The return to the office after months of working at home is adding to the complexity. ’The Great Resignation’ is seeing record numbers of people choosing to leave their jobs and rethink their lives as a result of the pandemic. The phenomenon began in the US, where voluntary resignations reached peak of 3% of the workforce in September 2020, but is being seen in many other countries, including the UK. In a 2021 survey of 6,000 workers by recruitment firm Randstad 24% said they were planning to change jobs within three to six months.
With competition for talent so fierce, owner-managed businesses are becoming increasingly imaginative in their approach, including searching beyond the UK’s borders. Working from home has become widely accepted , with the advantage of widening the talent pool. Geography is no longer the barrier it was to hiring and retaining good people – in fact, some candidates will actively welcome the opportunity to work remotely for an exciting company.
At BKL we’re pleased to have colleagues who work remotely from outside the UK (but we’re also glad when they visit us in London!). We have also seen this among clients, particularly in the highly competitive technology sector where smaller businesses often lose out to the big US tech companies who have flooded into the UK. Hiring overseas employees or contractors has given them access to outstanding talent.
There are other advantages too. The globalisation of business means that there are occasions when it makes more sense to employ workers wherever you have customers or clients.
Ops and obstacles: six things to consider
In practice, there will be important operational decisions to be made and hurdles to overcome. An arrangement might have tax implications for both the business and the overseas worker, so it is important to take specialist advice at the outset to avoid surprises later.
Here are the key things you should consider:
- The status of the overseas worker may limit your ability to offer share-based rewards, for example through Enterprise Management Incentives (EMIs) or Company Share Option Plans (CSOPs).The ultimate solution will depend on the local tax regime in the country where the worker is located, as well as your own country. It is possible, for example, that the employment of someone overseas may lead to the creation of a taxable presence in that country (either for corporate tax purposes, or in terms of payroll tax liabilities, or both). The tax efficiency of the benefits will be influenced by the local regime.
- The revised IR35 rules, which came into effect in April 2021, can cause complications if the worker is based overseas.While the rules only apply to large and medium-sized businesses, it is important to take advice and carry out the necessary status checks if you think you might be affected. The UK Government’s Check Employment Status for Tax (CEST) tool, which can be used to check whether a worker should be classified as employed or self-employed, is a useful starting point.
- The employment contract will need to reflect the worker’s home country. Small companies that fall outside the IR35 rules might also want to consider using a contractor-type employment style (dependent on the local tax regime for the employee).
- Setting up an overseas payroll operation is relatively straightforward and can make the process of employing overseas workers and contracts more efficient – or the right UK-based payroll provider will be able to make sure that everything is done efficiently and by the book.
- Is the worker using their own technology? Are connections and cybersecurity arrangements appropriate and secure?
- If the worker needs to access client data from their location, are there any regulatory restrictions that might apply?
If you are considering employing overseas workers or contractors, it is important to take the right advice. Through BKL Advance, you can speak with specialists in employment, tax, payroll and pensions who can guide you through all the implications. For more information, please get in touch with your usual BKL Advance contact or use our enquiry form.