pensions are similar to US 401K plans, but UK employees can only access funds once they near retirement age. The main difference between a UK Pension plan and a 401K is that the 401K remains an optional benefit, although it is strongly recommended that US employers provide one to attract talent.

Pension providers will want to receive contributions from a UK company bank account, so it’s important to consider your banking needs well in advance, as setting up a bank account in the UK may take some time.

Further guidance on pensions, assessing your workforce to determine ‘eligible employees’ and how auto-enrolment works for a first time UK employer can be found here: https://www.thepensionsregulator.gov.uk/en/employers/new-employers.

Life Assurance

Cover in the UK is generally 3 or 4 times an employee’s annual salary – higher than in the US.

Disability

It’s common in the UK for employers to provide short term disability and long-term disability insurance for their employees as part of a comprehensive benefits package. Short term disability would often be an uplift on Statutory Sick Pay (see below) for a period of time, which is usually between 13 and 26 weeks, at which point a Group Income Protection policy would kick in and provide a typical benefit of up to two thirds of the employee’s base salary.

Healthcare and Private Medical Insurance

The UK provides free healthcare services to all via the National Health Service (NHS) General Practitioners (GPs) who prescribe medication which is less costly than in the US, as well as provide care and consultation for illness and injury.

Therefore, private healthcare insurance in the UK is designed only to complement the state service provided to all by the National Health Service (NHS). That explains why British private medical insurance is not as comprehensive as in the US where there is no public healthcare system. It is also less expensive than in the US, with Group cover for all of your UK employees, which lowers the per person cost.

Statutory Sick Leave

The UK operates a system of Statutory Sick Leave and Statutory Sick Pay which all employees are entitled to at a minimum rate which increases marginally each year (the weekly rate of Statutory Sick Pay is £96.35 for 2021/22, but it is computed at a daily rate). Prior to the global pandemic, it was available from the fourth day of absence due to illness or injury; however for those suffering from coronavirus, it may commence on the first day an employee is unfit for work. Statutory Sick Pay is payable for up to 28 weeks.

In the US, there is no statutory sick leave and statutory sick pay at the federal level, but a growing number of states and/or localities are implementing such mandate.

Annual Leave

Unlike in the US where there is no mandate on time off accrual, compulsory annual leave also known as vacation or Paid Time Off allowances are in place in the UK. It is a legal requirement to allow full time employees to take at least 28 days’ leave (as at 2021) which can include public holidays. Whilst not compulsory, typically companies will offer a top up to the legal entitlement. This ranges from 31 to 33 days per holiday year and again can include public holidays. Unlimited Paid Time Off is not common in the UK and implementing unlimited Paid Time Off requires very careful consideration in the way it interacts with other statutory leave such as maternity, paternity, parental or shared parental leave.

Other Employee Benefits

Other employee benefits typical in the UK would include:

  • Stock Options
  • Critical Illness cover
  • Dental and Vision
  • Travel Insurance
  • Gym Membership
  • Commuter Loans

How ZEDRA can help

There are many similarities between US and UK employee benefits, but also some fundamental differences. It is important to seek advice early to plan your UK employee benefits offering. For more information on how to set up a compliant benefits programme for your employees, or to discuss HR or payroll, please contact Keeley Stock.

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