Following the pandemic, working from home became the new normal for large numbers of employees, some of whom have taken this a step further and chosen to work remotely from overseas. Whatever their reasons for doing so, they may see it as irrelevant to tell their employer – after all, it doesn’t matter where they are working from, does it?
However, if not properly handled, it can result in a legal headache for employers. In this week’s article, Jessica Clough has a look at the top 5 legal implications for employers of having employees working for them from abroad.
1. Employment rights
Employees working abroad will be in a different legal jurisdiction, which may be subject to different employment rights from those in the UK. Even employees with contractual terms stating that their contracts are covered by the laws of England and Wales may, with their physical presence being overseas, be entitled to local employment rights for the jurisdiction they have chosen to move to.
These rights vary from country to country and may entitle workers to more generous rights than they would otherwise be entitled to in the UK. This includes higher minimum wage, more protections or increased notice entitlement on termination, alongside higher levels of holiday or maternity leave. Employers should be alive to these potential rights, as failing to abide by them could result in litigation. Special care should be taken to get UK and local legal advice when terminating the employment of workers based abroad.
The first question the employer needs to ask is whether the employee has a legal right to live and work in the other country. Travelling abroad for the purposes of a holiday or for short business trips as part of their UK role is viewed very differently from long-term living and working abroad. The employee is likely to require a different kind of visa, or even to obtain sponsorship from a local company in order to do this. This may particularly be an issue for those UK employees who have second properties in EU countries, and who have ignored the impact of Brexit (and the end of free movement from the UK into Europe) on their right to live and work abroad. Employees who have gone to work in an EU country will need to consider the legal basis upon which they remain there.
For those employees who are either sponsored to work in the UK, or EU nationals who have pre-settled or settled status but have been out of the UK for some time, they may be jeopardising their right to return to the UK.
In the case of sponsored employees, the employee’s visa may be withdrawn if they have been absent from the UK for too long (on the basis they are no longer genuinely working in the UK). It may also affect their right to apply for Indefinite Leave to Remain if they have been absent from the UK for longer than 180 days in any 12-month period. The Home Office introduced some concessions on remote working for sponsored workers during the pandemic, however those were temporary measures and have come to an end.
For sponsoring employers, they have a duty to report if the migrant employee’s place of work has changed, including if they have left the country or are permanently working from home. Failure to report this information within the appropriate timescale can result in compliance action by the Home Office and may result in revocation of the employer’s sponsor licence. If so, the company will be subject to a cooling-off period of 12 months before they can apply for another sponsor licence. This will have a knock-on effect on any other employees sponsored by that employer, as they will be forced to find another sponsor or leave the UK.
As a result, immigration advice should be sought as soon as possible where an employee is found to be working abroad.
For employees, any extended period of working from abroad is likely to result in them being treated as a tax resident in both the UK and the country they are working from, meaning they will need to be taxed in both countries and reclaim any double tax which is levied. It can also affect their estate planning and inheritance tax position.
For employers with employees working abroad, they will continue to have to pay UK income tax and National Insurance Contributions in respect of those employees and to report these to HMRC in the usual way. However, in addition, the employee may also become subject to local income taxes for the country they are staying in, and the employer may therefore find it also has obligations to report and collect tax for the “host” country. Double taxation treaties exist with some countries, which can override the local rules in certain circumstances, but specialist tax advice is likely to be needed to avoid potentially falling foul of tax obligations. There are similar issues with social security contributions, which may also have local reporting requirements. It is not just the employee that has to pay social security but also the employer and rates can be much higher than in the UK. As with tax, there are some, but considerably fewer, reciprocal social security agreements in place and advice should be taken to prevent issues in this area.
Employers will also have to be wary of whether having an employee working abroad will create a “permanent establishment” in that country, i.e. a taxable presence which could render the employer subject to corporation tax in that country as a result of that employee’s activities. This is particularly an issue where the employee working abroad is very senior, such that they are exercising management and control of the company from abroad, or if they are in direct client selling or business development roles. Tax advice will be needed on this point. Finally, if the employee is conducting sales this may also affect the employer’s VAT position.
4. Data Protection and security
If the employee is working from abroad, this is likely to result in employee and company/customer data being transferred overseas. There may also be data security risks in working from abroad. Employers should conduct a data risk assessment and ensure they have the appropriate data security safeguards in place to prevent data from being lost or stolen. This may also mean employers need to update their Data Protection Policy and Privacy Notices, especially where the employee is living in a country that lacks an Adequacy Notice, or if the existing Data Protection documents do not include provisions for transfer of data overseas. Employers may also wish to provide refresher training for employees to remind them of their rights and obligations regarding data, including any enhanced requirements while working abroad.
5. Health and safety
Employers have a duty to take reasonable case of their employees’ health and safety, including those working from home – even those working remotely abroad. In addition, they should be aware of any local health and safety requirements for the “host country” which may also apply, as these may be more generous than UK requirements. Employers should carry out risk assessments to identify any particular risks or hazards associated with working abroad.
What steps can employers take?
Communication: Some employees may have moved without having informed their employer – regularly reach out to your remote working employees, make sure they have told you if they are planning, or have already moved, to working abroad. This is particularly important in relation to Sponsored workers.
Remote working policy: Amend the home/remote working policy to say that employees should not work from overseas without the employer’s prior permission. Or, if the employer (having taken advice) decides to allow a limited amount of overseas working, set clear contractual limits to the maximum it will allow per year, for example 1 month. The employer will have to enforce this clause fairly and consistently, based on the individual’s circumstances. Communicate the update to staff, so all employees are aware of this requirement.
Seek employment law advice: If you discover that an employee has already moved abroad, seek specialist employment law, immigration and tax advice both in the UK and in the relevant country the employee is living in as soon as possible in order to avoid any legal or taxation pitfalls.
Written agreements: Where remote working from overseas has been agreed, the employer and employee should have a written agreement covering the terms of their remote working overseas.
Policies: Review your policies, particularly those relating to data protection (including the privacy notice). Consider refresher training for employees in this area.
Contracts: Increased levels of remote and flexible working are likely to stay with us, so update contracts and policies to reflect the growing trend towards remote working and be prepared to evaluate the issues that will arise if an employee wants to work from another country.
Consistent with our policy when giving comment and advice on a non-specific basis, we cannot assume legal responsibility for the accuracy of any particular statement. In the case of specific problems we recommend that professional advice be sought.