Labour environment

The factors covered are:

• Labour market size and availability

• Skills

• Labour costs

• Labour market regulations

• Recruitment

• Further information

1.Labour market size and availability

The UK’s labour force of over 30 million people is the second largest in the European Union.

Employment is currently at record levels with over 29.46 million people in work, comprising 21.9 million in full-time work and 7.56 million in part-time work (Source: ONS, 2008). The employment level (the proportion of working age people in work) is also high in the UK at 74.8 per cent, compared with the European Union average of 66 per cent (Source: ONS, 2007).

The UK’s unemployment rate (using the internationally comparable “standardised” rate) of 5.1 per cent is significantly lower than the European Union average of 6.8 per cent (Source: ONS, 2008).

2.Skills

The strong skills base in the UK is reflected in its excellent record of attracting major foreign investors from all over the world in numerous business sectors and across a variety of business functions. For example, leading-edge international companies that have made substantial investments in the UK to take advantage of the skills base include Microsoft, Oracle, Motorola, Cisco, Toyota, Coca-Cola, Novartis Pharma, China Telecom, Sony, Honda, Caterpillar, Eisai, Ford and Nissan (which operates Europe’s most productive car plant from the UK). Indeed, in terms of leading-edge skills, the UK is ranked as having the second strongest research base globally, behind only the US (Source: Evidence, 2007).

The UK is home to the top six universities in Europe (see Figure 1) and two of the top three universities globally.

Figure 1: Leading global universities

Source: Times Higher Education Supplement, 2007

Currently over 650,000 students graduate annually from the country’s 170 universities and higher education institutes. Indeed, there is a strong focus on education and training in the UK with more than 2.3 million people currently studying a wide range of higher education courses. For further information, please see: www.ucas.ac.uk

In addition, the UK also has the highest number of leading MBA courses in Europe, with 15 UK institutions in the 2008 Financial Times “Top 100 – MBA Courses”. This compares favourably with the rest of Europe where the combined total of leading institutions is only 14. In terms of language skills, 38 per cent of the UK population are able to speak a world language other than their mother tongue (Source: European Commission, Standard Eurobarometer, 2006). The most commonly spoken languages, after English, are French and German. All school leavers have studied one European language (other than English) for a minimum of three years. Notably, London has a significant number of fluent foreign language speakers and is ranked as Europe’s best city in terms of languages spoken (Source: Healey & Baker, European Cities Monitor, 2007).

3.Labour costs

Labour costs in the UK are competitive in both the service and manufacturing sectors.

a) International labour cost benchmarks

The UK has a competitive salary structure in the service sector, particularly when compared to countries such as Germany, Ireland, the Netherlands, Spain and Switzerland (see Figure 2).

Figure 2: Average annual salary for a software engineer, research technician and contact centre agent

Source: Baker Thomsen Associates, 2008

*Basic average annual salary not including bonuses, benefits or taxes

Figure 3 shows that hourly compensation costs for production workers in the UK are also lower than in many other European Union countries.

Figure 3: Comparison of hourly compensation costs for production workers

Source: Bureau of Labor Statistics, 2008.

b) National labour cost benchmarks

Labour costs in the UK vary by region (see Figure 4). London has the highest labour costs, while the lowest labour costs are in the north-east of England, Wales and Northern Ireland.

Figure 4: Median gross weekly earnings (for all industries and services) in the UK

Source: Annual Survey of Hours and Earnings, ONS, 2007. (Please view PDF)

c) The minimum wage

The national minimum wage applies to the majority of workers (there are very few exceptions, such as company directors and the self-employed).

• The national minimum wage is £5.52 per hour. This main rate applies from a worker’s twenty-second birthday.

• The development rate of the national minimum wage for workers aged 18–21 (inclusive) is currently £4.60 per hour. The development rate can also apply to workers aged 22 and above during their first six months in a new job with a new employer and who are receiving accredited training.

• The development rate of the national minimum wage for workers aged 16 and 17 is currently £3.40 per hour.

For detailed information on the national minimum wage, please see: www.berr.gov.uk/employment/pay

d) Social costs

Social costs – national insurance contributions (NIC) – must be paid by employees and employers.

For the financial year 2008/09, individuals earning less than £105 per week are exempt from paying any NIC.

In all other cases, specific payments must be made as follows:

• Employees pay NIC at a rate of 11 per cent on the part of their earnings which falls between £105.01 and £770 per week. Those paid more than £770 per week pay NIC at 1 per cent on all earnings above that figure, with no upper limit.

• Employers pay 12.8 per cent NIC on wages over £105 per week. This is one of the lowest social security contributions in Europe (see Figure 5).

Figure 5: Employer Social Security Costs in Selected European Countries

Source: Ernst and Young/Forbes, 2007. (Please view PDF)

For further information on social costs please see:

www.hmrc.gov.uk/rates/nic.htm

e) Other costs

Employers may provide additional enhancements to employees through pension schemes, medical insurance, subsidised meals, company cars and childcare schemes.

Many companies also adopt employee share schemes, known as share incentive plans, where employees receive free shares or options to buy shares at a discount from their employer without paying tax. Each year companies may give their employees up to £3,000 worth of free shares and employees may buy £1,500 worth of partnership shares out of their pre-tax and pre-NIC pay, with tax incentives for longer-term shareholding.

For further information on share schemes please see:

www.hmrc.gov.uk/shareschemes/news

4.Labour market regulations

The UK has a flexible labour market with labour regulations designed both to protect the employee and to ensure companies can operate effectively. This is illustrated in Figure 6, an international survey indicating employers’ perceptions of employment regulations in major economies.

Figure 6: World Competitiveness Yearbook survey – labour regulations are too restrictive/are flexible enough

Source: IMD, World Competitiveness Yearbook 2007 (Please view PDF)

Additional sources of information on employment regulations in the UK can be provided by the following organisations:

• Employment Relations Directorate – Department for Business, Enterprise & Regulatory Reform: www.berr.gov.uk/employment/employment

Business Link – providing companies with practical advice on issues such as the recruitment and management of staff, employment law, pay and pensions: www.businesslink.gov.uk/bdotg/action

• The Advisory, Conciliation and Arbitration Service (ACAS) – an organisation that provides information and advice on a range of employment law matters: www.acas.org.uk

There are a number of key aspects to labour regulations in the UK. These include:

a) Contract of employment

UK law does not oblige employers to provide written employment contracts. However, an employee’s acceptance of the terms and conditions of employment offered by an employer automatically constitutes a contract of employment. The terms of the contract may be written, oral or implied, or a mixture of all three. These terms and conditions are legally binding and cannot normally be changed without the consent of both employee and employer.

In addition, employees have the right to receive a written statement detailing the main conditions of their employment. They must receive this document within two months of starting a job. The written statement is not a contract but can provide evidence of the employee’s terms and conditions in the event of a dispute. If any employment details change, an employee must be told in writing not more than one month after the change(s) takes place.

For further information on contracts of employment please see:

www.berr.gov.uk/employment/employment

b) Termination of employment contract

In the UK, both the employee and employer are normally entitled to a minimum notice period in case of termination of employment:

• after one month of employment an employee must give at least one week’s notice, and

• an employer must give an employee at least one week's notice after one month of employment, two weeks after two years, three weeks after three years and so on up to 12 weeks after 12 years or more.

The employee or employer is entitled to a longer period of notice than the statutory minimum if this is stipulated in the contract of employment.

For further information please see: www.berr.gov.uk/employment/employment

c) Redundancy payments

In the event of dismissal due to redundancy, employees with at least two years of continuous employment are entitled to a redundancy payment from their employer.

The level of redundancy payment is related to the employee's age, length of continuous service with the employer and weekly pay. The employer must also provide a written statement showing how the payment has been calculated before or when it is paid.

For further information please see:

www.berr.gov.uk/employment/employment

d) Working hours

Compared to the European Union average of 41.5 hours, full-time employees in the UK work an average of 43.0 hours per week (Source: Eurostat, 2007). Figure 7 provides a comparison of average working hours in major European countries.

Figure 7: Comparison of working hours in major European countries

For full-time workers

Source: Eurostat, 2007.

UK regulations on working time apply to full-time, part-time and temporary workers. Basic rights and protections for workers include:

• a maximum working week of 48 hours, although workers may choose to work more,

• an average of eight hours’ work in every 24 hours for night workers,

• the right for night workers to receive free health assessments,

• the right to 11 hours’ rest per day,

• the right to one day off per week,

• the right to a rest break during work hours if the working day is longer than six hours, and

• the right to four weeks of paid leave per year.

Employees can consent to an “opt-out agreement” to work more than the regulated 48-hour week. An employer needs to maintain a record of workers who sign an opt-out and may not force, dismiss or penalise a worker for refusing to do so.

For further information about working hours please see:

www.berr.gov.uk/employment/employment

e) Employment of foreign workers

Workers coming to the UK from European Economic Area (EEA) countries (except for people from Romania and Bulgaria) do not need work permits and must be allowed access to employment on equal terms with British nationals (except for governmental jobs). An EEA national who accepts employment automatically receives a “residence permit” issued by the Home Office.

To work in the UK, non-EEA nationals must have a “work permit” issued by the Home Office. The prospective employer must obtain the work permit for a named individual overseas worker for a specific job. Permits can be issued for up to five years, depending on the specific application and job. Companies wishing to employ foreign workers are advised to apply for work permits in advance. The proposed salary must not be below the prevailing rate in the UK and there must be clear evidence that an EEA resident is not available to fill the post.

A further alternative for foreign workers with exceptional personal skills and experience is to come to the UK under a points-based system for highly skilled workers. For further information please see:

www.bia.homeoffice.gov.uk/workingintheuk/

For further information concerning the employment of foreign workers please see: www.ind.homeoffice.gov.uk or www.bia.homeoffice.gov.uk/working

f) Flexible working

There is a range of UK Government schemes and legislation to encourage flexible working and an appropriate work-life balance. For example, parents of children aged under six, parents of disabled children aged under 18, or people looking after adults requiring care have the right to apply for flexible work arrangements. This can include, for example, a request to work from home or to change the hours or times worked.

For further information about flexible working and the work-life balance please see: www.berr.gov.uk/employment/workandfamilies

g) Discrimination

The UK has specific legislation on equality, outlawing discrimination and protecting employees, including contract workers and agency staff. The main law on discrimination relates to sex, race, disability, age, religion, belief and sexual orientation.

For further information about discrimination legislation please see:

www.berr.gov.uk/employment/discrimination/index.html

h) Retirement age

The UK does not have an official national retirement age. However, the government pension becomes payable for men at 65 years old and for women at 60. For women, this will increase gradually to 65 over the period between 2010 and 2020. Recent legislation has outlawed compulsory retirement ages below 65, unless objectively justified. In addition, employees have the right to request to work beyond 65 and employers have a duty to consider such requests. For further information please see:

www.berr.gov.uk/employment/discrimination/ or www.thepensionservice.gov.uk

5.Recruitment

In addition to many private employers and recruitment agencies, the Government provides the Jobcentre Plus network which has more than 1,500 offices nationwide. Jobcentre Plus helps employers fill vacancies efficiently and without charge, providing a professional service that includes:

• advice on recruitment methods and procedures,

• information regarding availability of suitable applicants,

• circulation of vacancies locally, nationally or internationally,

• regular follow-up ensuring the service meets employer needs,

• advice on difficulties in filling vacancies, and

• advice on employing people with disabilities.

For further information on the Jobcentre Plus network, please see: www.jobcentreplus.gov.uk

6.Further information

This information sheet was updated in March 2008.

As information changes from time to time, please contact the organisations listed or UK Trade & Investment to confirm any item that you intend to rely on.

This information sheet was produced by the Marketing Group of:

UK Trade & Investment

9th Floor

Kingsgate House

66-74 Victoria Street

London

SW1E 6SW

Tel: +44 (0)20 7215 4957

Email: enquiries@uktradeinvest.gov.uk

Website: www.uktradeinvest.gov.uk