Global mobility: it’s a small world after all
Hannah Manning and Elissavet Grout detail the legal, tax and social security issues caused by global mobility
Introduction
One of the most striking changes brought about by the covid-19 pandemic has been the increase in remote and agile working. This has given many businesses an opportunity to recruit from an enlarged pool of talent, but has also intensified the challenges around keeping track of a globally mobile workforce.
For many employers, there is a real business benefit to being able to accommodate employees’ requests, but in doing so, they may find themselves dealing with a complex mix of competing immigration, employment law, tax and social security issues. Some businesses, such as those in the asset management sector, have been willing to grapple with this complexity in order to attract and retain employees who are in high demand and to address the regulatory issues resulting from Brexit. Others have been more circumspect, creating policies designed to limit risks and avoid unexpected compliance issues.
Post-Brexit, the visa requirements for workers moving in and out of the UK have come into sharp focus. UK nationals who wish to work in the EU and EU nationals who wish to work in the UK now generally require a work visa, with permitted activities as business visitors currently very limited (although the 2023 budget suggested that the government is considering an expansion of the activities permitted), and determining the right visa for a particular assignment and making the relevant application requires employers to start the process well in advance of an employee’s planned move.
An employment law perspective
From an employment law perspective, an understanding of the local law rules applicable to any employment is key. For example, businesses with local employees may need to register with the appropriate tax and labour authorities and operate a payroll, and may also need to provide pension contributions. The exact requirements can depend on the length of stay, whether the employee is being directly employed in the local jurisdiction, or whether they are being sent to work in that jurisdiction by an overseas employer.
Regardless of where the employer is based, if employees are spending a significant period of time in one or more jurisdictions, appropriate employment contracts will be needed and statutory protections (such as the right to receive the national minimum wage, rights to holiday, parental and sick leave and protection against unfair dismissal) are likely to apply. Health and safety requirements and insurance obligations, such as the requirement for employer’s liability insurance, are often overlooked requirements.
Many of the issues arising from an increasingly mobile workforce relate to tax. When workers move between countries, income tax obligations can arise in multiple jurisdictions, often with a requirement to withhold tax via the employer’s payroll, and there will be questions as to whether continuity of social security contributions and benefits can be maintained. Having employees or directors working outside a business’s home jurisdiction can also create risks around corporate residence or the unexpected creation of an overseas taxable presence. The law in relation to these issues is complex and varies between jurisdictions, meaning that careful monitoring and local advice is often required. Additionally, while there are special arrangements available which can mitigate the tax burden on employers, the application of these to arrangements outside traditional secondments and overseas postings is often unclear and can take time to obtain.
Employers of record
For all of these reasons, many businesses are deciding to use ‘employers of record.’ These are third parties who become the legal employer of the individuals’ concerned, taking care of all the local compliance aspects of their employment. There are benefits to using employers of record, but also some unexpected pitfalls including around the eligibility of ‘employees’ to participate in the ‘employer’s’ share plans. There can also be considerations from an immigration perspective (if the employee in question requires a visa in the country in question) and an employment perspective, including around how confidentiality and post-termination restrictions can be enforced by a company that is not the actual employer.
As the global war for talent pushes employers to recruit from a wider geographic area, and the ability to work agilely becomes an expectation for many employees, these issues will affect an increasing number of businesses, many of whom will not have the compliance infrastructure to manage an internationally mobile workforce. The UK Treasury would do well to note the changes and consider updating and clarifying historic guidance, and reviewing the ease and accessibility of special tax regimes in order to assist businesses to attract and retain employees.
Hannah Manning is a partner and Elissavet Grout is senior counsel at Travers Smith LLP
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