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Designed for ambitious payroll and pensions professionals, the CIPP’s BA (Hons) Business Management builds on your industry knowledge and skills to take your capabilities to a strategic level. BA (HONS) BUSINESS MANAGEMENT
to income tax heavily varies between countries. Some authorities base this on whether there’s a corporate presence established in that host country, such as an overseas entity existing. However, several authorities still impose the equivalent of the UK pay as you earn rules, even without this presence in place. Where this applies, it can lead to complications of double taxation on employee net pay and extra costs being incurred for local compliance, such as registrations and year end reporting. Although there are payroll solutions which can be implemented to account for double taxation, such as ‘net of foreign tax credit reliefs’, these solutions can be particularly complex to operate, not to mention, costly. Social security withholding Social security operates under separate rules to income tax and can be categorised into rules governing the European Economic Area, ‘reciprocal agreement’ and ‘rest of world’ countries. Often, the employer rate of social security is overlooked when considering hiring remote workers, with the UK rate at 13.8% remaining competitive compared to most. As a result, where coverage cannot be obtained within the UK through acquiring a valid certificate, an employer is faced with an increased cost of employment, which can be up to 45% in certain jurisdictions. As a result, social security must be considered when hiring overseas. Withholding rules vary between countries and can even be complicated by the fact that in some cases, an income tax withholding exemption applies but social security needs to be withheld separately through payroll. Other considerations Employment law Where remote workers are operating overseas but remain on a UK contract, a factor which is often overlooked is the application of local employment law considerations. For instance, even where remote workers and their employers remain within UK National Insurance, certain local social security withholdings can apply post-Brexit under local law. Equally, separate matters, such as statutory holiday pay or pension automatic
enrolment rules need to be understood, as again, local laws will apply here.
Employers of Record (EORs) A fast-growing solution to hiring remote workers overseas has been helped using EORs. These are organisations set up to deal with the human resource, payroll and legal requirements of overseas employees. One subject which is often overlooked with this model, however, is where a ‘permanent establishment’ is created, leading to a corporate presence being established by the home company overseas. This can lead to corporate tax liabilities and administration arising in another country, and this, combined with the costs of operating an EOR, can lead to commercial difficulties when hiring overseas. Broader issues As remote working arrangements continue into the long term, broader questions will start to arise in managing a global workforce. Addressing gaps in relation to exchange rate fluctuations (as these vary over time) or adjusting UK salaries up or down to accommodate local cost-of-living standards will start to create new topics of discussion. Equally, some employers will only grant remote working arrangements when they feel their obligations and risks are removed, so will look to create contractor relationships with employees to accommodate requests. However, as the growing issue of employment status (in particular, the equivalent of the UK’s IR35 legislation) gains popularity across several jurisdictions, the risk here overtly increases, so this is a ‘solution’ to be very careful with. The takeaway In a world where, in many cases, flexibility is valued more highly than pay, employers should look to embrace the trend in supporting employee mobility. But, although having access to a global talent market has clear benefits for bridging skills gaps and remaining competitive, organisations shouldn’t underestimate the importance of conducting thorough research when hiring a remote workforce. They should also seek advice before entering such arrangements in unknown territories, particularly in relation to the withholding rules imposed. n
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| Professional in Payroll, Pensions and Reward |
Issue 89 | April 2023
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