During COVID-19 and whilst the legal guidance advised employees to work from home where possible, many UK employees are thought to have taken the decision to work from abroad – perhaps at a second or family home in warmer climes, or in some cases after renting a property specifically for that purpose.
Though many employers have been willing to accommodate such a temporary arrangement, is it viable for employers and employees to agree to homeworking from abroad on a permanent basis, particularly once the government guidance to work from home has been removed?
This note does not consider the practical and commercial issues: employers will of course need to consider whether such an arrangement is even viable for them. For most employers it will not be, as a condition of homeworking is often that the employee is able to attend the workplace when required at short notice, which will obviously not be possible if the employee is living in Argentina! But for those employers where they are satisfied that they will never need their employees to attend the workplace (or where there is no physical workplace) and so in principle it makes no difference to them whether their employee is in the UK or abroad (subject to time zone considerations), what are the legal issues to consider?
The issues to consider
Irrespective of the provisions of the employee’s UK employment contract, an employee living and working abroad on a permanent basis is likely to acquire employment rights in the host country. These rights could be very different to UK employment rights, such as in relation to maximum working hours, paid time off and the ability to terminate employment (and the costs of any such termination).
The real issue for the UK employer is that they will need to take specialist legal advice from employment lawyers qualified to advise on the law in the country in question. Whilst a UK business will often set up a branch abroad and employ a number of individuals – in which case engaging legal advice in the country in question is a key part of that business decision – taking such advice (and then acting upon it) for just one employee may be seen as disproportionate.
Tax and social security contributions / pension
The biggest issue is without doubt that of taxation.
In general terms there are three possibilities for how income for duties performed by an employee of a UK company overseas could be taxed:
||Typically taxable in the UK?
||Typically taxable overseas?
|Short-term working overseas (less than six months)
||No – but the employee and / or the employer may have reporting obligations in the overseas country
|Medium-term working overseas
||Yes – usually with a foreign tax credit
|Long-term working overseas (normally at least one UK tax year outside the UK)
Whilst the above table is a starting point for understanding the likely position, there are several exceptions and specific advice must always be taken.
As a rule of thumb, an individual risks becoming tax resident in another country if they spend more than six months (183 days) in that country and certainly if they are overseas for a full UK tax year. However, they could become tax resident overseas even if they spend less time than that, depending on their individual circumstances and which country it is. If an individual has become tax resident overseas then the employer is also likely to be liable to pay whatever the appropriate employment taxes and social security contributions (including pension) that are due in that country.
An employer would be forgiven for thinking that so long as the obligation to pay UK employment taxes ceases as the overseas obligations arises, save for the differences in cost between the respective regimes it may not be such an issue? There are at least three problems though: the first is that it normally takes less time to trigger residence overseas than it does to break UK tax residence, so it is perfectly possible for an employee to be resident in both countries (and for the employer to therefore face a liability in both countries too). In this situation, complex consideration needs to be given as to whether there is a double tax agreement between the two countries and whether that agreement will provide any remedy to resolve any double taxation which then arises.
The second problem is simply the administrative and logistical complication of becoming an employer overseas for, perhaps, just one employee. Setting up a payroll system to tax one UK employee on PAYE can be burdensome enough, but to do that in an overseas country introduces a whole new level of complication.
The third problem could be the most serious: the UK employer is risking the creation of a permanent establishment being created in the country in which their employee is now tax resident. This could have significant corporate tax repercussions. An employer in their haste to accommodate an employee’s demand to work from their villa in Spain may in fact be creating an ‘establishment’ in Spain which gives rise to a whole new level of tax liability…
The employer and employee need to consider the immigration issues (if any) that may arise if the employee wishes to return to the UK in the future (or the employer requires them to). In particular, if the employee is not an UK national, a prolonged absence from the UK may affect their immigration status or right to work in the UK. Further, employees with pre-settled status who break their continuity of UK residence for more than six months in any twelve month period, will not be eligible to obtain settled status.
Also, slightly oddly, the UK employer may have obligations in the host country (depending on the laws of that country) to obtain immigration permissions for a UK national to work in that country (even though they are working for a UK business, it could be deemed that an establishment of that business is now operating in the host country, which in turn may need permissions to employ UK nationals).
Whereas in reality many businesses may have taken (and may continue to take) a rather relaxed or pragmatic view about the data protection issues of an employee working from outside the UK, a more considered assessment of the position would be advisable for a permanent working arrangement.
If the employee’s role involves the processing of data, legal advice will be necessary in both the UK and the host country to ensure that data transfers between the two countries take place lawfully.
Health and safety
It follows that as a UK employer owes duties to protect the health and safety of its employees in the UK it will have similar obligations in the host country. Local legal advice will be necessary if the employer is to be sure that it is meeting its obligations which vary significantly between countries. It is said by many that the UK’s obligations are not as onerous as those imposed elsewhere.
Whilst many UK employers have liability insurance that will cover their employees whilst working abroad temporarily, most policies may not provide for permanent working abroad. Bespoke insurance cover may be required.
To answer the question posed by this article: is working from abroad on a permanent basis viable? Within the current legal and taxation regime that we operate in, for most employers it will not be, certainly not for a small number of employees where the costs and risks of accommodating the arrangement might be seen as entirely disproportionate. Facilitating temporary working from abroad remains a viable option, of course.
If you have any queries or concerns about working remotely abroad, or about employment law more generally, our specialist team of Employment lawyers would be happy to assist you further. Please email firstname.lastname@example.org or call us on 01603 281153.