During the pandemic, many employers had to manage the implications associated with some of their employees returning overseas to work from home.
Fortunately, due to a relaxation in the rules across most countries and some helpful guidance from the OECD, most cases did not trigger any significant employer compliance obligations.
Over 18 months after the first employees started to leave the UK to work from home overseas, many have now returned to the UK to resume their work.
However, many employees remain working overseas for UK employers. In fact, some employers are actively introducing globally remote working (or “Telecommuting”) into their employment arrangements. By some, it is seen as a competitive advantage to offer remote working, providing a means of attracting and retaining talent. Indeed, there are some companies that are introducing new roles such as “Head of remote working”.
Whether intentional or not, employees working long-term outside of the country in which they are employed can mean substantial employer compliance obligations across a range of areas. These are all manageable but it is clear that employers in some cases have not given this due consideration or are confused by what is required.
The reality is, it can be complex - we’re dealing with the very different rules across multiple countries and across multiple disciplines such as payroll, tax, social security, employment law and immigration. In this article, I explore some of the key employer considerations.
Key employer considerations:
Do your employees have the right to work overseas?
Employers should ensure that employees have the right to work in their chosen country. Where an individual is a national of the country in which they are working, this is often not an issue as there is normally an automatic right to work in such cases. However, for UK nationals working overseas, this is an important consideration.
Obtaining the right to work in a country is not the same as simply having the right to live in the country. There have been many instances where employees are working illegally overseas on tourist visas. Depending on the country and circumstances, there can be severe consequences for both employers and employees of getting this wrong.
Does UK employment law still apply?
Once the right to work position is established, employment law will need to be considered. Where an employee is working long-term outside the UK, then it is very likely that they will have rights overseas under the local laws of the country in which they are working. Therefore, any UK employment contract should be reviewed and updated to make sure that it complies with the relevant non-UK rules such as minimum statutory holiday entitlement, entitlement to sick leave and restrictions on working hours. Some jurisdictions such as France have particularly complex employment laws and require a contract in the language of the country. Therefore, a complete overhaul of the UK contract and working arrangements may be required in some cases.
Have your employees triggered a corporate presence overseas?
Employers are often surprised to learn that the activities of an employee in another country may unintentionally trigger a corporate presence in that country. That is, even where a UK employer is not registered overseas, an overseas tax authority may deem the employee to have created a corporate presence (or “permanent establishment”).
The creation of a permanent establishment can lead to the requirement for corporate tax returns, the payment of corporate tax on profits allocable to the permanent establishment, the filing of accounts, the operation of a payroll and a host of other non-UK corporate obligations. The rules on permanent establishment are complex and often subjective and will require careful review.
Is payroll required?
Even where no corporate presence is created overseas, a non-UK payroll may still be required, together with other employer obligations. For example, if an employee is living and working indefinitely in an EU country, the UK employer will be required to register with the overseas tax authorities to operate employer and employee social security (rather than UK National Insurance).
This is an obligation under the UK’s Trade and Co-operation Agreement with the EU (prior to Brexit, the rules relevant to the UK were formerly enshrined in EU regulation). There have been numerous examples of UK employers falling foul of this obligation and receiving unexpected demands from tax authorities across the EU (sometimes running into hundreds of thousand Euros).
Furthermore, outside the EU and even where there is no permanent establishment created (see below), some countries such as Canada and India have mandatory foreign employer registration requirements. In Canada, for example, foreign employers are normally required to register with the tax authorities and operate a payroll in Canada.
From a UK perspective, it is equally important to note that an employer cannot simply cease UK payroll when an employee leaves to work indefinitely in another country since, depending on the tax and NIC position, there may be ongoing UK payroll obligations, even for an employee residing outside the UK.
Additional considerations
Once an employer has determined their compliance obligations, any additional host country obligations should be determined. For example, some countries have mandatory employer insurance for employees (even where the employer is not present in that country) or mandatory employer pension obligations.
Health insurance for the employee should also be considered as they may not automatically be covered by the UK employer’s existing policy.
In addition, even where an employer has determined that there are no employer obligations overseas, the employee will normally be required to settle income tax in the overseas country. Sometimes employees do not realise this (erroneously believing that they will continue to be taxed in the UK on account of having a UK employment contract).
Therefore, employers may want to avoid future queries and issues by notifying such employees that they are likely to have a tax liability overseas and to clarify the fact that they will be responsible for settling this. That said, one common misapprehension is that employers can also simply pass on any non-UK employer obligations to the employee. Normally, this is not the case and where the employer has statutory obligations (e.g., registering for social security in an EU country), this cannot be passed to the employee.
What should employers do?
As outlined above, this can be a deceptively complex area with a high risk of unintended consequences. Whilst there are many often nuanced considerations, in outline, employers should:
* review any existing cases to identify whether there may be employer compliance obligations;
* review any planned telecommute arrangements in advance of them starting work overseas;
* consider developing a policy and process for managing telecommuters consistently where they are likely to recur in a business or there are numerous cases.
Of course, the cost of all of this should be considered and it would usually be preferential to do this before the employer agrees to the employee working overseas.
Author: Lee McIntyre-Hamilton
Lee has over 23 years of experience in international mobility, expatriate tax and employment tax. He works with a diverse range of international organisations, from small owner-managed businesses to large multi-national corporations and non-profit organisations. Lee delivers coordinated, joined-up global mobility tax, international social security and payroll advice across many territories globally. He is a published writer on international tax matters, notably the Tiley & Collinson UK Tax Guide.
Contact Lee: lee@globalpayrollassociation.com
During the pandemic, many employers had to manage the implications associated with some of their employees returning overseas to work from home.
Fortunately, due to a relaxation in the rules across most countries and some helpful guidance from the OECD, most cases did not trigger any significant employer compliance obligations.
Over 18 months after the first employees started to leave the UK to work from home overseas, many have now returned to the UK to resume their work.
However, many employees remain working overseas for UK employers. In fact, some employers are actively introducing globally remote working (or “Telecommuting”) into their employment arrangements. By some, it is seen as a competitive advantage to offer remote working, providing a means of attracting and retaining talent. Indeed, there are some companies that are introducing new roles such as “Head of remote working”.
Whether intentional or not, employees working long-term outside of the country in which they are employed can mean substantial employer compliance obligations across a range of areas. These are all manageable but it is clear that employers in some cases have not given this due consideration or are confused by what is required.
The reality is, it can be complex - we’re dealing with the very different rules across multiple countries and across multiple disciplines such as payroll, tax, social security, employment law and immigration. In this article, I explore some of the key employer considerations.
Key employer considerations:
Do your employees have the right to work overseas?
Employers should ensure that employees have the right to work in their chosen country. Where an individual is a national of the country in which they are working, this is often not an issue as there is normally an automatic right to work in such cases. However, for UK nationals working overseas, this is an important consideration.
Obtaining the right to work in a country is not the same as simply having the right to live in the country. There have been many instances where employees are working illegally overseas on tourist visas. Depending on the country and circumstances, there can be severe consequences for both employers and employees of getting this wrong.
Does UK employment law still apply?
Once the right to work position is established, employment law will need to be considered. Where an employee is working long-term outside the UK, then it is very likely that they will have rights overseas under the local laws of the country in which they are working. Therefore, any UK employment contract should be reviewed and updated to make sure that it complies with the relevant non-UK rules such as minimum statutory holiday entitlement, entitlement to sick leave and restrictions on working hours. Some jurisdictions such as France have particularly complex employment laws and require a contract in the language of the country. Therefore, a complete overhaul of the UK contract and working arrangements may be required in some cases.
Have your employees triggered a corporate presence overseas?
Employers are often surprised to learn that the activities of an employee in another country may unintentionally trigger a corporate presence in that country. That is, even where a UK employer is not registered overseas, an overseas tax authority may deem the employee to have created a corporate presence (or “permanent establishment”).
The creation of a permanent establishment can lead to the requirement for corporate tax returns, the payment of corporate tax on profits allocable to the permanent establishment, the filing of accounts, the operation of a payroll and a host of other non-UK corporate obligations. The rules on permanent establishment are complex and often subjective and will require careful review.
Is payroll required?
Even where no corporate presence is created overseas, a non-UK payroll may still be required, together with other employer obligations. For example, if an employee is living and working indefinitely in an EU country, the UK employer will be required to register with the overseas tax authorities to operate employer and employee social security (rather than UK National Insurance).
This is an obligation under the UK’s Trade and Co-operation Agreement with the EU (prior to Brexit, the rules relevant to the UK were formerly enshrined in EU regulation). There have been numerous examples of UK employers falling foul of this obligation and receiving unexpected demands from tax authorities across the EU (sometimes running into hundreds of thousand Euros).
Furthermore, outside the EU and even where there is no permanent establishment created (see below), some countries such as Canada and India have mandatory foreign employer registration requirements. In Canada, for example, foreign employers are normally required to register with the tax authorities and operate a payroll in Canada.
From a UK perspective, it is equally important to note that an employer cannot simply cease UK payroll when an employee leaves to work indefinitely in another country since, depending on the tax and NIC position, there may be ongoing UK payroll obligations, even for an employee residing outside the UK.
Additional considerations
Once an employer has determined their compliance obligations, any additional host country obligations should be determined. For example, some countries have mandatory employer insurance for employees (even where the employer is not present in that country) or mandatory employer pension obligations.
Health insurance for the employee should also be considered as they may not automatically be covered by the UK employer’s existing policy.
In addition, even where an employer has determined that there are no employer obligations overseas, the employee will normally be required to settle income tax in the overseas country. Sometimes employees do not realise this (erroneously believing that they will continue to be taxed in the UK on account of having a UK employment contract).
Therefore, employers may want to avoid future queries and issues by notifying such employees that they are likely to have a tax liability overseas and to clarify the fact that they will be responsible for settling this. That said, one common misapprehension is that employers can also simply pass on any non-UK employer obligations to the employee. Normally, this is not the case and where the employer has statutory obligations (e.g., registering for social security in an EU country), this cannot be passed to the employee.
What should employers do?
As outlined above, this can be a deceptively complex area with a high risk of unintended consequences. Whilst there are many often nuanced considerations, in outline, employers should:
* review any existing cases to identify whether there may be employer compliance obligations;
* review any planned telecommute arrangements in advance of them starting work overseas;
* consider developing a policy and process for managing telecommuters consistently where they are likely to recur in a business or there are numerous cases.
Of course, the cost of all of this should be considered and it would usually be preferential to do this before the employer agrees to the employee working overseas.
Author: Lee McIntyre-Hamilton
Lee has over 23 years of experience in international mobility, expatriate tax and employment tax. He works with a diverse range of international organisations, from small owner-managed businesses to large multi-national corporations and non-profit organisations. Lee delivers coordinated, joined-up global mobility tax, international social security and payroll advice across many territories globally. He is a published writer on international tax matters, notably the Tiley & Collinson UK Tax Guide.
Contact Lee: lee@globalpayrollassociation.com