As work from home rises in popularity, how far should the geographical boundaries be stretched? Padma Tadi at Irwin Mitchell considers the challenges for employers when WFH means working from another country.
Working from home has become the norm for many employees and it’s difficult to envisage that everyone who, pre-Covid, worked in an office will want to return when things get back to normal. It’s inevitable that employers will start to see an increase in the numbers of requests they receive from staff who want to permanently work from home. And, these will be difficult to refuse if the employee can demonstrate that they’ve done so effectively over the last 10 months or so.
But, how do you respond if the employee wants to work from home in a different country either on a permanent or temporary basis?
Here are a few things you’ll need to consider.
The general rule is that the host country has primary taxing rights over the income an employee earns whilst they are physically living there – even if this is for a short period. However, most countries have double tax treaties with the UK which exempt the employee from paying local income tax – provided certain conditions are met. These will usually only assist employees who live abroad on a temporary basis because of conditions which limit the amount of time the employee can live in the host country in any 12 month period.
In some cases, you may have to set up foreign jurisdiction payroll systems or vehicles through which you pay the employee, deduct and account for tax.
Your duty as a UK employer is to continue to make your usual deductions for tax and NIC’s and pay employer NICs. If the employee is expected to live abroad for more than a year you can apply to HMRC for a no tax PAYE code which, if granted, will mean you don’t have to deduct Income Tax but you may still have to pay NICs.
It’s also possible that your organisation will be liable for additional tax if the host country takes the view that allowing your employee to work there means that you have a permanent establishment in that host country.
The rules around this are incredibly complicated but the general rule is that social security obligations arise in the country in which the employee is physically working. This means that they may have to pay a health fee.
For employees living in the EEA, the Trade and Cooperation Agreement between the UK and the EU broadly replicates the old rules on social security coordination and means that social security payments will only be due in one state at a time.
Your employee will need to meet any immigration restrictions in place where they live.
They may be able to enter as a business visitor but, this will usually restrict what work they can do and how long they can stay. For example, business visitors may only be able to attend meetings and training which would leave out many other aspects of their role. Business visitors also don’t tend to spend that much time in host countries – and it would be difficult to categorise anyone wishing to live in another country on a permanent or semi permanent basis in this way.
You and the employee also need to consider whether being outside the UK could impact on any future visa applications they might want to make. For example, if your employee is an EU citizen, and intends to temporarily move out of the UK and return at a later date, the time they are out of the country could jeopardise their right to live and work here in the future if they have not already applied for settled or pre-settled status.
Employment protection and effective line management
Employees who live and work abroad, even for short periods, can become subject to the jurisdiction of their host country and benefit from local laws that apply there. You’d need to understand what laws will apply – particularly on termination to ensure that you don’t do anything that which could result in a claim in a foreign jurisdiction.
Whilst it is possible to say that the contract of employment continues to be governed by the laws of England, any local statutory imposed rights (such as working time limits or health and safety entitlements) will usually prevail over contractual terms.
You will also have to consider how you will line manage anyone who lives outside of the UK. For example, are there any face to face meetings you’d expect them to attend? If so, who will pay their travel costs for attending these?
If an employee’s role involves processing personal data, you’ll need to make sure that they can lawfully transfer data from their host country to the UK and vice versa. If they are living in an EU country, the Trade and Cooperation Agreement between the EU and the UK provides a six month grace period (ending on 30 June 2021) during which the EEA will be able to continue to transfer information to the UK without difficulty. The European Commission is expected to reach an adequacy decision during this time which will determine whether data from the EEA can be transferred into the UK on an ongoing basis.
Health and safety
You will remain liable for the health, safety and welfare of any member of staff working abroad. You’ll need to have systems in place to make sure that your employee complies with local health and safety rules.
Is it worth it?
Given the numerous obstacles you’ll have to navigate, in most cases the answer is likely to be no. However, if the employee plays a vital role in your business you may have to agree if the alternative is losing them altogether.
If you do agree, you must amend their terms and conditions of employment and agree who will pay any additional tax due, what expenses are payable (particularly if you require them to travel to the UK from time to time), set out how you can terminate the arrangement if it’s not working and confirm that any disputes will be subject to UK law and jurisdiction.