Overseas working – what employers need to know

The ability to work remotely may tempt employees into considering working abroad. After all, if all their role requires is a computer and an internet connection, why not work from a different country?

Some may wish to return home to spend lockdown with family. Others may just like the idea of working in a warmer climate. Some employees may not have any choice but to work in another country because of potential travel restrictions entering the UK. Whatever the reason, there are lots of tax and employment issues which their employer must consider before accepting an employee’s request to work remotely abroad.

Tax and Social Security

If an employee only intends to work in another country for a short period of time, then employers generally have no need for concern with tax issues. They would just deduct UK tax and national insurance contributions from income as usual. However, if the stay is more permanent, or becomes so later, the employer may find itself facing some local tax and social security issues.

Tax

Typically, the country in which the employment duties are undertaken will have the main right to tax employment income

An employer will need to consider carefully whether it has a duty to register in the foreign country to deduct, report and pay tax before remunerating their employee. This duty may arise regardless of whether the employee has a tax liability in that country.

Tax equalisation

It is common in a situation where an employee is seconded to work in another country, for the employer to offer a tax equalisation arrangement. Especially if the tax in the second country is higher than that of the employee’s original country.

Tax equalisation simply ensures that the employee is not disadvantaged with higher tax rates, resulting in less net pay.

Social Security

Much like tax, the obligation to pay social security contributions would usually arise in the country which the employee undertakes their duties.

Particular difficulties may also arise from recent changes caused by Brexit. In most cases from 1 January 2021, if an employee is working within the EU, Switzerland or Norway, they will only be required to pay social security in that foreign country and not the United Kingdom. However, if the work is only temporary, and is being carried out in the EU, Switzerland, Norway, Liechtenstein or Iceland, HMRC have the ability to authorise the continuance of National Insurance payments in the UK, therefore removing the requirement to pay the contributions in the foreign country.

Tax treaties

It is important when any company has any type of cross border activity to understand the impact of tax treaties. Many countries have double taxation treaties which determine how international businesses are taxed when they operate in more than one jurisdiction. The treaties often override the domestic law and provide exemptions to avoid double taxation.

Not all tax treaties are the same and it is important to establish which country has taxing rights. This will ensure the correct outcome and that a company is not subject to double taxation.

Employment-Related issues

In addition to tax and social security, employers may uncover further issues relating the employment which they may need to consider.

Local employment rights

Employers would need to understand what rights an employee would have in relation to termination rights, working hours and paid leave. In many cases it might mean that these are found to be more favourable to the employee than they would be if subject to employment law in the United Kingdom. This could come at a surprisingly large cost to the employer. 

Immigration

As of 1 January 2021, United Kingdom nationals no longer possess the automatic right to work in other member states of the EU. If an employee is working within an EU country, the employer needs to consider whether any approvals for immigration are required for them to work within the EU. This may affect working even on a temporary basis.

Health and Safety

Employers from the United Kingdom need to consider their health and safety obligations to their employee’s to ensure they are kept safe and well. This is regardless of where they are physically working. Additional laws may apply to employees working in other countries, so advice should always be taken.

Data confidentiality

Controls should be set so that client data and information is kept protected and secure in line with laws both in the United Kingdom and the foreign country. This is equally relevant for where they work and for travel both within and between countries.

Insurance

The business insurance may only cover employees working in the United Kingdom or working overseas on a temporary basis. It would be prudent for the business to review their policies and determine whether any amendments may be required to provide adequate cover for the business. This could come at an additional cost.

Ready to go?

Offering to let employee’s work abroad would seem simple but it can present a lot of challenges for the employer.

Tax and social security issues are also likely to arise. This puts additional administrative and potentially financial burden on the employer and employee. The key action will be checking which agreements are in place with the country that the employees intend to work in. The rules and laws vary differently between every country.

The employer must also consider if they have any other obligations to the employee’s in relation to their employment rights, immigration issues, health and safety, data protection and insurance. The employee themselves would also likely have their own tax obligations and legal issues to consider.

If you would like any assistance with evaluating an employee’s proposal to work abroad, please contact a member of our International team on 01293 227670.