Employees Working Abroad: The Hidden Risks for UK Employers

By Tim Dare, Mosaic Search & Selection

Flexible and remote working have transformed the way businesses attract and retain talent. But as working patterns become increasingly flexible, employers are facing a new question: Should employees be allowed to work from abroad?

For many organisations, particularly those operating internationally, allowing an employee to work overseas for a few weeks or months can seem relatively straightforward. Technology makes it possible to work effectively from almost anywhere, while greater flexibility can improve employee satisfaction, retention and access to talent.

However, working abroad for a UK employer can create tax, employment law, immigration and regulatory obligations that are easily overlooked.

Before agreeing to an overseas working request, employers need to understand where the potential risks lie.

Why Are More Employees Asking to Work Abroad?

International remote working can offer genuine advantages for both employers and employees.

For employees, it can provide greater flexibility, the opportunity to spend extended periods with family overseas or simply the freedom to work from a different location.

For employers, offering greater flexibility can strengthen the employee proposition, support retention and make an organisation more attractive to senior and specialist talent.

It can also provide useful exposure to international markets and customers.

But an informal agreement to “work from Spain for a couple of months”, for example, can have consequences that extend far beyond HR.

What Are the Tax Implications of Employees Working Abroad?

Personal tax is one of the first areas employers should consider when an employee requests permission to work overseas.

Tax residency rules vary considerably between countries and are not necessarily determined by where the employee’s company is based or where their salary is paid.

An employee who spends an extended period overseas could become liable for income tax in that country. In some circumstances, they may also retain UK tax obligations, with relevant double taxation arrangements determining how their ultimate liability is calculated.

Simply continuing to pay an employee through a UK payroll does not necessarily mean there are no overseas tax implications.

The UK Government provides useful guidance on tax and UK residence for people with foreign income, including information about UK residence and the Statutory Residence Test.

For this reason, both the duration and destination of an overseas working arrangement should be considered before permission is granted.

Could the Employer Have Overseas Payroll Obligations?

The tax implications are not limited to the employee.

Depending on the country and circumstances, the employer could also acquire local payroll or social security obligations.

This might include registering with overseas authorities, withholding local income tax or making employer social security contributions.

HMRC provides specific guidance for UK businesses on PAYE and National Insurance when employees work abroad.

If these obligations are identified retrospectively, an organisation could face unexpected administrative costs, tax liabilities, interest or penalties.

Could Remote Working Create a Permanent Establishment?

For businesses allowing senior employees to work abroad, Permanent Establishment risk can be particularly important.

An employee working regularly from another country could, depending on their activities and the applicable tax treaty, contribute to the organisation being considered to have a taxable business presence there.

The level of risk will depend upon the circumstances, including the employee’s role and authority.

Senior executives, directors, sales leaders and other employees who negotiate contracts, make significant commercial decisions or act on behalf of the organisation may require particular consideration.

If a Permanent Establishment is created, some of the company’s profits could potentially become subject to corporation tax in the overseas jurisdiction.

Which Employment Laws Apply When an Employee Works Overseas?

Another important consideration is international employment law.

An employee working from another country may acquire certain rights under local employment legislation even though they remain employed by a UK organisation and have a UK employment contract.

Depending upon the jurisdiction and circumstances, this could affect areas such as:

• Working hours
• Holiday entitlement
• Minimum pay
• Family leave
• Pension or social security obligations
• Health and safety
• Employee termination and redundancy rights

The longer and more permanent an overseas working arrangement becomes, the more important it is to establish which employment laws could apply.

Do Employees Need a Visa to Work Remotely Abroad?

Working remotely does not necessarily give an employee the legal right to work in another country.

An employee may be entitled to visit a country as a tourist but not necessarily to carry out employment activities while there.

Some countries now offer digital nomad visas specifically designed for individuals working remotely for overseas employers. However, eligibility requirements, permitted activities, duration and tax treatment vary significantly.

Employers should therefore consider immigration and right-to-work requirements before approving an international remote working arrangement.

Data Protection and Cyber Security When Working Overseas

Allowing employees to work internationally can also introduce additional data protection and cyber security considerations.

Employees may be accessing confidential company information, customer data or commercially sensitive systems from overseas locations and networks.

Businesses should consider whether appropriate security measures are in place, including secure devices, VPN access, encryption and clear policies covering the handling of confidential information.

For organisations operating within regulated sectors such as financial services, these considerations may be particularly important.

How Can Employers Manage International Remote Working?

Allowing employees to work overseas does not necessarily need to be avoided. The key is having a clear and consistent process for assessing requests.

Employers may wish to consider:

• Introducing a formal international or overseas remote working policy.
• Setting limits on how long employees can work overseas.
• Requiring written approval before employees work from another country.
• Assessing tax, payroll and social security implications.
• Checking immigration and visa requirements.
• Considering Permanent Establishment risk for senior employees.
• Reviewing employment contracts and insurance arrangements.
• Maintaining appropriate cyber security and data protection controls.
• Obtaining specialist tax or legal advice where required.

A structured approach enables employers to offer flexibility without unnecessarily exposing the organisation to risk.

International Working Is Becoming Part of the Talent Conversation

For employers, the wider issue goes beyond compliance.

Senior executives and specialist professionals increasingly expect conversations around flexibility, location and international working to form part of the recruitment process.

Organisations therefore need to think carefully about what they can realistically offer and communicate those expectations clearly from the outset.

We explored this in our recent article, Flexible Working: Start the Conversation Early, where we looked at why discussing working arrangements early in the recruitment process can help avoid misunderstandings later.

A company that cannot accommodate permanent overseas working may still be able to offer limited international flexibility. Equally, businesses expanding into new territories may increasingly choose to recruit talent already based within those markets.

This is where international talent networks can become particularly valuable.

Before You Agree to Working Abroad, Take Expert Advice

Whether you are an employer considering recruiting someone who will work from another country, an existing employee has asked to work overseas, or you are an employee considering working abroad for a UK employer, it is advisable to obtain specialist advice before putting the arrangement in place.

The implications can vary considerably according to the country involved, the length of time spent there, the individual’s tax residency and nationality, and the nature and seniority of their role.

What appears to be a relatively simple remote-working arrangement could have consequences for tax, payroll, social security, immigration and employment law.

HMRC and the UK Government are useful starting points, but individual circumstances may warrant advice from a specialist global mobility adviser, international tax adviser and, where appropriate, an employment or immigration lawyer.

Taking advice before the employee starts working overseas can be considerably easier — and potentially much less expensive — than trying to resolve tax or compliance issues retrospectively.

Global Executive Search with Local Market Knowledge

At Mosaic Search & Selection, we work with organisations recruiting senior and specialist talent across the Publishing and Financial Services sectors, both in the UK and internationally.

Through our membership of NPAworldwide, we have access to a global network of independent executive search and recruitment firms, giving our clients access to local market knowledge and talent across international markets.

For organisations expanding overseas, entering new territories or looking for specialist leadership talent internationally, this combination of executive search expertise and local market insight can significantly broaden the available talent pool.

Considering employing a senior executive overseas or making an international senior hire?

Talk to Mosaic Search & Selection about how our global executive search network can help you identify the right leadership talent, wherever they may be located.