Are you considering employing staff who live abroad?
Employing staff abroad is becoming more popular. In the past few months, we have had a number of queries from clients who are considering hiring talent that live and work abroad but who are going to stay in their home countries. It sounds ideal: no immigration or visa issues, the employee can stay close to their family and friends. Plus the business might just get a possible foothold in another jurisdiction. All positives.
However, here are some things to bear in mind when thinking of employing staff who live abroad:
The first issue to address is what type of contract is this person going to be on? An employee or a consultant/freelancer? Most staff will want to be taken on as an employees and receive all the positives that go with that: a more stable job, attractive pension, paid holiday, benefits. BUT….
Beware of the applicable local labour and employment laws in the country where they reside. Even if your employment contract says it is governed by English law, local laws where the employee lives could also be applicable. Generally, staff working abroad are not likely to assert rights until things go wrong, such as during an internal investigation, or when the employer attempts to terminate an employee’s contract. At that point, employees do cherry pick: they will rely on the laws that give them the more favourable position if there is ever a dispute. Employers should do some due diligence on which laws apply before hiring this person so that they know what they might be up against if things go wrong. If you’re employing staff abroad, you may need a local contract that sits alongside the UK contract.
Check which social security laws will be applicable to their employment abroad. And you may have reporting obligations that you are unaware of – you’ll need to check in advance. Some countries’ authorities have registration requirements for individuals who are working for a foreign company.
Review any compliance obligations. If the employee is in another jurisdiction then this might have a knock-on effect on compliance: trade and supply chain requirements, code of conduct and ethics compliance requirements. This might mean more training for an employee, or other checks and procedures.
Check rules on tax presence/permanent establishment. If your employee is in a sales role or generating revenue, you should check if their presence in another jurisdiction could be considered a ‘permanent establishment’ (tax presence) in that country. Whilst we are still in a pandemic, local tax authorities may have issued additional guidance to address cross-border work arrangements but this may not be the same after these temporary arrangements come to an end. You do not want to inadvertently set up an office.
Make employees aware of the possible impact on their personal tax situation. In general, it is not usually an employer’s problem to advise or inform staff about their personal tax situation. But you may have withholding obligations on personal income tax and social security. So you need to know what they are and what you are supposed to do in terms withholding pay for these deductions.
Verify the company’s insurance & benefits. Do your current policies provide sufficient coverage to remote workers, including those working remotely in another country? If an employee has private health insurance, the employer should check whether these benefits continue to apply abroad. What other benefits may be more attractive to a candidate who lives and works abroad?
Review and update internal policies. Now is the time to review and update remote working policies that were first issued at the beginning of the pandemic. Must has changed since then and companies have refined many of their remote working practices. It is also a different thing to be hiring a remote worker on a permanent basis and there may be different issues to address. What are the costs associated with remote working and who is meeting those costs? What are the potential liabilities (as outlined above) and who is responsible for them? How do we deal with cost/implications of any travel/quarantine restrictions, etc.
Does the employee process data? Employers will need to have an understanding of local data protection rules and guidelines. This will be relevant to the employee’s personal data but also if the employee is processing data in their role.
Keep track of where your employees are. How do you know where a remote worker is at any time? What happens if they go to a different third country, would your employee have the right to work where they are?
Should you employ staff abroad or is a contractor arrangement better?
You may decide instead to hire your dream candidate as a consultant instead. What issues arise then? Many of the same issues arise: what are the applicable laws (which laws apply to this person, local laws or English law?), implications of tax and social security (just because you are taking them on as a contractor, local tax or social security laws may treat that person differently), and the risks of creating a permanent establishment in the host country. But certainly some problems would be solved from a UK perspective if your candidate can genuinely be said to be self-employed/freelance.
But be careful: just because someone is geographically at arm’s length, this doesn’t mean that you can automatically argue they have more of a self-employed relationship. The usual tests for employee/self-employed status apply.
And watch out for IR35:
If the individual is engaged via a personal service company, then this does not mean that you don’t have to worry about their self-employed status. If your organisation has a turnover of more than £10.2million or you employ more than 50 employees then the IR35 rules on personal service company ‘intermediaries’ may apply which put the tax/NIC burden on you, the client business, not the intermediary. IR35 does not kick in if the individual would not have been subject to UK tax or NICs had they been an employee.
Thinking of employing staff who live abroad? If you are hiring someone to work from abroad and you have already established that UK tax or NICs are not relevant here, make sure you have evidence that the individual is not resident in the UK but is under the social security laws of another country e.g. a certificate of home state liability.
If you have any questions regarding this article or any other employment law queries, please contact Polly Jeanneret.