![[Tax Corner] Auto-enrolment for globally mobile employees](http://globalpayrollassociation.com/cdn/shop/articles/bigstock-Senior-Mature-Business-Woman-H-387135688_1200x.jpg?v=1654016796)
Since 2012, the UK has had an auto-enrolment regime for pensions. Whilst most employers have gotten used to the rules for UK based employees, the position is often less clear to those who are dealing with globally mobile employees.
The key question for employers dealing with employees who come from overseas to work in the UK is whether they need to auto-enrol them in a UK pension scheme whilst they are working in the UK. Where employees are leaving the UK to go and work overseas, employers want to know whether they should retain employees in a UK pension scheme.
So, where do we start?
The rules for pensions are complex and nuanced and especially when it comes to globally mobile employees. Below is a summary of the position for guidance only. Advice should be sought in order to confirm the position for any particular globally mobile employee.
Before we look at the position for globally mobile employees, let’s recap first on the core rules for all employees.
Core autoenrollment rules
Every individual who ordinarily works in Great Britain must be auto-enroled into a qualifying workplace pension provided that they:
- are aged between 22 and state pension age; and
- have qualifying earnings above £10,000 (2022/23 threshold).
Qualifying earnings generally include salary, wages, commission, bonuses, overtime, statutory maternity pay, paternity pay and statutory adoption pay.
Employees are required to pay 5 per cent on qualifying earnings between £6,240 and £50,270 per annum and employers are required to pay 3 per cent.
What is the position for globally mobile employees?
The key consideration for globally mobile employees is whether they are ordinarily working in the UK. Whilst there is some limited case law, there is no clear statutory definition of what ordinary working means. However, drawing on the case law, HMRC and the Pensions regulator have developed guidance for employees.
Employees seconded to the UK
The key consideration in this regard is to determine where the employee is based (i.e., where they physically perform the duties of their employment). Therefore, if an employee is based in the UK, then auto-enrolment will normally be required.
However, there is an exception for employees that are seconded to the UK to work.
Where employees are seconded to the UK to work and they can show that their base for work remains outside of the UK despite a temporary secondment to the UK, then auto-enrolment will not normally be required. In essence, the employee in such a position will not be deemed to be ‘ordinarily working’ in the UK since they ordinarily work overseas.
For this, it is important that the employee remains employed by a non-UK employer, is working in the UK for a temporary period and that there is an expectation that the employee will return to the overseas employment after they have completed their secondment to the UK.
Whilst the guidance offers some help, caution is required because there is still a lack of clarity around how long an employee can spend in the UK before it becomes clear that they have in fact become based in the UK. A judgement is required but generally, for most secondments to the UK of up to 3 years, it should be possible to successfully contend that the employee is not ordinarily working in the UK.
That said, it is important to note that if an employee from overseas works under a UK employment contract with a UK company (even for a temporary period), they will almost certainly be deemed to be ordinarily working in the UK for the duration of the contract.
UK employees seconded overseas
The position for UK employees seconded overseas is based on similar concepts to those set out above. That is, an employee who normally works in the UK under a UK employment contract who is seconded overseas for a temporary period will usually be deemed to be ordinarily working in the UK. So, the fact that the individual has been seconded overseas for a temporary period (even if they become non-UK resident) does not mean that the employee can be removed from the auto-enrolment regime.
Therefore, in summary, if a UK employee is sent overseas by their UK employer for a temporary period and there is an expectation that the employee will return to work in the UK following the secondment, the auto-enrolment should normally be continued.
Only if the UK employment ceases or where it can be shown that the employee will be moving to work overseas permanently will there be the possibility of arguing that the employee will no longer be considered to be ordinarily working in the UK.
What should employers do?
Given the complexity in this area and the serious financial penalties that can arise where there are any errors, it is important that employers consider the auto-enrolment position carefully for any globally mobile employees, whether they are coming to the UK or leaving the UK.
It is also worth noting that auto-enrolment is an employer obligation but the employee does have the option to ‘opt out’. However, the employer must never discourage the employee from auto-enroling and must offer it to globally mobile employees where it is required.
In some circumstances from employees seconded to the UK, where auto-enrolment is not required or employees wish to opt out, they may wish to remain in their non-UK pension scheme. This is possible, though is not always tax efficient. I consider this in more detail in my next article.
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
Since 2012, the UK has had an auto-enrolment regime for pensions. Whilst most employers have gotten used to the rules for UK based employees, the position is often less clear to those who are dealing with globally mobile employees.
The key question for employers dealing with employees who come from overseas to work in the UK is whether they need to auto-enrol them in a UK pension scheme whilst they are working in the UK. Where employees are leaving the UK to go and work overseas, employers want to know whether they should retain employees in a UK pension scheme.
So, where do we start?
The rules for pensions are complex and nuanced and especially when it comes to globally mobile employees. Below is a summary of the position for guidance only. Advice should be sought in order to confirm the position for any particular globally mobile employee.
Before we look at the position for globally mobile employees, let’s recap first on the core rules for all employees.
Core autoenrollment rules
Every individual who ordinarily works in Great Britain must be auto-enroled into a qualifying workplace pension provided that they:
- are aged between 22 and state pension age; and
- have qualifying earnings above £10,000 (2022/23 threshold).
Qualifying earnings generally include salary, wages, commission, bonuses, overtime, statutory maternity pay, paternity pay and statutory adoption pay.
Employees are required to pay 5 per cent on qualifying earnings between £6,240 and £50,270 per annum and employers are required to pay 3 per cent.
What is the position for globally mobile employees?
The key consideration for globally mobile employees is whether they are ordinarily working in the UK. Whilst there is some limited case law, there is no clear statutory definition of what ordinary working means. However, drawing on the case law, HMRC and the Pensions regulator have developed guidance for employees.
Employees seconded to the UK
The key consideration in this regard is to determine where the employee is based (i.e., where they physically perform the duties of their employment). Therefore, if an employee is based in the UK, then auto-enrolment will normally be required.
However, there is an exception for employees that are seconded to the UK to work.
Where employees are seconded to the UK to work and they can show that their base for work remains outside of the UK despite a temporary secondment to the UK, then auto-enrolment will not normally be required. In essence, the employee in such a position will not be deemed to be ‘ordinarily working’ in the UK since they ordinarily work overseas.
For this, it is important that the employee remains employed by a non-UK employer, is working in the UK for a temporary period and that there is an expectation that the employee will return to the overseas employment after they have completed their secondment to the UK.
Whilst the guidance offers some help, caution is required because there is still a lack of clarity around how long an employee can spend in the UK before it becomes clear that they have in fact become based in the UK. A judgement is required but generally, for most secondments to the UK of up to 3 years, it should be possible to successfully contend that the employee is not ordinarily working in the UK.
That said, it is important to note that if an employee from overseas works under a UK employment contract with a UK company (even for a temporary period), they will almost certainly be deemed to be ordinarily working in the UK for the duration of the contract.
UK employees seconded overseas
The position for UK employees seconded overseas is based on similar concepts to those set out above. That is, an employee who normally works in the UK under a UK employment contract who is seconded overseas for a temporary period will usually be deemed to be ordinarily working in the UK. So, the fact that the individual has been seconded overseas for a temporary period (even if they become non-UK resident) does not mean that the employee can be removed from the auto-enrolment regime.
Therefore, in summary, if a UK employee is sent overseas by their UK employer for a temporary period and there is an expectation that the employee will return to work in the UK following the secondment, the auto-enrolment should normally be continued.
Only if the UK employment ceases or where it can be shown that the employee will be moving to work overseas permanently will there be the possibility of arguing that the employee will no longer be considered to be ordinarily working in the UK.
What should employers do?
Given the complexity in this area and the serious financial penalties that can arise where there are any errors, it is important that employers consider the auto-enrolment position carefully for any globally mobile employees, whether they are coming to the UK or leaving the UK.
It is also worth noting that auto-enrolment is an employer obligation but the employee does have the option to ‘opt out’. However, the employer must never discourage the employee from auto-enroling and must offer it to globally mobile employees where it is required.
In some circumstances from employees seconded to the UK, where auto-enrolment is not required or employees wish to opt out, they may wish to remain in their non-UK pension scheme. This is possible, though is not always tax efficient. I consider this in more detail in my next article.
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