Employee mobility and risks post Brexit

Deploying the right people to the right places with proper support in a compliant manner is critical to the success to many of our clients. Where an individual works has several legal considerations including tax (personal and corporate), social security, immigration, health & safety and employment law. It is therefore important that employers are aware of where staff are carrying out their jobs in order that any risks attaching to cross border working can be identified and managed effectively. With the global pandemic, employers have had to follow government guidelines that all employees should work from home unless this is not possible. A great paradigm shift has been created, as we all transitioned to remote working being the new normal and new structures are evolving to manage it on a more permanent basis.

As we all appreciate, the taxation of international assignees or cross border workers is undoubtedly an area of complex regulations and legislation. Considering the levels of complexity that exist and the fact that the legislation can be subject to changes, it is strongly advised to assess an assignee’s individual personal circumstances in order to make an informed decision on their tax and social security position in both the home and host country.  This is regardless of duration as even a short period working in a country can create tax implications.  Considering the current requirement for remote working, it is important to note that where an employee is engaging in work for an overseas employer albeit virtually does not necessarily mitigate the tax risk.

Where an individual is working in another country can mean they are captured by local tax residency rules and trigger tax liabilities.  As a result of COVID-19, many employees have found themselves having to remain working in a country longer than anticipated and potentially deemed tax resident under local legislation. Employers may have an obligation to operate local payroll withholding which they may be unfamiliar within this country. The rules do vary across countries and it is important to take advice on what the obligations are.  The rules can differ, for example, if you do not have a presence in the country or what the longer-term plans are for that employee.  There may also be personal tax return filing obligations for the employee which you may need to support them with.

Although COVID-19 has heightened the risk for employees triggering tax and social security risks and many employers have faced unexpected obligations and costs, many governments have issued COVID-19 social security and tax relaxations. However, these are for a temporary period and subject to certain conditions.

A key concern of employers particularly as a result of COVID-19 has been around Permanent Establishment (PE) risk.  Some employees have been forced to work from different locations other than where they are employed due to the on-going restrictions globally. Many employers are concerned that these employee’s activities (of course assessing the nature of their activities) could give rise to a PE which would trigger additional tax, social security and payroll obligations in that country and unexpected cost. Fortunately, The Economic Organization for Cooperation and Development (OECD) offered clarification on this matter. Based on the employee being engaged in this type of activity, as it is considered temporary and the result of exceptional circumstances, this would not lead to a PE for the employer.

It is also essential to review the social-security position for all globally mobile employees particularly considering the changes with the UK leaving the EU. If social security remains payable in the home country, you may be able to apply for a certificate of coverage/A1 to mitigate a dual liability being triggered. In the circumstances where there is no reciprocal social security agreement in the host country, where an employer has requested the individual to undertake this working arrangement, they will be responsible for funding the additional social security contributions of both the employee and employer. Since 1 January 2021 with the publication of the UK-EU Trade and Co-operation Agreement, fortunately, the agreement largely replicates the current EU social security coordination regulations.

A key point to consider is for UK – EU cross-border employees who contribute to social security in their country of employment.  If an employee does not spend a minimum of 25% of their working time in their country of residence, they may no longer be entitled to remain within this social security scheme and may be required to pay into the host country scheme. This can be a concern to employees particularly when they return to their country of residence and would not be entitled to claim for local benefits.  As employers want to be regarded as agreeing to flexible working arrangements, they are more frequently agreeing to employees working from a home outside of the country of employment without considering the wider impact e.g. where social security must be paid.   It is important that they do remember as social security is paid by the employer as well as the employee, employers may want to carefully consider who will pay if the country where social security is due results in higher employer social-security costs.

Although there are many potential risks with internationally mobile workers, the key is to be aware of all implications before agreeing to overseas working arrangements. If these arrangements are likely to become more common practice, it is important to create a clear policy to help manage this.