UK Employees Working Abroad – What are the Risks to UK Employers?

April 18, 2023 Cacy Neilson

Remote working abroad: what are the risks for UK employers?

The Covid-19 pandemic impacted working practices in an unprecedented way. As hybrid working has become standard practice, we have seen an increase in employee’s moving abroad or going on extended holidays whilst continuing to work for UK businesses. Although in some cases these arrangements are temporary, there are legal and tax risks that arise for both the employee and UK employer, no matter the length of the working from abroad period.

What are some of the risks to UK employers?

Employment Law – The labour laws of the country in which the employee resides or carries out work applies and not UK employment law, even if the employee works for a UK company. Therefore, the biggest legal risk for a UK employer is not being aware or understanding overseas labour laws and employer obligations that fall on them, or how easy it may be for an employee to bring a claim against your business in that jurisdiction.

Intellectual Property – In the UK intellectual property created by an employee during their employment is, for the most part, automatically owned by the employer, but this may not be the case in another jurisdiction. This opens your business up to the risk of not legally being entitled to use, licence or sell the intellectual property that employee has created.

Employee Restrictive Covenants – In some jurisdictions for post termination restrictions to be enforceable, the employer is required to pay a sum for the period of restriction. For example, if the employee has 6 months post termination restrictions in their contract, your business may be required to pay 25-60% of an employee’s pre-termination monthly salary for 6 months in order for the restrictions to be enforceable.

Social Security Contributions – In the UK national insurance contributions for an employer are on average 13.24% of the employee’s salary and in Europe the rates for an employer’s contribution for social security ranges from 8% to 33%. If an overseas jurisdiction deems the employee to have a presence or residing and working in their country, this can be quite a significant uplift in costs for an employer for that employee.

Tax – There is a risk of withholding taxes being due as well as some tax exemptions that your business benefits from in the UK may no longer apply where there is a presence in another jurisdiction. Additionally, overseas tax authorities could view that having an employee on the ground working in that country, even if for a UK company, is equivalent to having a company in that jurisdiction. This presence could mean your business is obligated to pay the same corporation taxes as other companies within that jurisdiction.

What are some of the risks to employees?

Immigration – both the employer and employee could face penalties if appropriate work permits are not in place.

Income Tax – unless an employee is protected by double tax agreements, an employee may find that they are subject to income tax in the country where they reside or perform their duties. If they are no longer classed as tax resident in the UK (because they have been outside of the UK for more than 183 days in a tax year) then the employer may also not be required to make its UK employer contributions. This may have significant impact on an individual’s statutory entitlements (e.g. pension if they wished to retire back in the UK).

How to mitigate risk

It is crucial for your business to track your employee’s movements and be aware of what country they are working from and for how long, in order to manage these employment, tax and immigration issues. We suggest implementing a remote working policy document to give guidance to employees on where they are permitted to work and for how long.

If you find you have employees residing and working overseas, the correct legal and tax position would likely be to set up a subsidiary of the UK company in that country, however we understand this may not be commercially sustainable.

Some businesses contract with an overseas Employer of Record (EOR), which is a third-party organisation contracted to take responsibility for paying employees. In our experience these relationships do not work long term, as the commercial agreement is often skewed in favour of the EOR and a lot, if not all, of the liability is placed on the UK company. Additionally, there is often issues with ownership of intellectual property as the EOR is technically the employer.

If you have employees working abroad or are considering allowing employees to work abroad, we strongly suggest arranging a call with us to discuss what legal and tax implications this may have on your business. We have extensive experience advising cross-border jurisdictions and can discuss possible alternatives appropriate for your business and commercial risk appetite. We also have legal and accountancy contacts in various jurisdictions should you be looking for country specific advice.