Third Country Working

F&L’s Kiki Stannard and Tim Baker explore managing employees who have relocated from the UK to their home country and the HR and tax implications that come with it.

As covered in their recent Third Country Working video, Kiki and Tim have seen a number of clients with foreign national employees who have wanted to relocate to their home countries from the UK mainly due to COVID-19, but also for personal reasons such as being closer to their families. Below they have outlined some key considerations to help you manage your remote employees.

Initial Planning

There are many issues to be aware of as an employer. Most importantly is knowing exactly where your employees are working and living. Other considerations include:

  • whether the employee has the right to work in the country to which they have relocated;
  • whether you have a payroll responsibility in that country;
  • the HR and employment law implications;
  • employee benefits and pension considerations;
  • how to structure your overall policy for all employees working remotely; and
  • tax issues in terms of tax treaty exemptions.

Your Wider Policy

Are you now going to allow all your employees to work from anywhere in the world? That is not always practical but how do you decide who can and cannot work in a new location because it suits them from a personal perspective? If you need to get those people back into the office or for face to face meetings, who will pay for the travel costs associated with those meetings? How is that going to work? It is important to create a fair non-discriminatory policy which works for everyone.

As a business, you need to work out how the absence of that individual from your office will impact others in terms of management and training. Is it practical in the longer term for these employees to be away from the office for significant amounts of time?

As an employer you need to think about all of this and your overall policy in advance because if you start with one employee and make an exception for them, you need to be prepared for other requests to follow. 

Short Term Compliance Considerations

Assuming you have structured your wider policy correctly, in the short term there are some basic HR compliance issues to consider, such as:

  • where is the employee working and living?
  • do you know their address and their emergency contact details?
  • what about employee wellbeing?
  • private medical insurance coverage - for example, most domestic UK private medical policies will not extend overseas, whereas some dental policies do.
  • what if the employee is sick (or even worse) - what do you do?
  • other insurance policies for critical illness and life cover. What is the impact if somebody has been or is currently resident overseas?
  • often overlooked is the employer liability/workers' compensation insurances. Do you need those policies in every country you have employees working, even though they are employed in the UK?

Tax & Payroll Matters

In addition to the HR compliance considerations above, you have employer and employee tax issues to address. You will need to establish what triggers a payroll obligation in your employee's home country.

By creating an obligation to register a payroll in the employee's home country (and therefore a payroll withholding reporting obligation), you may need local bank accounts to handle payments. In some countries, this is compulsory.

You will also need to look at the employee's social security position; not just when the overseas social security is due, but how much is it? What is the cost to you as the employer? What is the cost for the employee? What is the impact on net pay?

Longer Term Policy

If you are going to allow your employees to work from their home country indefinitely, this will undoubtedly trigger additional responsibilities for you, the first of which would be payroll.

You will need to know what your long term payroll responsibilities are, whether you need to pay in local currency and engage a third party payroll provider to handle registrations and filings.

Social Security

Employer social security costs vary greatly across the world and you could be in a situation where an employee wants to relocate somewhere that has a much higher social security contribution than their original employment location.

Before you agree to let your employee relocate permanently, you need to understand the costs involved. Where the costs are going to be higher, are you going to take on that cost or will you arrange a different compensation plan for the employee?

Employee Benefits

You will need to obtain employer liability insurance, which is mandatory in most locations, along with handling any compulsory pension arrangements.

Most UK benefits will not cover an additional location, so you will need to think about whether you want to get local private medical and dental insurance or if you will leave this to the employee, perhaps paying them a stipend or having it as part of the renegotiated compensation package.

Employment Law

Over time, from an employment law perspective, an employee will have rights in terms of employment law for that country. This means you will need to look at a new local contract in that country's language and the compensation would need to be quoted in the local currency. You will need to factor in differences in the exchange rates too.

Your employee may have additional rights on termination and annual leave/vacation in their new country. This will all need to be considered when negotiating with that employee on what their new contract and compensation package will look like.

Salary Benchmarking

If your employees' salaries are based on working in central London or the wider UK market, you will need to consider what their overall package looks like with respect to local pay. In some countries, you have a 13th or 14th month pay which can significantly increase your overall cost if you leave the annual salary as per the UK level.

The cost of living could be completely different in the third country, which will require a lot of thought as to what may happen in the future and what is possible under local employment laws as you renegotiate the package with the employee. It will almost certainly require the employee's written agreement for any change.

Permanent Establishment

Finally, having employees work in a third country is not all about the employer considerations. You will effectively have an operation in another country which can cause different types of issues in terms of Permanent Establishment issues, local corporate registrations, corporation tax and sales tax obligations.

As you can see, this is a complex scenario with many factors to consider and it is vital you seek professional advice in relation to your specific circumstances. Contact Kiki or Tim below to find out more:

Kiki Stannard
Tel: +44 (0)20 7430 5913

Tim Baker
Tel: +44 (0)20 3667 5971

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