COMPLIANCE
Cross-border payrolls and remote workers
David Yewdall, partner, Evelyn Partners, discusses the key considerations for payroll in organisations which allow staff to work from other countries
S ince the pandemic, remote working has been at the forefront of mobility and hiring trends. Flexible and / or remote working arrangements are now considered an integral part of working for an employer, and employees are increasingly requesting flexibility as part of their package, as well as looking for flexible roles when seeking their next career move. During 2020, businesses saw temporary relaxations introduced around issues of remote working and international business travel. It’s clear that since then, authorities have developed stricter rules and these relaxations can no longer be relied upon. This has created the need for employers to effectively govern their employees’ working patterns to ensure compliance with complex tax and social security rules in the UK and overseas. Several tax authorities take the position that where income tax is due based on an employee’s presence, payroll must be applied. Operating a payroll supports the real-time collection of tax and social security revenues. Poor governance or lack of awareness of the rules can expose employers to unexpected host country tax withholding and social security costs, potential penalties and a poor employee experience. In this article, we explore the issues
payroll and tax professionals face when interacting with remote workers, and the trends which exist across managing the movement of people internationally. Since the pandemic, several employers have introduced international flexible working policies to their workforce, allowing employees to request that they temporarily work from another country up to a certain amount of days throughout the year. So long as advice is sought and this policy is properly maintained, relaxations to tax liabilities and administration can apply, because the UK operates as part of an international tax framework contained within ‘double taxation treaties’ (DTTs), allowing countries to apply concessions to certain working arrangements. While each international tax authority has the autonomy to vary the terms contained within these articles, generally the ‘Employment Article’ will allow for an income tax exemption to arise if the following conditions are met: l an individual is present within another country for less than 183 days within a certain 12-month period l no costs of employment relating to that individual can be recharged to that host country l a ‘permanent establishment’ in the host country doesn’t arise. It’s important to recognise that each
DTT must be looked at on a case-by-case basis carefully in advance of any remote working arrangement, given the variations which exist between the treaty exemption conditions. However, in general, this is good news for helping reduce administration on behalf of employers and can help manage remote workers operating temporarily overseas. These tax exemptions will also only apply to those remote workers and business travellers who operate on a short-term basis overseas, and won’t apply to employers who have operated a recruitment policy hiring permanently overseas based employees. Therefore, before any hiring for permanently based roles takes place, tax and payroll professionals need to ensure they check the local requirements for overseas payroll withholding, given that the requirements can vary greatly depending on the rules outlined by the overseas tax authority. Even where individuals are hired overseas but remain paid from the UK, a variety of approaches to compliance is adopted by overseas authorities, so advice must always be sought locally within the following areas before making a decision:
Income tax withholding The question of whether to apply payroll
26 | Professional in Payroll, Pensions and Reward | April 2023 | Issue 89
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