How does remote work affect payroll for employees?

How does remote work affect payroll for employees?

With greater global mobility, people wanting to travel and many employees expecting more flexibility and remote working options for their roles, new challenges are occurring for business owners and their payroll team or supplier.

If your employees request the ability to remote work overseas, what do you need to consider as an employer? Remote working abroad can add risk, impact tax, NI deductions etc, so it's important to have clear policies to deal with a remote workforce in your business.

In this blog, we'll look at the potential issues for a business of remote working and the impact on your business and payroll processes.

Who is classed as a remote worker?

Remote work is broadly defined as work that's done outside of a physical business location, for example an office. However, there are various levels of remote worker to consider:

• Fully remote working - employees who are paid a salary by the company but given the ability to work full-time from their own chosen location(s). Depending on the role and company policy fully remote workers could in theory work anywhere in the country or potentially anywhere in the world for any period of time.

• Flexible remote working - this is often also described as hybrid working. This where salaried employees are offered some flexibility to employees by allowing them to work from home or another location but with some stipulation to come into the business premises at certain agreed times.

• Freelance working - These people are not salaried employees but are external suppliers or independent contractors to the business, so they don't get paid via your payroll system but normally through a normal supplier invoicing structure.

Key considerations for paying employees who work remotely.

There are some key considerations for your payroll strategies, payroll processes and company policies when looking at the impact of remote workers in your business. For example, if an employee wants to work overseas, then this may or may not present additional challenges for the business.

If they just spend a few days or weeks working overseas, this is unlikely to trigger any unexpected tax liabilities or challenges. But if they want to work abroad for an extended period of time, the greater the considerations, risks and work involved.

Some of these considerations for example are:

• Where is the employee physically and geographically going to work?

• How long will the arrangement last?

• Where will the employee be deemed as being resident (i.e. if they are planning on working remotely overseas for long periods of time, will this affect their individual residency position and your payroll processes)?

• What are the tax compliance issues, tax implications and the social security/NI requirements for the location in which the employee is working.

• How will you deal with and reimburse costs such as expenses if you require the remote workers to come into the business physically at any point in time.

• What are the payroll laws and reporting requirements in the countries involved. For example, do you need to withhold taxes are their minimum wage requirements in the country and do you currently fulfil these.

Payroll for remote employees

There are several payroll matters you may need to consider if an employee wants to remote work abroad to ensure your payroll processes remain compliant.

Payroll withholding

Once the residency, income tax and social security position has been established for the employee, you need to understand if you as the employer have any withholding or other compliance obligations in the other country. For example, you may be required to withhold the tax and social security for the overseas country. Payroll withholding failures can create significant risk for an employer, so you need to fully understand what is required.

Permanent establishments

An employee's presence and working activity overseas could create problems if the work and time spent is sufficient enough to create a 'permanent establishment' for you as an employer in the country in question.

The easiest way to consider whether a permanent establishment risk exists with remote workers is whether they have a fixed place of business i.e. a business site such as office, branch or factory. Generally, if an employee is working in different locations or they work from home temporarily abroad it should not create a new permanent establishment. However, the definition is not always straightforward, for example if your employee works long term from their home abroad this may trigger a permanent establishment risk.

Immigration and local employment laws

Work permits may have to be put in place. If the appropriate permits are not requested or granted then not only will your employee face penalties and issues, but you as the employer may also face penalties.

Tax

See below for more information on tax regulations and considerations for remote workers abroad.

Data protection and security

If your company data is being transferred overseas, there may well be data security risks and regulations that need to be considered.

Tax considerations for overseas remote workers

If you have remote workers who want to work for extended periods in different countries, then there will be separate tax and social security considerations in different jurisdictions that need to be considered.

UK income tax

If an employee opts to work abroad for an extended period of time, unless an employee is protected by a double taxation agreement, the employee may be subject to income tax in the country where they physically are undertaking their duties.

Generally, where an employee remains a UK resident and they do not exceed 183 days of working abroad in any 12-month period, no tax should be due in the other country. However, you as the business owner and the employee will need to seek specialist tax advice to fully understand the consequences for the employee and your payroll.

Short-term working overseas - If less than 183 days per 12-month period, the employee will typically be taxed in the UK, however, there may still be reporting obligations in the overseas country.

Medium-term working overseas - If working more than 183 days in a 12-month period, the employee may still be taxed in the UK but may also be taxed in the overseas country. Depending on the country and the time spent, the employee may be entitled to an overseas tax credit for any tax paid in the overseas country.

Long-term working overseas - For extended periods of time or for employees that work in a country for which the UK has no comprehensive double tax treaty, the employee may not be taxed in the UK but will be taxed in the overseas country on their employment income.

Social security contributions

Social security is totally different to tax regulations and tax obligations. Even if your employee is not liable for tax overseas, they may be liable to pay social security contributions in the country in which they are working.

For example, even if your employee is taxed overseas and not in the UK, they may still be liable to pay NI in the UK. It's worth noting that some countries have a social security reciprocal agreement with the UK, or your employee may be able to apply for a certificate of coverage, so they only have to pay UK NI.

Double treaty tax laws

Many countries have double taxation treaties with the UK. Double tax agreements or double tax treaties as they are also known, are agreements between two countries which help to protect against the risk of double taxation of the same income in two countries.

Benefits

Another area to consider are employee benefits as there may well be ramifications if your employees choose to remote work abroad. Periods spent working in another country may impact on company insurance policies and whether an employee can continue to receive benefits stated in their employment contract. There could be issues with things like private medical cover, life assurance, income protection and pensions. Issues will depend on the benefits provided, the provider of the benefits, where the employee is based, the length of time and local legislation.

For example, things like medical cover will often not cover treatment outside of the UK. For pensions, there may be complications if the employee doesn't retain a UK address.

As the employer, you and the employee need to understand the impact that remote working overseas has on benefits and any benefits in kind taxation issues.

Summary

Thanks to technology, staying connected and working remotely is now easier and employees are expecting more and more flexibility with their location of work. A remote global workforce could give you access to a wider talent pool, provide a more diverse workforce, increase employee satisfaction, and help to retain the best talent in your business for longer.

However, allowing remote employees or employing overseas workers in different countries can be complex, time consuming and challenging as an employer. The impact of remote work on your business and payroll needs to be clearly understood. It's critical to establish clear remote working policy documents that cover things like which employees are eligible, if the employees are entitled to work abroad, which countries, time limits etc.

You need to understand and establish the residency, tax and social security position of employees. There may well be consequences in managing payroll and payroll process changes that need to be made before agreeing to overseas remote working for your employees.

Get in touch with Haines Watts for outsourced payroll services

Many businesses find payroll a real headache. It is important you pay your people on time and accurately, but with ever changing legislation, changes in employee expectations and circumstances, it can feel overwhelming at times. 

If payroll is becoming too complex for you to handle in house, or your current payroll provider isn't giving you the service and additional advice you need, then why not look to outsource your payroll to Haines Watts?

Our payroll team are always up to date with latest legislation, meaning you can trust in us to always keep you compliant. We adhere to the highest standards of data security, and we are compliant with current GDPR legislation to protect your data and that of your employees. Our payroll outsourcing guarantees you reliable, compliant and secure payroll processing in a simple monthly cost meaning no in-house overhead costs of software, licences and payroll resource. Our tax team can also assist in advising about tax consequences of overseas remote workers, international tax and residency.

Contact Haines Watts Chester, Liverpool, Wirral, to discuss how we can help with all your payroll requirements.