5th September 2022
Since COVID, remote working has become loved and hated in equal measure by employers and employees. For some people working from home has now lost its appeal and a more dramatic change of scenery beckons. So, what are the legal and tax risks you need to be aware of if your employees request to work abroad.
Working from the comfort of your deck chair or on the patio of your Spanish villa sounds good, doesn’t it?
As many employers have realised, remote working can suit their business and we’re seeing more cases of staff requesting to work abroad.
Since the pandemic, this may be an informal arrangement agreed with employees or under the Flexible Working Regulations 2014, employees who have worked for their employer for at least 26 weeks can request changes to their place of work. But before you let your employees jet off to the sun, there are some legalities you need to consider:
Local employment law
Firstly, an employee who intends to continue working for you from another country will need to be sure they obtain the necessary visa or work permit, even if just working for a few weeks.
More than 25 countries are offering digital nomad visas for foreigners wanting to work remotely outside of their home country, often for 1 year or more. Barbados, Dubai, Croatia, Germany and South Africa are among the regions already with a scheme in place.
If the working arrangement continues for a longer time, they may also be subject to the jurisdiction of that other country, such as minimum rates of pay, paid annual holidays and rights on termination of employment.
The differences in rights, largely depend on the country in question, but often it’s really the termination rights that can be challenging – especially as some countries offer employees greater protection against dismissal than in the UK. For example, in Italy, if an employee (male or female) has been married for less than one year, their employment cannot be terminated unless it is for a just cause such as gross misconduct, business closure or expiry of a fixed term contract.
As a result, you could quite easily find yourself dealing with employees who try to rely on their enhanced rights in the country they are working from.
Health and safety
While there are no regulations directly addressing overseas work from a beach or holiday resort, employers have a duty to ensure an appropriate work environment, and a beach is unlikely to meet this requirement.
Under the Health and Safety at Work act 1974, your duty of care towards your employee means you must ensure you are compliant with local health and safety laws. This involves carrying out risk assessments and considering any local health and safety requirements.
Also, periods spent working in another country may impact on group insurance policies and on an employee’s ability to receive medical benefits. It is important to check the wording of any group insurance policies to determine if any such conditions are stipulated.
Undoubtedly, things get tricky if an employee wants to relocate on a longer-term basis, but also remain working for you. Especially if your company has no office or business presence in their new location abroad.
Employees who are UK tax residents, are usually exempt from the tax deductions in the country they work from if it has a double taxation treaty with the UK. However, if they are working abroad long-term, this may trigger a permanent establishment (PE) if your business doesn’t have a presence in that country. Employers should always bear in mind spending more than 183 days in a country in a 12 -month period is generally the tipping point for tax residency.
Social security needs to be considered entirely separately from income tax. Even if your employee is not taxed overseas, they may still be liable to pay social security contributions there. It is also possible to continue to be liable to UK social security (National Insurance) even where you are taxed overseas and not in the UK.
The UK has agreements for social security contributions with Ireland and several countries outside the EU including the USA, Canada, New Zealand, Japan and South Korea. See a full list here. Just like the double taxation, this agreement protects you from exposure to social security.
If your employee moves abroad to work, have you thought about the data protection implications? By accessing company data in another country, your employee could be transferring data in a way that might not be compliant with GDPR. Again, the rules depend on the country in question, but it’s vital that, as an employer, you ensure there are appropriate monitoring processes in place for all data that is being ‘transferred’ outside of the UK and what impact that might have.
Employers want to be as a flexible as possible today but also want to minimise any risk that may be attached to working abroad. Before agreeing to any requests, we recommend taking expert advice on employment law in the UK and the country the employee intends to relocate to, as well as separate advice on the corporate tax issues outlined above.