As the UK government rapidly approaches the latest (and final?) deadline to strike a deal with the European Union (EU) Parliament to agree to terms on leaving the EU, the impact on employees assigned to the EU should be carefully considered.
Many companies are reviewing their corporate structures to ensure that, regardless of the deal (or ‘no deal’ in the case the UK leaves the EU without agreeing on terms), they have the right operations in the right locations to keep “business as usual” while considering any issues that may arise. When companies review their corporate structure, one area often overlooked or considered late in the process, is planning their talent. How will your business continue to operate successfully in the UK and the EU post-Brexit, and where will you get your talent? Will it be local new hires, talent already in the workforce, or perhaps relocating your current mobile employees to a new location?
“But does it really matter to me, since Brexit is happening in the UK and my company is in the US?” Great question and a valid point. However, we urge US companies with mobile employees to consider a number of aspects that may impact their mobility programs in the UK and the EU. As we wait to hear the decision details, scheduled to be announced before October 31, here are a few points to consider so you can remain proactive with your mobile workforce in the UK and the remaining countries in the EU.
Now is a good time to review the status of all mobile employees into and out of the UK. One of the first tasks is to identify any employees in the UK who are working under a permit or visa, then, perform an assessment of what impact leaving the EU will have on their status. UK employees working in the EU also require a review of their immigration status. The likely changes to the rules may mean there is a new process for workers between the UK and the EU after Brexit. It will be important to consult with your immigration providers.
Additionally, does your company’s strategy change with respect to hiring and assigning employees into the UK and the EU and vice versa? Companies should review where they source their talent from and determine how to avoid immigration issues, such as moving workforce that would not create an immigration issue either in the UK or the EU and finding local talent. Companies moving operations from the UK into EU countries will require this strategic review of immigration practices.
Social security and retirement benefits
The EU has a network of agreements between member countries and from a practical perspective this means that obtaining a certificate of coverage (generally known as an A1) is relatively straightforward. However, if the UK leaves the EU, there is no provision, as of yet, to determine if this current process will continue, if current A1 certificates are valid beyond the Brexit date, or if requests for new certificates will be required.
A major purpose of a certificate of coverage is to outline what an individual is and isn’t insured for in the Host country—i.e., benefits the employee is entitled to. It is important to remember that it’s not just the operational process of applying for the certificate of coverage, but also the gap any new negotiations may leave in coverage of benefits. How will you, as a company, bridge this gap if it happens?
It is also worth considering whether current retirement benefit arrangements will be valid between the UK and the EU. How will a pension contribution or distribution be treated between the countries?
The good news is that the UK has an extensive tax treaty network that covers all of the EU countries. It is likely that these treaties will be largely unaffected when Brexit happens, but that does not mean they won’t be renegotiated in the future. With this in mind, the tax aspects such as payroll and individual tax return filing are likely to remain unchanged for the time being, regardless of what happens with Brexit.
One group to carefully consider and review are frequent business travelers between the UK and EU. Their presence in either jurisdiction may create permanent establishment risks (much like it could do currently) as well as trigger payroll, income tax, and social security issues. Not to mention the immigration aspects. The UK / EU business traveler group could be most “at risk” and should be monitored closely.
Another potential area of concern is the award of various types of equity. If you need to move talent across borders and the employees have equity (of various types), this equity may not be as tax efficient in their new locations as it was in their Home location. Taxation in multiple jurisdictions may also mean additional compensation reporting and/or withholding for the company and additional tax filings and complexity for the employee.
There may be a different performance position with respect to the award of equity between the countries and the “hurdles” may also be different. Some countries have stringent reporting requirements on senior employees with equity that may affect the employee in their new location. How will you manage these differences from both a company and employee perspective?
Policy & Planning
As can be seen from the above, the impact of Brexit may result in the need for a different level of support for mobile employees. For this reason, a review of existing company policies, related but not limited to business travel, expense management, and assignment policies (such as short-term assignments, tax equalization, etc.), should also form part of your overall review as a consequence of Brexit.
Tied to any policy changes will also be cost planning for the business. For example, it is likely that increased business travel between the UK and the EU will mean greater travel costs. Additionally, relocating staff from the UK to another EU location could mean there are different tax and social security costs to consider. You will need to determine if the cost impacts adversely affect the individual and his or her family, and how the business will absorb additional costs in the short term.
One of the cost assessment projects a number of companies have undertaken is a strategic review of the locations being chosen for corporate tax purposes and identifying the cost planning opportunities (tax and social security included) in moving talent versus hiring/identifying local talent.
Data sharing and protection
How will you remain compliant from a GDPR and data sharing perspective if/when the UK leaves the EU? Will your systems be compliant and will they be able to share data between themselves and other vendors to ensure your business remains unaffected?
One aspect often overlooked are the rights of the employee and the employer in different countries. Even though the individual’s underlying employment contract may still be with their Home location, their new Host location may afford them new and different rights. Think about how you will bridge any gaps or deal with any added protection for the employee from a legal perspective.
Lastly, in the maelstrom of Brexit, it may be easy to forget the experience of your employees. They could be feeling uncertain and uneasy thinking about some of the scenarios outlined above and may be concerned that they could have to return to their Home location or be posted elsewhere. Are there any “new” locations that would be attractive to your mobile employees? Keeping them confident and informed will be vital through this entire process.
As you can see, there are many aspects to consider for a US-based mobility team with respect to Brexit. To help prepare for the October 31 decision, we recommend you remain engaged with your UK teams, and make sure you have a seat at the Brexit table within your organization.
The information provided above is for general guidance only and should not be utilized in lieu of obtaining professional tax and/or legal advice.