The internationalisation of business has resulted in the growing need for UK companies of all sizes to recruit or relocate staff from overseas. Howard Kennedy’s Susie Al-Qassab highlights four key areas that UK FDs need to consider from a legal perspective to get this right: immigration, employment law, tax and social security.
1. Does your employee need a work permit?
EU nationals and their families will be free to live and work in the UK until it formally leaves the EU, which is likely to take up to two years. The earliest that these freedoms will end for EU citizens in the UK is likely to be 2019.
It is likely that there will be a cut-off date before which EU nationals and their family members who can establish they have been resident in the UK for a specified period of time will be accorded a permanent right to stay. For those who cannot obtain a permanent right to stay, they may fall under transitional arrangements or be given time-limited permission to remain. The government has declared that its position regarding EU nationals living here will be tied to Brexit negotiations and the degree of reciprocity that British citizens resident in the EU will be afforded.
There will need to be changes to the UK immigration system to accommodate transitional arrangements and to put in place a new system for employers to employ EU nationals who presently require no permission to work in the UK. It is still unclear what new regime will be put in place.
The UK operates a points-based system (PBS) for migrants from outside the EEA and Switzerland, with different requirements for different visa categories (called Tiers). Migrant workers who wish to work in the UK need to be sponsored by an employer as a Tier 2 migrant unless the migrant is able to secure an alternative visa, such as a UK Ancestry or Tier 5 visa (which does not require sponsorship). An employer looking to sponsor a migrant worker under Tier 2 must have a sponsor licence and issue a Certificate of Sponsorship confirming that the individual meets the relevant criteria before the individual applies for their visa.
It may be that the PBS will be rolled out for EU nationals following Brexit, which would have a significant administrative and financial impact for UK employers wanting to employ staff from the EU who don’t have a permanent right to stay. They would need to apply for a sponsor licence and get to grips with the PBS employer sponsorship management system and onerous compliance, reporting and recording duties and fees. There would also likely be sizeable additional fees for each employee sponsored, one of which is the new immigration skills charge which came into force on 6 April 2017.
UK employers are already required to conduct “right to work” checks for all workers (including UK and EU nationals) before they start work. This entails obtaining and retaining copies of specific documents evidencing their right to work in the UK, and in some cases carrying out ongoing checks. Post-Brexit checks for EU nationals are likely to be more complicated.
2. Which social security system is applicable?
In general, employees working in the UK must pay UK social security contributions. The employer must deduct these from their pay and also pay employer’s NICs. Even if the employee is seconded to the UK and remains employed by their home employer, the UK entity is regarded as their “employer” for NIC purposes.
When an employee comes to the UK, special arrangements can apply for the employee to continue paying social security contributions in their home country for a period after coming to the UK, generally between one and two years, depending on the country.
Subject to some specific exemptions, the UK also has special arrangements with all EEA countries, and many countries outside the EEA, which may mean that the employee can continue paying social security contributions in the other country for a longer period – especially if the employee is working in more than one country.
3. Is the employee liable for taxes in the UK?
The key question to consider is whether the employee will be UK resident. The UK has a statutory residence test (SRT) that depends on the number of days spent in the UK in any tax year, which runs from 6 April to 5 April of the following calendar year. This is of particular concern to employees who split their duties between the UK and another country or countries.
If the employee becomes UK resident they will generally be liable for UK tax on their worldwide income, including the earnings from their employer.
A non-UK resident employee working in the UK will generally only be subject to UK tax on any income earned from duties carried out in the UK.
The tax position will be more complicated for employees who have income that risks being taxed in more than one country, especially where they carry out duties both inside and outside the UK or are only in the UK on a short secondment. Employees who have non-UK capital gains or capital gains not related to their UK employment should also take UK tax advice if they are likely to become UK resident, even if only on a short secondment.
If any of the employee’s earnings are subject to UK tax, the employer will almost always have to deduct tax under the “Pay As You Earn” (PAYE) system, and pay the tax over to HM Revenue & Customs.
4. Which specific mandatory employment conditions apply?
In general, employees ordinarily working in or based in the UK benefit from UK statutory employment rights. These include:
- The National Minimum Wage (from 1 April 2017 this is £7.50 per hour for workers aged 25 and over, but rates are usually reviewed at least annually)
- 6 weeks paid annual holiday (including eight UK public holidays)
- Statutory sick pay
- Protection against discrimination in employment
- Protection for whistleblowers
- Family-related rights, including maternity and paternity leave and pay, and shared parental leave
- Protection against unfair dismissal (in general the employee must have 2 years’ service to bring a claim, but there are important exceptions such as dismissals connected with pregnancy or being a whistleblower)
- Protections related to TUPE transfers and collective redundancies
The fact that the contract of employment may not be governed by UK law would not prevent these statutory protections applying.
Employers should also be mindful of certain guaranteed minimum rights under the Posted Worker Directive if they have a contract with an EU company for the provision of services which involves the temporary posting of workers to the UK.
Moving staff from overseas to the UK, and vice versa, is complex, raising many employment, immigration and tax issues. Expert advice should always be sought.