Given the Government’s recent announcement that office workers should work from home where they can for the next six months, and technology enabling employees to perform their roles without geographic limitation, we anticipate an increasing trend of employees seeking to work remotely from overseas. Many employees are already preferring the option of working from a second or holiday home located overseas, while others are choosing to work in a different country in order to be closer to relatives.
On the face of it, there may appear to be no discernible difference between working from a UK-based home or from an overseas location. Indeed, some employees are not even informing their employers of any change in the location of their remote work and, likewise, employers may not be aware of where in the world their employees are physically located when they dial into regular Zoom or Teams meetings.
However, as with most things that seem too good to be true, there are a number of legal and practical implications that arise when an employee whose original workplace was in the UK changes to working remotely from overseas. In this article, we identify a number of issues that impact both employees and employers when an employee works remotely from overseas.
Employees who work remotely from overseas may be entitled to the employment rights of local workers in the host country simply by being physically present in that country while conducting their work. Such rights may be more generous than the employee’s entitlements in the UK and their employer would need to honour these rights or could face litigation. For example, local workers may be entitled to more annual leave and holiday pay, enhanced maternity leave and pay, higher minimum wage, and potentially greater rights on termination.
Particular care would also need to be taken if terminating the employment of employees working remotely overseas and both English and local law advice should be sought at an early stage.
Impact on the employee’s tax status
Tax residence can be surprisingly easy to acquire in some countries and this has the potential to impact the individual’s wider tax status. Remote working overseas for any extended period could, for example, result in the employee being treated as tax resident in two jurisdictions at the same time, potentially requiring the employee to reclaim any double tax levied. A change in tax status can also impact the individual’s estate planning and inheritance tax.
Employer’s tax reporting and collection obligations
Employees who are tax resident and domiciled in the UK are subject to UK income tax and National Insurance contributions (NICs) on their earnings, deducted at source via Pay As You Earn (PAYE). However, if an employee working remotely relocates overseas, depending on the local tax rules in that “host” country, the employee may also become subject to local taxes on their income. An employer could find itself with similar overseas tax reporting and collection obligations to those under UK PAYE. The terms of any applicable double tax treaty may override local rules depending on the individual circumstances; for example, the Organisation for Economic Co-operation and Development (OECD) Model Tax Convention generally provides an exemption for host country income taxes for stays of less than 183 days, subject to certain conditions.
Social security contributions
Social security, including NICs, provide an additional layer of complexity for employers to navigate. The UK is presently subject to unified European Economic Area (EEA)/Switzerland social security rules until the end of the Brexit transition period on 31 December 2020. Generally speaking, an employer/employee wishing to continue paying UK NICs (and not host country social security contributions) on a short-term posting to the EEA/Switzerland should obtain a portable “A1” document from HMRC. However, this system is not well-suited for COVID-19 related relocations, where the arrangement is initiated by the employee (not the employer) and where the individual is already overseas. In the case of non-EEA countries, there may be a reciprocal social security agreement in place between the UK and the host country. The employer should, therefore, check whether it has any local social security reporting and collection obligations and whether special arrangements need to be made under the relevant rules.
Corporation Tax and VAT
The employer should also consider its own tax position and whether an employee working remotely from overseas creates a taxable presence (permanent establishment) of the employer in the host country for corporation tax purposes. Generally speaking, with a double tax treaty in place, this is only likely to be an issue if the employee is conducting client-facing sales or business development or where very senior individuals are exercising management and control of the company while working remotely from overseas but advice should always be sought. The employer’s VAT position may also be impacted by remote work conducted by an employee overseas.
Various data protection issues can arise when an employee works remotely from overseas and where personal data is transferred between the employee and employer. Employers should ensure that appropriate safeguards are in place in respect of the transfer of any personal data and should also ensure compliance with the General Data Protection Regulation (GDPR) where this applies. Our Briefing Note providing an overview of the GDPR and relevant considerations when transferring data can be found here. A recent decision by the Court of Justice of the European Union appears set to impact transfers of personal data to the USA as well as the use of standard contractual clauses, and you can read our summary of this decision and its potential impact here.
Employees working remotely may face additional data security challenges, including increased risks of hacking and cyber fraud, especially where employees connect to unsecure or ‘free to use’ Wi-Fi networks and hotspots.
Businesses may wish to consider their security practices and whether they are adequate to mitigate such risks. Examples might include implementing secure Virtual Private Networks (VPNs), Remote Desktop Protocols (RDPs) and multi-factor authentication that employees can use when connecting to the internet or local workspaces whilst overseas.
Particular consideration should be given to any requests from sponsored migrants to work remotely overseas (i.e. individuals who are sponsored under the company’s Tier 2 sponsor licence). Sponsored migrants can continue to travel abroad for short business trips which are required as part of their UK role. However, where the request is to carry out their UK role from overseas on a longer term basis, and there is no business need for them to travel abroad, this is unlikely to be possible under the Tier 2 sponsorship rules.
Indeed, if the sponsored migrant undertakes their UK role from abroad for a significant period of time, this may invalidate their sponsorship and jeopardise the individual’s ability to return to live and work in the UK. It could also lead to the Home Office taking compliance action again the sponsor, including, in the worst case, suspension, downgrading or revocation of the sponsor licence. Even where individuals are carrying out their UK role from abroad for a short period of time, caution should be exercised and any implications for their sponsorship should be considered. In both cases, notifications may also need to be made to the Home Office of the change in circumstances.
Health and safety
Employers have a duty to take reasonable care of the health and safety of their employees and to take reasonable steps to provide a safe workplace and a safe system of work. These duties extend to employees who are working remotely, including from overseas. Accordingly, an employer should conduct a risk assessment in relation to any employee who is proposing to work remotely from overseas in order to identify any particular risks or hazards. Employers should also ensure that such employees are also considered as part of the employer’s COVID-19 risk assessment and address issues such as the safety of employees required to travel back to the UK for work related reasons.
There may also be local health and safety legislation applicable in the host country with which a UK employer must comply in relation to an employee working there remotely. Local legislation may exceed or differ to the employer’s health and safety obligations in the UK.
Provision of equipment for remote working overseas
It may difficult, and certainly more costly, for an employer to arrange for home-working equipment to be transported overseas. Also, the employer’s existing insurance policies may not cover property that is taken overseas.
Practical steps for employers
Given the complexity of the tax and legal issues that may arise when an employee works remotely from overseas, it is essential that the employer seeks advice in both the UK and in the host country where the employee proposes to work.
Employers should ensure that employment contracts and relevant HR policies are updated to address the increasing trend in home working and, specifically, the employer’s position regarding requests to work remotely from overseas. At a minimum, employees should be prohibited from working remotely from a location outside of the UK without having first sought their employer’s written permission.Although there should be consistency in an employer’s approach to requests to work remotely from overseas, blanket policies should be avoided as these may have a disproportionate impact on certain groups of employees. Employers should consider the particular circumstances of each individual request, before making a decision about whether to permit the employee to relocate overseas.
Where an individual is permitted to work remotely from overseas, the employer should enter into a written agreement with the employee, documenting the terms of their remote overseas working.
Employers should review any internal data protection policies and procedures to take account of the impact of employees working overseas. This might involve updating privacy notices or providing updated training to stakeholders.