Setting up in the UK? What inward investors must know about HR, employment law and compliance

Whether you're setting up a UK subsidiary for the first time, growing an existing operation or supporting a UK workforce from overseas, getting your people practices right early on is essential.

The UK continues to be an attractive destination for inward investment, with access to skilled talent, a strong business environment and a well-established legal framework. But if you’re employing people here, there are employment law obligations to understand, and they may look quite different from those in your home jurisdiction.

With further reforms being introduced through the Employment Rights Act 2025, now is a good time to review your arrangements and make sure you have the right foundations in place.

Why UK employment law deserves attention

If you’re used to US at-will employment or to operating in less regulated environments, the UK approach may feel unfamiliar at first. Employment rights are largely set out in legislation, and employers take on responsibilities from day one.

That said, this should not be seen as a barrier to growing your business. The UK employment framework is established, transparent and workable once you understand the key requirements. Businesses that invest in strong HR processes early are often better placed to hire confidently, manage their teams well and scale successfully.

At Reality HR, we work alongside Alliotts to help inward-investing businesses understand UK employment law, navigate people challenges and build practical HR frameworks that support long-term growth. In this article, we look at the key areas to focus on, answer some of the questions we are asked most often and explain how the right HR support can make your UK expansion much easier.

Getting the HR foundations in place

One of the most important early steps when operating in the UK is making sure your HR documentation is in good shape.

Your people should have access to clear, compliant employment documentation from the moment they join. That includes employment contracts, workplace policies and an employee handbook that explains how your business operates and what employees can expect during their time with you.

These documents give employees clarity about their rights, responsibilities and the standards expected of them, while also helping to protect your business through consistent processes and fewer misunderstandings.

If you’re expanding from overseas, it is rarely enough to lift documentation from another jurisdiction and assume it will work in the UK. Your contracts and policies should be reviewed and adapted to reflect UK legal requirements and employment practices.

Getting these foundations right early can save time, cost and unnecessary complexity later on.

Unfair dismissal and understanding the UK approach

One of the clearest differences between the UK and some other countries is how employment relationships come to an end.

If you’re familiar with at-will employment, especially in the US, you’ll know that employers can often end employment without needing to show a specific reason, provided the reason itself is not unlawful.

The UK takes a more structured approach. Employers are expected to demonstrate a fair reason for dismissal and to follow a reasonable process before making a final decision. The aim is to encourage fairness, consistency and well-judged decision-making.

The Employment Rights Act 2025 will make this area even more relevant for employers. From January 1 2027, the qualifying period for ordinary unfair dismissal claims is to reduce from two years to six months. This means many employees will gain access to unfair dismissal protection much earlier in their employment than is currently the case.

At the same time, compensation for successful unfair dismissal claims, currently capped at the lower £123,543 or 52 weeks’ gross pay, will become uncapped. For senior or highly-paid employees this could mean potential compensation in the hundreds of thousands. This highlights the value of having effective management processes, well-supported managers and the right HR guidance in place.

If you’re hiring into the UK market now, these changes are worth building into your workforce planning and management approach. Businesses that put robust people practices in place from the outset are usually in a much stronger position to manage issues confidently as they grow.

Payroll, status and classification

When building a UK workforce, it is also important to understand how people are classified and paid.

UK law recognises three main employment status categories: employees, workers and self-employed contractors. The rights an individual has, and the responsibilities your business takes on, will depend on which category applies.

Determining status is not always straightforward, which is why taking advice before engaging contractors or consultants can be so valuable.

You will also need to make sure payroll is operated correctly through PAYE (Pay As You Earn), under which income tax and National Insurance contributions are deducted before salary is paid. Employees cannot usually be paid gross unless they are genuinely self-employed.

Workplace pensions are another key consideration. Most UK employers must automatically enrol eligible employees into a qualifying pension scheme and make contributions alongside those made by the employee.

If you engage contractors, you should also be aware of IR35. These off-payroll tax rules are designed to make sure individuals who work in a similar way to employees pay broadly similar tax and National Insurance contributions. Deciding whether a contractor falls inside or outside IR35 depends on the reality of the working relationship, not just the contract wording.

Getting advice on employment status, payroll and contractor arrangements early can help you avoid compliance issues and give you greater confidence as your business grows.

Culture and compliance go hand in hand

Successful UK operations are built on more than compliance alone. The businesses that tend to do best are the ones that combine sound employment practices with a strong workplace culture. UK employees generally value fairness, transparency and good communication, and organisations that invest in these areas often see the benefits in recruitment, retention and performance.

When people understand what is expected of them, feel supported by their managers and trust that decisions are being made fairly, they are more likely to stay engaged and perform well. A positive workplace culture can also strengthen your employer brand, help attract great people and support long-term success.

For inward investors, that matters. Getting your HR foundations right is not only about reducing risk but creating the conditions for your UK operation to grow, develop and perform at its best.

Action plan

FAQs

Can we use our existing employment contracts in the UK?

Usually not without some adaptation. Your contracts may be a useful starting point, but UK employment law has its own requirements around employment particulars, statutory rights, leave entitlements and dismissal procedures. It is worth having your documentation reviewed so it works properly in the UK context.

Do we need an employee handbook if we only have a small UK team?

Yes. Even with a small UK team, a handbook helps create clarity and consistency for both employees and managers. It also shows that your organisation takes its responsibilities as an employer seriously from the outset.

Can we dismiss an employee during their probation period?

Yes, but probation does not remove an employee’s legal rights. You should still act reasonably, explain concerns clearly and follow an appropriate process.

A standard six-month probation period now lines up almost exactly with the new qualifying period for unfair dismissal protection, so it means you will need to manage probation periods more actively and address any issues much earlier on.

Do we need to offer a workplace pension?

In most cases, yes. UK employers are generally required to automatically enrol eligible employees into a qualifying workplace pension scheme and make employer contributions. There are limited exceptions, so it is best to factor pension duties into your planning before you start hiring.

What is the biggest HR mistake inward investors make?

One of the most common mistakes is assuming that employment practices which work elsewhere can simply be replicated in the UK. Taking the time to localise your contracts, policies and management processes early will usually save time, cost and disruption later on.

 Our expert HR partner – how Reality HR can help

If you do not have in-house UK HR expertise at the outset, Reality HR can support by working closely with you as an extension of your team, helping you build the right people foundations so your business can get off to a strong start in the UK.

To support that, we have put together a flexible range of services designed for inward-investing and growing businesses:

• Our Start-Up Toolkit gives you the essentials you need to bring people on board confidently and in line with UK employment law.
• We also offer an HR Health Check, giving you a structured review of your documents, policies and practices so you can spot any gaps before they become bigger issues.
• Our Introductory Retainer gives you access to experienced HR support for three months, with the option to extend if it feels like the right fit for your business.

Each service can stand alone or be combined, depending on the level of support you need.

Expanding into the UK can be an exciting step for your business, opening up new opportunities for growth, talent and long-term success. While there are important employer responsibilities to get right, the UK’s employment framework is clear, well established and entirely manageable with the right support.

By putting strong HR in place early, you can hire with confidence, build a positive workplace culture and give your UK operation the best possible start.

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