A Legal and Practical Checklist for UK Employers whose staff wish to work from outside the UK
Since the Covid-19 pandemic began to impact working life in the UK in March 2020, the workplace has changed beyond recognition. In the UK, 60% of employees are now working from home (“WFH”) on a semi-permanent basis. Without the usual constraints of office working which WFH has brought with it, employers are being asked by employees (often those with family ties or homes abroad) whether they can work remotely from outside their usual “base jurisdiction”.
These requests can be costly for both employer and employee, with hidden pitfalls, especially in terms of tax that will be due. Understanding the requirements of the overseas jurisdiction will help you to decide whether to grant permission for the employee to work there and, if so, for how long and under what circumstances.
Before agreeing to such requests to work in an “overseas jurisdiction”, you should therefore consider the following main legal and practical issues.
Legal issues
- Is the employee creating a legal presence in their overseas jurisdiction?
Check whether the individual would create a legal presence or permanent establishment in their overseas jurisdiction by choosing to base themselves there whilst working. What are the thresholds the employer needs to be aware of before triggering requirements to register a business and/or report or be liable for tax in the overseas jurisdiction?
- Does the employee create a personal tax liability in the overseas jurisdiction?
In some overseas jurisdictions, you will need to deduct taxes from an employee’s wages (e.g. under a Pay As You Go or Pay As You Earn requirement). You will need to be aware of any obligations to deduct taxes from wages and how that arrangement may be implemented in any country where an employee chooses to base themselves. Whilst the employer might take the view that a personal tax problem is not their problem, most will want to avoid an employee getting themselves into difficulty, and the employer is likely to be better placed to identify any tax snags. Accordingly, it is important to check any thresholds for triggering the application of the tax regime in the overseas jurisdiction. For example, in some overseas jurisdictions, personal tax liability is triggered if the employee has been in the jurisdiction for more than 183 days. In working out this threshold, account for any periods of personal or holiday time the employee may have spent in the overseas jurisdiction in addition to working time.
- Will mandatory employment protections apply?
Check the threshold for when an employee working in an overseas jurisdiction starts to benefit from the applicable local mandatory employment protections. These could include minimum rates of pay, paid annual holidays, anti-discrimination rights and protections on termination. This could materially alter the terms of the employment contract. For example, it is very likely that restrictive covenants which are valid in one country could be hopeless if left unchanged for an employee basing themselves in a different country.
- Will the employer need to comply with regulatory and compliance obligations in the overseas jurisdiction?
For regulated sector companies (e.g. financial institutions), consider whether the individual will be performing any regulated activities in the overseas jurisdiction for which you (and possibly the employee) will need to comply with local regulatory and compliance requirements. Check whether you need to obtain licensing or approval for both the employer and the employee from the local regulators.
- Which workplace Health & Safety rules apply?
The duty on UK employers to protect employees’ health, safety and welfare includes providing a safe working environment when staff are working from home. For individuals working in an overseas jurisdiction, check for any additional local health and safety requirements.
Remember that employees will also need to comply with applicable public health guidance (such as quarantine periods) both in the overseas jurisdiction and on their return to the base jurisdiction.
Practical issues
- Will time differences disrupt efficient running of the business?
This may seem an obvious point, but check whether the time zones will interfere with the efficient running of the team and business. Is the individual part of a team that works closely with clients in another time zone? If so, communicate clearly with the employee what the expectations are in terms of their hours.
- Do you need to document agreed changes and/or amend the contract of employment?
As mentioned in the above point, clear communication is crucial. It will be important to manage the individual’s expectations to reduce the chance of a subsequent dispute and also to maintain good employee relations. Depending on the circumstances and the arrangement reached with the employee, consider whether you should document any amendment to the contract of employment in writing.
If there are parameters that the employee needs to abide by (e.g. not staying longer than a certain period or not engaging in any particular activities whilst in the overseas jurisdiction), these should be documented.
- Is the job really one where the employee is never required to come into the office?
In practice, we think it is important for the employer to distinguish between two situations. First, there could be a short-term move to another country during the pandemic for family reasons, but where the employee is intending to come back to the base country again when the pandemic is over. Here, the parties should document the shared understanding and a time period for the revised operation to run. It may also be necessary to consider whether the individual will necessarily be allowed to return to the base country, if they originally had to rely on a visa or work permit. The second situation would be a permanent move to another country with no anticipated end in sight. Here, the parties need to be clear about what will happen if the arrangement is found not to be working. Is the job in question one which never requires attendance in the base country offices for meetings or training or collaborative meetings? If the employee attends the base country irregularly at the request of the employer, who pays for that travel? Will the employer be happy paying salary at the same level if the employee has moved to a much less expensive part of the world? All of these issues need to be sorted out well in advance of any move happening.
- Make sure staff do not take matters into their own hands.
It is extremely important that employers make clear to staff that they are not authorised to work outside their base country without prior authorisation for anything more than a week or two. We have heard of a number of cases where employees have moved countries, often to be with family during lockdown, without telling the employer or seeking permission. In view of the significant issues for both employer and employee, this is dangerous practice, and it is likely that both employer and employee are going to pay a penalty, one way or another.
(Article on this topic for Hong Kong employers: https://www.mayerbrown.com/en/perspectives-events/publications/2020/09/what-a-hong-kong-employer-should-consider-before-agreeing-to-an-employee-working-remotely-from-overseas)
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