Employers are rightly cautious about posting UK-based workers overseas. Normally these arrangements are only adopted for senior employees where there is a clear business need, after formal advice has been taken in the jurisdiction where they will be working and where the appropriate contractual arrangements have been put in place.
However the same is not normally true when an employee who is already working remotely because of the pandemic chooses to work from overseas. Such employees may have been stranded abroad because of travel restrictions, may have family or other connections in an overseas jurisdiction, or may simply decide that working remotely would be more congenial outside the UK in current circumstances.
Because these arrangements tend to evolve informally – and in some cases the employer may not even be aware of them – both employer and employee may fail to address their minds risks that they may be running. The risks will vary depending on where the employee is located. For staff working remotely in the EU, there will be a greater degree of risk once freedom of movement ends on 31 December 2020.
Key risk factors
Tax and social security contributions
Depending on the period of absence and the jurisdiction concerned, an employee may liable to pay income tax and social security contributions in both countries, though this effect may be mitigated by double taxation treaties. An employee will usually be considered a UK tax resident if they spend 183 days or more in the UK in the relevant tax year.
The position with regard to employer’s national insurance contributions will also need to be checked.
More details about the tax and national insurance implications of spending a period working abroad are included in our separate briefing here.
Working remotely abroad for a UK based employer, may require a visa or work permit. Such arrangements are relatively low risk in the EU while the UK remains a member of the single market. Local immigration requirements in individual EU countries will be engaged when the transitional period ends on 31 December, in the same way as is currently the case with all other jurisdictions.
Mandatory local employment laws in the jurisdiction where the employee is living may be engaged by remote working arrangements. In some cases these will be more generous than the corresponding UK rights.
A requirement to register a local establishment can be engaged by remote working arrangements or a local entity may be inadvertently set up by an employee working overseas. In some jurisdictions staff doing any kind of work there have to be directly engaged by a local entity.
Health, insurance and pensions
Both employer and employee should consider what happens if they or a member of their family becomes ill while abroad, and what insurance arrangements are in place to cover any medical fees and (if necessary) repatriation. Employers would also have a duty to assess any particular local risk factors, whether COVID-related or otherwise.
There is also the pension position to consider. If an employee ceases to be resident in the UK for tax purposes they may cease to be eligible to be an active member of their employer’s pension scheme, or, if their membership can continue in such circumstances, may lose the benefit of tax relief on their contributions.
The first step should be to carry out an audit on whether you have any staff working overseas and, if so, the arrangements agreed with them. In light of this it is worth considering getting advice on the individual situation. Unless continuing the arrangements are of clear benefit to the employer as well as the employee, the pragmatic approach may well be to require staff to return to the UK.
Better still, policies should be in place to make staff aware of the risks and of the need to ask for permission before working remotely outside the UK, even if this is for a short period. In many cases employers will wish to make it clear why such permission will normally be refused.