Ask the Expert: What are the implications of Brexit on UK payroll? Ask the Expert: What are the implications of Brexit on UK payroll?

Ask the Expert: What are the implications of Brexit on UK payroll?
05 Jul 2018

Q. I recently attended a conference and sat in on a presentation that talked about the implications of Brexit on UK payroll departments. There seemed to be so many that, to be honest, I got confused and was left none the wiser. So could you explain the likely ramifications to me more clearly?

 

It was a bold move on the presenter’s part to attempt to discuss payroll and Brexit – or ‘EU [European Union] Exit’ as the UK Government now seems to prefer to call it. In fact, it was bold to mention the two words in the same sentence.

But it is a reality we will have to face at some point in the future - and the crucial words are ‘at some point’. The long and short of it is that the entire topic is very much one of ‘watch this space’ as even the UK Government does not know with any certainty what will happen. Nonetheless, there are certain broad considerations that should keep us on our toes:

Data protection

The UK is bound by the European Union’s General Data Protection Regulation (GDPR), much of which is enshrined into domestic legislation through the Data Protection Act (DPA) 2018, which actually goes further than the GDPR. As a result, it makes sense to familiarise yourself with this legislation via the Information Commissioner’s website.

So far, so good. But there is also the important consideration that, post-EU Exit, it is up to the European Commission (EC) whether it grants the UK an ‘Adequacy Decision’ to transfer data around the region as the country will no longer be an EU member country, and probably not even a non-European Economic Area (EEA) nation. 

The problem is that without an EC Adequacy Decision, transferring data could become administratively burdensome for employers, especially global businesses that rely on cross-border data exchange.

Payment processing

As part of its membership of the EU, the UK benefits from also being a member of the Single Euro Payments Area (SEPA). SEPA is a body consisting of EU Member States and a few non-EU countries. It harmonises the sending and receiving of payments across SEPA zone countries, which means that payments are effectively processed in the same way as UK payments.

As such, continued membership of SEPA is another thing to keep an eye on during EU Exit negotiations.

Employment law

Much of what payroll does is based on employment law in terms of holiday, maternity pay, working hours and the like. The majority of this legislation comes from EU Directives that have been interpreted locally over the years and enshrined in UK domestic legislation. As such, a post-EU Exit UK should not see any changes – at least at first.

But there is speculation that some of the things the EU asked Member States to include in their own legislation could be clarified for UK employers or even repealed at a later date. This situation is likely to be welcomed in relation to holiday leave and pay, which is ripe for reform. 

Certainly, EU Exit will make it easier for the UK Government to change domestic legislation - although any erosion or removal of employment rights would inevitably be subject to much press and public scrutiny. This means any government would need to have a commanding majority in the House of Commons to push through unpopular legislation, which makes it unlikely as long as the current administration survives.

Social security

No single social security system exists across the EU, and each Member State continues to have its own domestic legislation. But a number of harmonisation regulations are already in place, which means, for example, that social security may be paid in one Member State (or EEA nation) but count as if it had been paid in an individual’s home nation.

EU Exit will result in this situation needing to be untangled and new provisions put in place. Coupled with restrictions on free movement, payroll functions that operate across more than one country with secondee and expatriate staff could be in for an interesting time. At the moment, it is simply not clear how things will work.

But Her Majesty’s Revenue & Customs (HMRC) has realised that this, along with taxation, is a big issue and, as a result, has set up its own EU Exit team. In fact, recognising that a successful EU Exit is of fundamental importance, a lot of HMRC projects have now been put on hold or abandoned altogether. While a letter from the tax authority’s chief executive details some of the issues surrounding customs arrangements after an EU Exit, the number of projects that have been either delayed or terminated presumably indicates that resources are being redirected to tackle the untangling headache.

Therefore, the hope can only be that the UK Government gets it right, and HMRC will publish clear and timely guidance on the changes.  

 Ian Holloway

Ian Holloway is head of legislation and compliance at Cintra HR and Payroll Services. He was involved in processing payrolls large and small from organisations across all sectors until 2011 when he started helping to educate the profession by developing course material, newsletters and face-to-face presentations.

 

Q. I recently attended a conference and sat in on a presentation that talked about the implications of Brexit on UK payroll departments. There seemed to be so many that, to be honest, I got confused and was left none the wiser. So could you explain the likely ramifications to me more clearly?

 

It was a bold move on the presenter’s part to attempt to discuss payroll and Brexit – or ‘EU [European Union] Exit’ as the UK Government now seems to prefer to call it. In fact, it was bold to mention the two words in the same sentence.

But it is a reality we will have to face at some point in the future - and the crucial words are ‘at some point’. The long and short of it is that the entire topic is very much one of ‘watch this space’ as even the UK Government does not know with any certainty what will happen. Nonetheless, there are certain broad considerations that should keep us on our toes:

Data protection

The UK is bound by the European Union’s General Data Protection Regulation (GDPR), much of which is enshrined into domestic legislation through the Data Protection Act (DPA) 2018, which actually goes further than the GDPR. As a result, it makes sense to familiarise yourself with this legislation via the Information Commissioner’s website.

So far, so good. But there is also the important consideration that, post-EU Exit, it is up to the European Commission (EC) whether it grants the UK an ‘Adequacy Decision’ to transfer data around the region as the country will no longer be an EU member country, and probably not even a non-European Economic Area (EEA) nation. 

The problem is that without an EC Adequacy Decision, transferring data could become administratively burdensome for employers, especially global businesses that rely on cross-border data exchange.

Payment processing

As part of its membership of the EU, the UK benefits from also being a member of the Single Euro Payments Area (SEPA). SEPA is a body consisting of EU Member States and a few non-EU countries. It harmonises the sending and receiving of payments across SEPA zone countries, which means that payments are effectively processed in the same way as UK payments.

As such, continued membership of SEPA is another thing to keep an eye on during EU Exit negotiations.

Employment law

Much of what payroll does is based on employment law in terms of holiday, maternity pay, working hours and the like. The majority of this legislation comes from EU Directives that have been interpreted locally over the years and enshrined in UK domestic legislation. As such, a post-EU Exit UK should not see any changes – at least at first.

But there is speculation that some of the things the EU asked Member States to include in their own legislation could be clarified for UK employers or even repealed at a later date. This situation is likely to be welcomed in relation to holiday leave and pay, which is ripe for reform. 

Certainly, EU Exit will make it easier for the UK Government to change domestic legislation - although any erosion or removal of employment rights would inevitably be subject to much press and public scrutiny. This means any government would need to have a commanding majority in the House of Commons to push through unpopular legislation, which makes it unlikely as long as the current administration survives.

Social security

No single social security system exists across the EU, and each Member State continues to have its own domestic legislation. But a number of harmonisation regulations are already in place, which means, for example, that social security may be paid in one Member State (or EEA nation) but count as if it had been paid in an individual’s home nation.

EU Exit will result in this situation needing to be untangled and new provisions put in place. Coupled with restrictions on free movement, payroll functions that operate across more than one country with secondee and expatriate staff could be in for an interesting time. At the moment, it is simply not clear how things will work.

But Her Majesty’s Revenue & Customs (HMRC) has realised that this, along with taxation, is a big issue and, as a result, has set up its own EU Exit team. In fact, recognising that a successful EU Exit is of fundamental importance, a lot of HMRC projects have now been put on hold or abandoned altogether. While a letter from the tax authority’s chief executive details some of the issues surrounding customs arrangements after an EU Exit, the number of projects that have been either delayed or terminated presumably indicates that resources are being redirected to tackle the untangling headache.

Therefore, the hope can only be that the UK Government gets it right, and HMRC will publish clear and timely guidance on the changes.  

 Ian Holloway

Ian Holloway is head of legislation and compliance at Cintra HR and Payroll Services. He was involved in processing payrolls large and small from organisations across all sectors until 2011 when he started helping to educate the profession by developing course material, newsletters and face-to-face presentations.