Coupled with increased immigration restrictions as a result of Brexit and the wider global shutdown, widening the talent pool to individuals based outside the UK has become increasingly important.
However, companies need to understand the corporate and employment tax implications, and the wider impact on the employee value proposition (EVP) in order to consider which options will be best suited to them.
In a recent Employers Forum webinar we discussed these options and the potential risks and challenges for business. When asked which recruitment methods businesses currently use to hire overseas talent there was an almost even split across them – indicating that there really is no one solution. You need to choose the method that's right for your business.
Relocating someone to the UK is a relatively simple and low-risk option, as they fit into the UK company infrastructure from a payroll and employee management perspective. However, the pool of potential talent is reduced to existing employees, and / or those who are willing to move to the UK for employment, and it has become increasingly challenging to attract employees to move when they're not required to be physically present in the office every day.
You could facilitate direct employment with an existing entity of the global group, or set an entity up for the purpose. The benefits are that, once the entity is set up, engaging additional employees through the existing corporate infrastructure makes it fairly easy to manage employment tax and payroll obligations and is relatively cost-effective. Furthermore, employment via a local entity can support the individuals integration to the wider global business from a people and culture perspective.
However, if the employee is working for the benefit of the UK entity this may create a taxable corporate presence of that entity overseas, and the transfer pricing position needs to be considered. Additionally, in some countries labour law provisions may restrict the ability to do this. This option is therefore most attractive where the existing corporate structure and transfer pricing policy support it, and for roles where a business to business service agreement is appropriate.
If you find a candidate in a country where you don't have a local presence, it's worth considering whether to hire them to work remotely – either permanently or on a commuter-type arrangement. You would need to consider whether a corporate taxable presence is created, and also consider the registration, payroll, and withholding obligations, including social security. This is potentially costly, and time-consuming, and businesses are still learning how to effectively engage and integrate employees working permanently remotely. It's therefore most suitable for time-limited arrangements or where specialist skills and experience are required.
You may chose to use a third-party professional employment organisation (PEO) or employer of record, to employ the individual and lease them back to the company for a fee. The PEO directly hires, pays, and manages the employee which means the payroll withholding tax and reporting requirements and risks sit with them, and you have the ability to leverage the infrastructure of the agency. In most locations they don't provide adequate protection against the permanent establishment and corporate tax risks, and tax authorities will consider the substance of the arrangement and who is ultimately benefitting from the activities. They're therefore more suitable for short-term solutions where you're testing the market and / or an arrangement, and the risk of creating a permanent establishment is already considered low.
Where employing someone overseas is difficult, or costly, it can be tempting to engage someone as an independent contractor where the perceived risk of tax withholding and compliance obligations for the business is lower. If the contractor performs 100% of their duties overseas and provided the UK business can demonstrate they've taken 'reasonable care' to determine the contractor isn't UK tax resident, there's no requirement in the UK to operate PAYE or NIC. However, like the UK, most overseas jurisdictions have tests to determine whether someone may be deemed to be an employee and these need to be considered to understand the potential overseas obligations. Furthermore, if the contractor visits the UK in the course of providing services to the UK client, the UK corporate is required to undertake a status assessment and, even if the individual is not deemed to be an employee, HMRC may assess PAYE under host-employer rules.
The war for talent means organisations need to embrace hybrid and agile working to retain and attract talent and stand out from the crowd.
Many businesses are therefore taking the opportunity to review their policies and processes to integrate international employment into their EVP to create the distinction necessary to become an employer of choice.
There's a lot for employers to consider when searching for talent, and for employees in determining where they'll seek to further their careers. Staying both cognisant and compliant in an evolving landscape is a big ask, but one that we can help you address through our regular Employers Forum events.
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If you need any further information on the topics raised here, get in touch with Katy Bond .