Labour environment in the UK

An Expert's View about Employees in the United Kingdom

Posted on: 30 Aug 2010

This fact sheet summarises the labour environment in the UK

LABOUR ENVIRONMENT This information sheet summarises the labour environment in the UK. The factors covered are: 1. Labour market size and availability 2. Skills 3. Labour costs 4. Labour market regulations 5. Recruitment 6. 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 high levels with 28.86 million people in work, comprising 21.16 million in full-time work and 7.7 million in part-time work (Source: ONS, 2010). The employment level (the proportion of working age people in work) is also high in the UK at 72.2 per cent, compared with the European Union average of 64.8 per cent (Source: ONS, 2010). The UK?s unemployment rate (using the internationally comparable ?standardised? rate) of 7.8 per cent is significantly lower than the European Union average of 9.5 per cent (Source: ONS, 2010). 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 one of Europe?s most productive car plants 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, 2009). The UK is home to the top five universities in Europe (see Figure 1) and four of the top six universities globally. Figure 1: Leading global universities Global University Rank, 2009 1 Harvard University (US) 2 University of Cambridge 3 Yale University (US) 4 University College London 5= Imperial College London 5= University of Oxford 20= University of Edinburgh 23 Kings College London Source: Times Higher Education Supplement, 2009 Currently over 670,000 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 2.4 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 20 UK institutions in the ?Top 100 MBA Courses? survey produced by the Economist Intelligence Unit. This compares favourably with the rest of Europe where the combined total of leading institutions is only 19. In terms of language skills, according to the latest data from the European Commission, 38 per cent of the UK population are able to speak a world language other than their mother tongue. 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: Cushman & Wakefield, European Cities Monitor, 2009). 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, Spain, Sweden and Switzerland (see Figure 2). Figure 2: Average annual salary for a software engineer, research technician and contact centre agent Average annual salary (US$)* Country Software Research Contact Engineer Technician centre agent Australia 136,814 72,234 47,234 France 89,209 53,065 72,654 Germany 158,981 93,465 38,047 Ireland 121,161 69,922 53,298 Japan 136,112 71,860 46,988 Netherlands 81,497 45,025 39,023 Spain 115,516 66,333 50,108 Sweden 112,778 68,023 54,574 Switzerland 189,202 113,840 90,886 UK 74,770 49,278 36,811 US 96,200 50,993 54,892 Source: Baker Thomsen Associates, 2010 *Basic average annual salary not including bonuses, benefits or taxes Figure 3 shows that hourly compensation costs for production workers in the UK are also lower than in many other countries. Figure 3: Comparison of hourly compensation costs for production workers Hourly compensation costs, 2007 (US$) Australia 30.17 Belgium 35.45 Canada 28.91 Denmark 42.29 France 28.57 Germany 37.66 Ireland 29.04 Italy 28.23 Japan 19.75 Netherlands 34.07 Spain 20.98 Sweden 36.03 Switzerland 32.88 UK 29.73 USA 24.59 Source: Bureau of Labor Statistics, 2009. 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: Average gross weekly earnings (for all industries and services) in the UK 800 677.8 700 600 499.3 500 459.3 455.5 444.7 438.9 440.2 431.1 424.6 427.3 418.2 414.2 k e e 400 w / £ 300 200 100 0 Source: Annual Survey of Hours and Earnings, ONS, December 2009. 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 £5.80 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 £4.83 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 £3.57 per hour. For detailed information on the national minimum wage, please see: www.bis.gov.uk/Policies/employment-matters/rights/nmw d) Social costs Social costs ? national insurance contributions (NIC) ? must be paid by employees and employers. For the financial year 2010/11, individuals earning less than £110 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 £110.00 and £844 per week. Those paid more than £844 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 £110 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 (highest rate) 45 40 35 30 25 % 41.7 20 35 34.55 32.42 32.08 15 30.15 29 23.75 10 19.51 12.8 10.75 5 0 Source: OECD, 2010 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/index.htm 4. LABOUR MARKET REGULATIONS The UK has a flexible labour market with labour regulations designed both to protect the employee and to ensure that 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 China 5.33 UK 5.26 USA 5.06 Ireland 4.65 Czech Republic 4.56 Netherlands 4.36 India 4.15 Poland 4.14 Belgium 3.85 Sweden 3.84 Italy 3.65 France 3.58 Germany 3.06 Spain 2.89 0123456 Survey Score (10 = "f lexible enough") Source: IMD, World Competitiveness Yearbook 2009 Additional information on employment regulations in the UK is available from: ? 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/layer?topicId=1073858787&r.s= tl ? 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.direct.gov.uk/en/Employment/Employees/EmploymentContractsAn dConditions/index.htm 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.businesslink.gov.uk/bdotg/action/layer?r.l1=1073858787&topicId= 1073876974&r.lc=en&r.s=tl 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.businesslink.gov.uk/bdotg/action/layer?r.l1=1073858787&topicId= 1073876974&r.lc=en&r.s=tl d) Working hours Compared to the European Union average of 41.8 hours, full-time employees in the UK work an average of 43.0 hours per week (Source: Eurostat, 2009). Figure 7 provides a comparison of average working hours in major European countries. Figure 7: Comparison of working hours in major European countries Country Average hours worked per week* UK 43.0 Poland 42.7 Czech Republic 42.7 Spain 41.9 European Union 41.8 Germany 41.7 Portugal 41.6 Italy 41.1 France 41.0 Belgium 40.9 Sweden 40.9 Netherlands 40.8 Denmark 40.2 * For full-time workers Source: Eurostat, 2009. 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.businesslink.gov.uk/bdotg/action/layer?topicId=1074014258 e) Employment of foreign workers The UK has a positive approach to administering and processing the applications of people who wish to enter the country to set up a business, work or study. In general, British citizens, people with ?right of abode?, those settled in the UK and nationals of European Economic Area countries are permitted to live and work freely in the UK ? all others must apply to enter the UK to work or to set up in business by using a points-based system for immigration. For further information, please see the UK Trade & Investment information sheet entitled ?Entry to the UK for Business and Employment? or: www.ukba.homeoffice.gov.uk/workingintheuk/ f) Flexible working The UK has a wide range of Government schemes and legislation to encourage flexible working and an appropriate work-life balance. For example, parents of children aged under 17, 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.businesslink.gov.uk/bdotg/action/layer?r.l1=1073858787&topicId= 1073931239&r.lc=en&r.l2=1080898061&r.s=tl 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.businesslink.gov.uk/bdotg/action/layer?r.s=sl&r.lc=en&topicId=10 74003268 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.businesslink.gov.uk/bdotg/action/layer?topicId=1073932131 5. RECRUITMENT Companies that are recruiting staff can benefit from the UK Government?s ?Jobcentre Plus? network which helps employers to fill vacancies. The Jobcentre Plus network provides a free and wide-ranging 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 2010. 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
Posted: 30 August 2010

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