As an employer, you must deduct income tax and National Insurance Contributions (NIC) from each employee’s salary and pay these deductions to HM Revenue & Customs (HMRC).

You deduct tax from your employee’s salary through a system known as Pay As You Earn (PAYE). Employees pay between 0% and 46% tax, depending on their earnings. HMRC provides each employee with a tax code to make sure they pay the right amount of tax.

You pay a 13.8% Employers’ National Insurance contribution for each of your employees earning over £112 per week. This is a tax-deductible expense for your business.

Find out more about:

National Insurance rates and categories on GOV.UKopens in a new window 

Understanding employees’ tax codes on GOV.UKopens in a new window 

How to run your payroll on GOV.UKopens in a new window 

Payroll tax rates for employers on GOV.UKopens in a new window 

Register as an employer

You need to register as an employer with HMRCopens in a new window – they’ll provide you with an employer reference and a PAYE guide. You may also want to consult an accountant about the most tax-efficient payment system for your employees, and how to calculate deductions.

Find a chartered accountant from ICAS for advice about income tax in Scotlandopens in a new window 

Working Time Regulations

Working hours in Scotland and the rest of the UK are governed by the Working Time Regulations 1998opens in a new window. These regulations apply to part-time and full-time workers, including agency workers and freelancers, but not to those who are self-employed pursuing a business activity on their own account.

These regulations govern the hours most people can work, in particular:

• Work, on average, no more than 48 hours per week
• Five to six weeks of paid annual leave
• Minimum rest break entitlements
• One day off each week or two days off every two weeks
• Limit the hours of night work
• Special rules for young workers

Workers can choose to work longer than the 48-hour weekly maximum by agreeing to ‘opt out’ of this limit.

Overtime

Overtime is normally any time an employee works beyond their normal hours. Overtime can be voluntary or compulsory.

The employment contract you provide should include terms and conditions about overtime pay rates, if applicable, and how these are calculated.

In Scotland, there’s no legal obligation to pay workers for overtime. However, your employee’s average pay for the total hours they work must not go below the National Minimum Wage.

Find out more about overtime rights on GOV.UKopens in a new window 

Holidays

Almost all workers in Scotland are legally entitled to five to six weeks' paid holiday a year, including bank holidays. This equates to 28 days for a worker who does a standard five-day week.

Your business can also choose to offer more paid holiday than this, but must not provide less.

Find out more about working hours and holiday entitlement on mygov.scotopens in a new window 

National Minimum Wage

The National Minimum Wage and National Living Wageopens in a new window is the minimum rate you must pay your employees in Scotland and the rest of the UK. It’s a criminal offence for an employer not to pay someone the National Minimum Wage.

This rate is calculated at an hourly rate, but applies to all eligible employees, even if they’re not paid by the hour. This rate depends on the employee’s age and whether they are an apprentice.

On 1 April 2022, the UK National Living Wage rate was increased to £9.50 per hour for employees aged 23 and over.

The Real Living Wage

In Scotland we're keen to promote a real Living Wage of £12 per hour. It applies to all employees aged 18 and over and is now paid voluntarily by more than 3,700 employers in Scotland.

Source for stats: Living Wage Scotlandopens in a new window 

Learn more about the real Living Wage from the Living Wage Foundationopens in a new window 

Salaries in Scotland

Salaries in Scotland vary according to the type of work, the sector and where the job is located in the country.

For example, Scottish tech startups and scaleups collectively employ 135,000 people, the third highest in the UK after the Southeast and London. The strength of the tech sector in Scotland often leads to high salary offersopens in a new window.

Edinburgh boasts some of the highest salaries for the UK tech industry. Roles requiring coding or software skills can command higher than median salaries in the Scottish capital, but so do non-technical roles with digital tech companies

Glasgow is the third most attractive city in the UK to live in when tech salary is compared to cost of living.

Source: GOV.UKopens in a new window 

As an employer in Scotland, you must provide a written contract, with specific information about your employee’s role, within one month of them starting work.

The tax and employment responsibilities you have for your staff depend on their employment status.

There are three main types of employment contracts:

• Permanent contracts: for long-term commitment to your business and without an identified end date
• Fixed-term contracts: for an agreed period of time for a specific task, project or cover
• Casual contracts: permanent and fixed-term contracts that can be guaranteed for a specific number of hours

Employers can also consider contacting agency workers via recruitment agencies to react to increases and decreases in the business at short notice, according to your business needs.

Find out more about types of employment and worker contracts on GOV.UKopens in a new window 

Find out more about employment status on GOV.UKopens in a new window 

Other employer responsibilities

It’s your legal responsibility to make sure employees have a right to work in the UK.

As well as hiring talent in Scotland, you can also bring employees to the UK from other countries through a flexible visa system.  Anyone from outside of the European Economic Area (EEA) and Switzerland may need to apply for a UK visa to work in Scotland.

As an employer, you may also include additional terms such as restricting how confidential information is used and the return of company property after a worker leaves your business.

Employment status guidance from GOV.UKopens in a new window 

As an employer in Scotland, you must automatically enrol employees in a workplace pension scheme and make contributions on their behalf. Employees will also contribute to their pension. Every employee has the right to opt out of their workplace pension.

You can also offer additional workplace benefits to your employees such as a company car, subsidised catering or childcare. However, you may need to report these to HM Revenue and Customs (HMRC) and pay tax and National Insurance on them.

The Pension Regulatoropens in a new window can provide help and information about work-based pensions and what you need to do as an employer in Scotland.

Find out more about expenses and benefits on mygov.scotopens in a new window 

If your business ends a person’s employment because you no longer need them to do their job, it’s known as redundancy.

When a business restructures, it can mean changes for the roles of its employees. Generally, redundancy or ‘lay offs’ occur when an employer decides to reduce the number of employees doing a particular type of work. This can happen because your business is:

• Changing what it does
• Doing things in a different way
• Changing location or closing down

As an employer in Scotland, you must demonstrate that a genuine redundancy situation exists for the redundancy to be valid.

Rights of your employees

If you make an employee redundant, they have numerous rights including:

• Being offered suitable alternative employment
• A trial period in an alternative role, without losing any right to redundancy pay
• Reasonable time off to look for a new job or organise training
• Not being unfairly selected for redundancy 

Your employee may also be entitled to redundancy pay calculated based on their age and years of service.

Avoiding redundancy

You should always take steps to avoid compulsory redundancy before dismissing staff, such as making savings elsewhere, considering voluntary redundancy or an early retirement, or restricting recruitment. If you have to make redundancies, Jobcentre Plus can give you and your employees help and advice.

Redundancy consultation and procedures

As an employer in Scotland, you’re required to consult your employees affected by redundancy within a specific timescale. The way you carry out the redundancy process will vary according to the number of employees affected.

The Advisory, Conciliation and Arbitration Service (ACAS) can provide advice and information about what you need to do.

Find out more about redundancy consultation and procedures on the ACAS websiteopens in a new window 

Find out more about redundancy on mygov.scotopens in a new window 

Find out more about where to get redundancy help on GOV.UKopens in a new window