Two issues regularly come up when discussing this topic with businesses looking to set-up in the UK:
- 'we have Workers Comp in the US, so that will also cover my UK team'; and
- 'my UK employees should get the same benefits, and benefit in the same way as my US employees'.
Employers’ Liability Insurance is a statutory requirement in the UK, and you must have it from the first day that you become an employer. It must also be provided by an insurer authorised by the Financial Conduct Authority in the UK. So even if your US insurance provider says they can provide it, it’s likely they will use a UK-based affiliate to provide the cover.
It can cost twice as much to get your insurance this way compared with contracting directly with a UK insurer. Also, you can be fined £2,500 for every day you are not properly insured.
When it comes to employee benefits, the difference in costs between the US and UK explain some of the expectation gap between US employers and UK employees. Private healthcare in the UK is typically around 20 per cent of the cost of US cover and is often provided only as an optional benefit.
But there is a legal requirement for UK employers to implement a private pension plan for employees and make contributions into it. You can be fined £10,000 for every day of non-compliance with UK pension requirements.
Using stock options to incentivise UK employees is another common area of difference. Differing tax treatments mean it is impossible to ensure that employees in different countries benefit from stock options in the same way. In the UK, approved, tax-advantaged sub-plans for stock options are good for both the employer and the employee, as they reduce the amount of tax and social security payable.
However, we’ve had more than one CFO refuse to implement a tax-advantaged plan, as it would mean the UK employees had a higher take-home from options than their US counterparts.
If this is a real concern, we suggest you use a tax-advantaged plan but reduce the number of options granted to UK employees. This would mean their take-home is comparable with their US counterparts, and the company saves more options for the pool.