In the third of a series of articles about Brexit, Karen McGrory, tax partner at BDO, looks at how leaving the EU could impact a business’ most important asset: its people.
Early on in my career I was given a sage piece of business advice: look after your people and they will look after your customers. Look after your customers and they will look after your profitability.
This is a pithy way of spelling out a business fundamental: at the heart of every successful business is an empowered and energised workforce. Your people are your greatest asset.
So let’s just assume for the moment that you’ve invested time, money and energy in your people and, as a consequence, have a committed workforce driving your business forward. Now the issue of Brexit has come along and, like a rock thrown into a still pond, has created ripples and disturbance amongst your people. This is a scenario faced by businesses up and down the country. It’s vital to get to grips with the challenge as quickly as possible.
But how do you grasp something that is so fluid? In my mind, the challenge of managing the impact of Brexit on your people is two-fold.
Firstly, in the external world the discussion of Brexit is fuelled by rumour and counter rumour creating lots of uncertainty. Media speculation is rife, the government position (at the time of writing) seems divided, and hyperbole dominates the debate. In this environment, there is very little that is solid enough to cling on to. Brexit is a shifting picture.
And yet, secondly, your people will be thirsting for information and direction. In a communication vacuum employees will fear the worst and, therefore, employers will need to review the potential impact and provide reassurances where they can.
It’s a difficult course to steer. Giving reassurance in an uncertain world is not easy.
Having said that, there are four essential areas on which finance directors can provide some clarification.
Employment and immigration
Firstly there is the major issue of employment and immigration. After Brexit, it is expected that employees’ ability to transfer between the UK and the other EU member states will be restricted.
While it is expected that the Brexit “divorce settlement” will include some special rules for certain groups of workers, it is possible that EU workers will be subject to the same conditions and restrictions as migrant workers from outside the EU.
With that in mind, you should start reviewing contracts and consider what action is needed to ensure that EU talent in the UK, and vice versa, is protected and retained as well as assess the impact of increased visa costs and administration.
You should also look at any employment needs that are specific to your business. If you currently use seasonal workers from the EU, for example, what are the cost implications for your business should free movement of labour cease?
Impact on employee pensions
While immigration and employment is a very broad factor, the second issue to plan for is a technical one around employee pensions.
Currently pension schemes are, in the main, the responsibility of the individual EU member state, however, the EU has a regulatory framework which covers pensions. We expect much of the existing EU-derived legislation to remain in place, mainly because it was designed to protect members. Existing regulations will continue to apply until changed specifically by the UK government.
However, cross-border workers will be concerned about how the amalgamation of state pensions from the UK and existing EU countries will work. Employer pension plans may also see changes to the cross-border application process.
Therefore, you should be prepared for any future changes, review the pensions you offer and identify any scheme members working in a different EU member state. You should also consider whether you have employees moving between the UK and other EU countries who will be affected by any shift from the current EU pension directive.
In addition, in times of higher volatility for sterling and the financial markets, companies will need to keep a close eye on pension funding strategies.
Impact on social security
The third issue to be thinking about is another technical one: post-Brexit, the UK may no longer be covered by EU social security regulations.
Currently all 31 member states of the EEA plus Switzerland have agreed a common social security policy. The purpose of these regulations is to protect equality of treatment and social security benefits and healthcare rights for workers and their dependants regardless of where they live or work in the EEA. Currently, where EU regulations conflict with UK domestic social security law, the EU regulations take priority.
The country in which contributions are due may differ under domestic rules versus EU regulations. This means continuity of home country social security coverage may be at risk, as may the protection against double contributions.
Employees will also be worried about the impact of Brexit on their access to social security benefits especially if they are no longer able to access a host country’s healthcare either under a S1 certificate or a European Health Insurance Card.
Businesses should be reviewing their mobile workforce – including secondees, commuters, multi-state workers and business travellers – to identify who may be affected by any change in legislation.
Relocating your workforce
Whether for practical, regulatory or other financial reasons, the result of the EU referendum has led to some businesses thinking about whether they need to relocate some of their functions to another country or open a subsidiary office (and this includes into a remaining EU member state or into the UK).
The relocation of workforces creates a number of issues that employees will need to consider. These include the comparison of tax rates across the two jurisdictions, payroll and compliance obligations and, as already mentioned, social security arrangements. If this applies to you then it is worth carrying out scenario planning in order to obtain a full picture of what any such move will mean in terms of costs for you and impact on your employees.
The result from the EU referendum has created a lot of uncertainty, not just businesses but for people too. It is vital that businesses communicate with employees and provide reassurance. Taking a proactive approach to understanding the impact of Brexit on your workforce will enhance the flexibility of your business but also protect your number one asset: your people.
Karen McGrory is a tax partner specialising in human capital at BDO.