As the summer holiday season approaches, this article considers the position of UK employees seeking to extend their summer holiday by working remotely from their overseas holiday destination.
The ongoing COVID-19 pandemic has resulted in continuing uncertainty for employees wanting to travel abroad from the UK this summer. Many of us will be keeping our fingers crossed that the restrictions will lift sufficiently to allow us to visit family overseas or warmer holiday destinations. Those with accommodation already available in other countries are beginning to think about extended trips, possibly combining work and holiday. Even those of us who don't have overseas family or second homes may soon be eyeing up the option of booking a longer stay abroad, hoping to work remotely for a while in the sun.
This article summarises the potential legal issues associated with this, and some practical steps employers can take to limit the possible risks.
A more flexible future
Employers are now facing increasing numbers of requests from employees who want to work remotely abroad, both in the long and short term. The COVID-19 pandemic has brought both the possibilities and benefits associated with remote working into sharper focus and has encouraged many employees to request arrangements that they might not have thought possible little more than a year ago. Several countries (including Barbados, Dominica, Dubai and the Cayman Islands) have introduced new visa schemes to make it easier for employees to live and work there for extended periods.
Employers are generally sympathetic to these requests and keen to facilitate them where possible, although sometimes the practical risks and costs can be prohibitive. Very often, the reason is a wish to spend more time with overseas-based family who the employee hasn't seen for a long time. In the war for talent, allowing employees to work remotely from another country can help to give employers a competitive edge as well as reducing staff turnover and improving morale. It can therefore be frustrating when it seems as though the law has not yet caught up with the demands of resourcing in a post-pandemic world.
For the reasons outlined below, the safest approach is always to take expert UK and local advice before approving any remote working arrangement. However, in our experience, a significant number of employers are comfortable taking a view that this is not required where the arrangement is only expected to last for a few weeks, the employee clearly has the legal right to work in the host country and the overall arrangement is likely to be relatively low risk. Those operating in sectors where the concept of flexible and remote working was already more commonplace prior to COVID-19, such as technology, seem to be particularly keen to embrace the possibilities.
At the same time, permitting such requests can be a divisive issue, particularly in companies where some employees have jobs that can be done remotely, while others don't. Do you allow requests from the former but not the latter, at the risk of stoking resentment? Or, to avoid this, do you say no to requests from everyone, risking disillusionment from those who could work from abroad but are turned down? The shifting position with quarantine requirements is a further complication. If you expect the employee to attend the workplace immediately on their return, does that mean you permit working trips to 'green' countries, but not 'amber' or 'red' ones? Or do you permit trips everywhere, as long as the employee is able to work effectively from quarantine on their return (and pay for it, if they have gone to a 'red' destination)? Or is the quarantine status of the destination country irrelevant, given ever-shifting categorisations?
Assuming you are willing to accept at least some requests, we recommend that you consider putting in place a policy to ensure that requests are treated in a consistent fashion and dealt with by the right people. It is also highly advisable to enter into a short, written agreement with the employee, setting out the basis on which the request has been agreed. Before you get to that point, however, we have set out below some of the issues you should think about.
The first and most critical point to consider will usually be whether the employee can legally work in the host country, even if the employee will only be working in that country on a remote basis for a couple of weeks.
Following the end of the Brexit implementation period, British citizens no longer have an automatic right to work in the EEA and Switzerland, unless they are also a citizen of one of these countries. In order to work in these countries, therefore, these individuals may need to obtain the relevant immigration permissions from the host country before they start working there.
Many of the early requests to work abroad have come from employees who already have the right to work in the host country, for example because they are a citizen of that country. It is tempting for employers to adopt policies that only allow employees to work remotely from countries if they already have a legal right to work there. In theory, however, this approach could be indirectly discriminatory against UK nationals who are less likely to have the legal right to work remotely overseas. It may be possible for the employer to objectively justify this position, but this could still raise difficult questions; for example, how far should employers be obliged to explore the possibility of obtaining visas for employees so that they can work abroad?
Mandatory employment protections
If an employee works from another country, even for a short period, they can become subject to the jurisdiction of that country and start to benefit from local mandatory employment protections (e.g. greater dismissal rights, paid annual holidays and minimum rates of pay). This will depend on the rules in the country that the employee is working from but, generally speaking, the implications associated with short trips will be limited.
It is also important for employers to consider local health and safety requirements. These can be more onerous than the equivalent UK rules; for example, in some countries, employers must pay for certain equipment. Even if an employee is working from another country, you will continue to be responsible for providing them with a safe working environment under UK law. Again, however, the practical risk from a short trip will be low (but perhaps consider reminding the employee to adjust their sun lounger to an ergonomically safe position for using a laptop...).
Tax and social security
The tax and social security position will always depend on the situation; for example, the rules in the country that the employee will be working from and how long they intend to stay. While the safe approach will always be to seek local advice on whether contributions could be payable, or reporting obligations triggered, many employers are likely to take judgment calls where short holiday extensions are concerned, but will seek to pass any risk on to the employee.
From a UK perspective, the UK employer should continue to deduct income tax under the PAYE system in accordance with the employee's PAYE code notwithstanding that the employee is temporarily working overseas. You should also continue to deduct employee's National Insurance contributions (NICs) and pay employer's NICs as though the employee was continuing to work in the UK.
The written agreement with the employee governing their time in the host country should confirm that the employee will be liable for any additional tax or social security that becomes payable as a result of their decision to work abroad. The agreement should entitle the employer to deduct this from the employee's pay or seek reimbursements if necessary.
In our experience, employers without an existing presence in the host country are often highly concerned about the risk that the employee's presence in the host country could create a 'permanent establishment' in that country (i.e. a taxable presence of the employer entity). If a permanent establishment is created, the profits attributable to that establishment would be subject to corporate taxes in that country.
Whether a permanent establishment is deemed to be created will depend on the local rules in the host country, but if the employee's role involves negotiating and concluding contracts on behalf of the employer, the risk will usually be higher.
Ultimately, if the remote working arrangement only continues for a few weeks, the permanent establishment risk is likely to be relatively low. However, the risk will increase the longer that the arrangement continues and should be kept under review.
The employee's presence in the host country could give rise to data protection considerations, particularly if their role involves processing personal data. Before agreeing for the employee to work remotely from the host country, the employer should be comfortable that it will not be in breach of data protection law (both in the UK and the host country) by transferring data to the employee, and consider what measures it has in place to keep the data secure; for example, does the IT equipment the employee will be using while abroad meet the appropriate security standards?
Implementing a policy
Given the number and complexity of these legal issues, it is sensible to consider a formal policy, especially if you anticipate more than just the odd isolated request. A policy can be a helpful way of ensuring that a proper process is followed and that all requests are dealt with promptly, appropriately and consistently and are channelled to the right people in your organisation.
Understandably, given the potential risks and costs involved, some employers have opted to implement blanket policies prohibiting working remotely from overseas. This is particularly prevalent in regulated sectors such as financial services where there are concerns that allowing employees to work outside of the UK could cause regulatory issues.
Blanket bans could potentially be challenged, however, as indirectly discriminatory on the basis of nationality. Non-UK nationals are arguably more likely to want to spend time working outside of the UK. It is important to consider, therefore, whether such a policy could be objectively justified, especially in situations where the employer has significant resources and where, on closer analysis, it turns out that facilitating a particular employee's request would actually be relatively inexpensive and low risk. For employers in most sectors, especially those who are looking to reap the rewards associated with greater flexibility, the most appropriate solution is often to consider every request on its individual merits.
Practical considerations and reaching agreement
We recommend that you enter into a short, written agreement with the employee, before they travel. This should cover, for example:
- When the employee will be required to return to work in the UK (it is important to document this clearly as a low-risk situation can turn into a higher risk situation if the employee ends up prolonging their stay).
- Whether any of the employee's benefits (e.g. private health insurance) will be affected while they are working remotely from overseas. If so, the employee should acknowledge in writing that these will not apply while they are travelling and that they are responsible for sourcing their own equivalent cover.
- What core hours the employee will be expected to work while they are in the host country (assuming that there is a significant time difference) and who will be supervising them.
- Whether the employee will be required to cooperate with any additional mandatory immigration or right to work checks.
- Whether any additional costs associated with the temporary arrangement should be passed on to the employee, and if so how.
- Any other measures you need to take to secure confidential information and intellectual property, and to ensure that the employee complies with data privacy and health and safety laws.
- Any additional insurance required (e.g. covering employees having a work-related accident or loss/damage to company property).
- The arrangements for quarantine, if this might be required on the employee's return to the UK.
For a more in-depth discussion of the possible risks of an employee working remotely from abroad and how to mitigate these, see here.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.