This Inbrief was published in 2023 and has been updated in November 2026 to reflect legal developments since then – including the OECD’s 2025 guidance on home-office permanent establishments, changes to HMRC’s PAYE and voluntary National Insurance rules, new social security agreements and the EU’s digital border controls – and the practical and enforcement trends we are seeing.
The content includes:
Tax and social security implications
If an employee is only working overseas temporarily, generally, the UK employer should continue to deduct income tax under the PAYE system in accordance with the employee’s PAYE code on 100% of the employee’s earnings. In addition, the employer should continue to deduct employee national insurance contributions (NICs) and pay employer NICs. However, the employer and employee may need to apply to HMRC for a certificate (an A1 certificate or certificate of coverage) confirming that social security is only due in the UK.
Matters start to become more complicated where a stay becomes extended, or even indefinite. Employers should always bear in mind the figure of 183 days in a country in a 12 -month period – this is generally the tipping point for tax residency, often together with employer obligations to operate income tax withholding in the overseas country (see further below). Even before this threshold is reached, there are traps for the unwary. From a UK perspective, if it is anticipated that the employee will cease to be UK tax resident and will be working wholly overseas for at least a complete UK tax year, they may apply to HMRC for a No Tax (NT) PAYE code which, if issued, will authorise the employer to pay the employee without deduction of UK income tax (but not UK NICs). An NT code will not be available if the employee is still expected to have substantive UK workdays – for example, returning to the UK for meetings.
Where an employee who is not UK tax resident continues to have some UK workdays, the employer can limit PAYE to its best estimate of the employee’s UK earnings through obtaining a “Globally Mobile Employee PAYE notification” (or “GME” notification) from HMRC. Since 6 April 2025, this notification process has replaced the old approach of requesting formal directions under section 690 ITEPA. Now, the employer can operate reduced PAYE as soon as HMRC acknowledges the notification, although HMRC can verify and revise the position. Without a valid notification, PAYE must continue on 100% of earnings. The employee may then need to file a self-assessment return to pay any shortfall or reclaim any excess.
It is important to consider whether the employee’s stay in the host country – regardless of duration – creates risks of income tax or social security liability in that country, or even the risk that you (as the employer) are regarded as having created a “permanent establishment” there for corporation tax purposes. In order to understand the position, it will be necessary to establish the rules in place in the relevant host country. We briefly outline the issues below.
Tax authorities are also scrutinising internationally mobile workers more closely. A 2026 employer survey found that 39% of organisations had experienced heightened scrutiny from tax, immigration or social security authorities over the previous two years, with tax the most frequently cited, while two-thirds had no formal process for assessing the compliance risks of staff spending time abroad. HMRC’s August 2026 Guidelines for Compliance on short-term business visitors (GfC19) identify insufficient systems to track overseas employees and failure to retain records supporting decisions as among the most common employer errors, and we have seen HMRC compare travel data with Home Office border records. Employers should keep accurate records of where employees are working and correct any past errors promptly; where an inaccuracy involves an offshore matter, HMRC’s guidance is that liabilities may need to be disclosed for up to 12 years.
Income tax may be payable in host country
The starting point is that the host country has primary taxing rights over the employment income that the employee earns while physically working in that country. However, if there is a double tax treaty (DTT) between the UK and the host country, the employee may be exempt from income tax there if certain conditions are satisfied including:
- The employee is not tax resident in the host country under the DTT. If the employee is tax resident in the UK and in the host country under each country’s domestic law, their residence status is determined in accordance with the DTT by reference to their personal circumstances.
- The number of days the employee is present in the host country over a 12-month period (however briefly and irrespective of the reason) must not exceed 183 days.
The UK has a DTT with most countries, including all 27 EU countries and most other major world economies. In practice, this means that a short stay abroad in many locations is not going to result in the employee becoming liable for host country income tax.
Remember, though, that employees who have already spent other periods in the host country in the same 12-month period (e.g. visiting family) may reach the 183-day threshold sooner than you think. Also, the full details of the conditions can differ from DTT to DTT, particularly the period over which the 183-day test must be satisfied.
In addition, the employer and/or employee may still have obligations in the host country even if the DTT applies. For example, the employer may need to register with local authorities as an employer and/or report on the income that is being paid to the employee. It is therefore important to understand the local position. Host authorities do enforce these obligations: for example, in France a foreign employer that fails to operate income tax withholding where required can face a 10% penalty on the amounts that should have been withheld, plus late payment interest.
If the employee does become subject to tax in the host country but remains UK tax resident, they will remain subject to UK income tax on their worldwide income but should be able to obtain credit for some or all of the tax they pay in the host country. They will, however, need to complete the appropriate tax declarations, which could be a complex process. You will need to decide the extent to which you are willing (or not) to help the employee with this.
Social security position depends on agreements in place
The social security position is complex. The general rule is that employee and employer social security obligations arise in the country in which the employee is physically carrying out their duties. There are, however, exceptions.
Where UK employees are working in the EU, there are exceptions for multi-state workers (employees who are working in two or more countries) and “detached workers” (UK employees who are temporarily seconded to work in the EU) or those who are temporarily working abroad for personal reasons with the agreement of their employer.
For multi-state workers, social security is generally due in the country where the employee is habitually resident if they carry out a substantial part (at least 25%) of their work there; otherwise it is generally due in the country where the employer is based. Marginal activities are disregarded although there is inherent uncertainty regarding what qualifies as “marginal” and what does not. The CJEU has confirmed that working time in third countries outside the EU/EEA/Switzerland must be taken into account when applying the 25% test.
Broadly speaking, if a UK employee is sent to work in an EU country, UK employee and employer NICs can continue to be paid, and no social security will arise in the EU country, provided that:
- the stay will not exceed two years; and
- the employee has not been sent to replace another detached worker.
Depending on the circumstances and subject to local advice, it is likely to be necessary to obtain an A1 certificate from HMRC confirming the position.
The UK has negotiated social security agreements with Ireland and Switzerland, which also contain exemptions both for multi-state workers and detached workers. The detached worker exception under the Irish and Swiss agreements could potentially be for longer than two years.
The UK’s Convention on Social Security Coordination with Iceland, Liechtenstein and Norway entered into force on 1 January 2024. It mirrors the detached worker provisions of the UK-EU arrangements, so the general rule is that a detached worker can remain subject to their home country system where the anticipated duration of the work does not exceed 24 months, although the authorities can agree exceptions to extend that period.
Outside the EU and Switzerland, the position will depend on whether there is a reciprocal agreement between the host country and the UK. In countries where there is a reciprocal agreement, such as the USA, South Korea, Japan and (since 2026) India, it is possible for an employee to remain within the UK system and not pay local social security contributions for up to five years (depending on the country), if the employee has a valid certificate of coverage.
In other countries, where no agreement with the UK exists, such as China and Australia, the UK employer must continue to deduct employee UK NICs and pay employer NICs for the first 52 contribution weeks of the arrangement, provided the employee remains ordinarily resident in the UK. Return visits to the UK to work during that period can reset or extend the 52-week period depending on their length, so business trips back to the UK need to be monitored. Depending on local laws, there may also be a liability to pay social security contributions in the host country and, again, local advice should be sought. In any event, as arrangements become extended or even indefinite it will always be important for the employer to keep income tax and social security arrangements under review.
Employees who stop paying UK NICs while abroad have often protected their UK state pension record by paying voluntary contributions. From 6 April 2026, voluntary Class 2 NICs were largely withdrawn for periods abroad, and new applications to pay voluntary Class 3 NICs for periods abroad require at least 10 years’ continuous UK residence or 10 years of qualifying contributions (previously three years). Transitional rules apply to some existing payers.
Irrespective of the country, a point may be reached at which, either by legal compulsion or in some cases as the result of a positive choice, it is sensible to transition the employee permanently into the host country system.
Risk of creating a permanent establishment
In some situations, there will be a risk that the employee’s activities or presence in the host country will create a permanent establishment for the employer in that country. Under most DTTs a permanent establishment will be created if: (i) there is a “fixed place of business” in the host country at the employer’s disposal through which the employer’s business is carried on; or (ii) the employee acts as a “dependent agent” of their employer, which means they habitually exercise the authority to conclude contracts relating to the operation of the business in the name of the UK employer. Under some DTTs a permanent establishment could also be created if the company is providing services in the host country through for example an individual who is present in that country for a certain period of time.
In November 2025, the OECD updated its Commentary on the Model Tax Convention with more detailed guidance on when cross-border working from a home (or other personal workspace, such as a holiday rental or second home) creates a “fixed place of business” permanent establishment. Broadly, if the individual works from that place for less than 50% of their total working time over any 12-month period, it will generally not be a place of business of the employer. Above that threshold, the position depends on the facts, and a prominent consideration is whether there is a “commercial reason” for the individual being in the host country – for example, because they engage directly with customers, suppliers or associated companies there and that engagement is facilitated by their location. The mere presence of clients in the host country is not of itself a commercial reason. This guidance may give employers more comfort in permitting ad hoc overseas working, but risks remain: the dependent agent test must still be considered separately (particularly for senior and client-facing employees), and not every tax authority has confirmed that it will follow the OECD approach.
Careful consideration should be given to this issue in circumstances where the employer does not already have a permanent establishment in the host country. If a permanent establishment is created by the employee’s presence or activities, the profits attributable to that establishment would be subject to corporate tax in that country. It would also mean that the income tax exemption in the DTT would not apply. While this may be less of a problem if you already have established operations in the host country – we are aware of a number of employers which permit employees to work overseas but only where there is an existing establishment to which they can be transferred in order to address this issue – it could be a real headache if you do not.
Assuming a working-from-home arrangement is only short term, it would be difficult for the tax authorities to argue that a permanent establishment had been created. The longer the arrangement continues, however, the greater the risk – particularly if for example the employee is in a senior strategic management role or in a business development role and is routinely negotiating the principal terms of contracts with customers which are simply “rubber-stamped” without amendment by employees working in the UK.
Practical steps that help to reduce the risk include documenting that the arrangement is at the employee’s request for personal reasons, continuing to make a UK office available to the employee, not reimbursing or bearing the cost of the overseas home office, keeping the UK office as the employee’s place of work in the contract, and ensuring the employee does not negotiate or conclude contracts, or hold themselves out as operating, in the host country.
Immigration implications
If an employee wishes to work from any host country, you will need to consider what restrictions may be in place. For example, if they want to work in Hong Kong but do not have permission to stay there indefinitely, they should not undertake any work without permission – even for a limited period and even if the employing entity is not a Hong Kong entity.
Advance immigration permission may not be required for business visits, although this will sometimes depend on the employee’s nationality and the immigration regime of the host country. Depending on the employee’s activities, it may be possible to characterise their stay as a business visit – for example, if their activities are limited to those typically undertaken during business trips (e.g., meetings and training). However, restricting an employee’s activities in this way is unlikely to be practical for many employees and, in general, the longer an employee stays in the host country, the more difficult it will be to characterise their stay as a business visit. In most countries, productive work itself is prohibited for business visitors, but limited exceptions may apply.
In certain countries, if the employee’s work can be said to be “incidental” to the purpose of their overall stay, it will not pose an issue from an immigration perspective. This could be the case where an employee works remotely from their holiday destination for a short period in order to extend their break. Where this exemption applies, it is helpful to consider whether the employee is planning to work from the company’s office in the overseas location (as opposed to their own accommodation) as this could weaken the argument that their work is incidental to the purpose of their trip. Aside from this, whether the employee attends the office could also impact on the employer’s insurance cover if the employee has an accident while abroad.
Following the end of the Brexit implementation period, British citizens no longer automatically have the right to work in the EEA and Switzerland as was the case previously (unless they are also a citizen of an EEA country or Switzerland, they have preserved their free movement rights, or have another type of immigration permission that allows work). British citizens can visit the Schengen area without a visa for short stays, but this is not very helpful as short-stay visit status only permits certain limited business activities and not “work”. Accordingly, British employees wishing to work from the EEA or Switzerland will need to apply for the correct immigration permission from the country to which they are travelling. This will typically need to be applied for outside of the host country, before the employee travels.
Getting immigration right first time is important as border controls are becoming digital. It is now easier for countries to track visitors and share data between authorities, which means employers should assume that undeclared overseas working is increasingly likely to be detected.
Since 10 April 2026, the EU’s Entry/Exit System (EES) has been fully operational at the Schengen area’s external borders (except Cyprus and Ireland at the time of writing), replacing passport stamping with digital records (including biometric data) of short-stay visits by non-EU nationals, including British citizens, and automatically detecting those who exceed the permitted stay. The separate European Travel Information and Authorisation System (ETIAS) is not yet in operation, and the EU has said it will announce the start date several months before launch. The UK has moved in the same direction whereby physical immigration documents have been replaced by eVisas that are checked electronically when the holder leaves and enters the UK, and visitors who do not need a visa can no longer lawfully travel to the UK without an Electronic Travel Authorisation (ETA).
Many countries now offer “digital nomad” or international remote worker visas, which allow an individual to live in the country and work remotely for an overseas employer without local sponsorship – examples include Spain, Portugal, Greece and Croatia. These can resolve the immigration position, but they are not a complete solution: they do not address the tax, social security, permanent establishment or employment law issues discussed in this Inbrief, and in some countries (such as Spain) the process requires either an A1 certificate or the employer’s registration with the local social security authorities. Eligibility criteria, minimum income thresholds and permitted activities vary considerably between countries and change frequently, so these routes should be checked with local immigration advisers.
Many employers have introduced policies permitting employees to work from an overseas location for a short period (such as up to one month) as long as they can show they have the right to work there – most obviously, because they are a national of that country. While this will generally be fairly low risk from an immigration perspective, it is important to remember that immigration law compliance may require additional steps to be taken – for example, in the UK employers are expected to carry out right to work checks and retain evidence of employees’ right to work status. From 1 October 2026, compliance obligations in the UK extend beyond traditional employment relationships into a wider range of working arrangements, and liability for employing an illegal worker can extend to other organisations beyond the direct employer. This reflects a shift towards more complex and flexible ways of engaging labour, making it increasingly important to verify compliance. Similar adaptations may be happening overseas, and it is therefore important to check, where the employee asserts that they have the right to work in the host country, that local right to work laws are complied with.
If an employer discovers that an employee has been working overseas without the right to work there, they should take local advice immediately as in most cases the employee must stop working from that country immediately. The usual course of action is to have the employee return to the UK or, if that is not possible, they might take an agreed period of leave or suspension (usually on pay) – while the employer investigates its potential liability. Disciplinary action may be appropriate, particularly where the employee did not seek, or was refused, permission.
Employers should also be mindful of allowing sponsored workers in the UK to work from overseas. Time spent working overseas, particularly on the Skilled Worker route, can be difficult to reconcile with sponsorship of a UK-based role (but it is not impossible). Sponsors should take special care and be mindful of their obligations to comply with their duties as a sponsor, such as a duty to report a change to a sponsored worker’s circumstances within 10 working days, including a change to normal work location.
You may also need to consider any immigration issues that could arise on the employee’s return to the UK. For example, EEA and Swiss nationals and their family members who have settled or pre-settled status in the UK under the EU Settlement Scheme will need to understand whether the absence may break the continuity of their residence for acquiring or retaining settled status. All non-British/Irish nationals should consider whether their absence from the UK may affect their visa, or their eligibility to apply for other types of status in future where absences are assessed, such as settlement or naturalisation as a British citizen.
Lastly, from a practical perspective, non-British/Irish employees must travel with a passport that is linked to their UK Visas and Immigration (UKVI) account, as their eVisa is checked when they leave and enter the UK and when they check in with their carrier to return. If their passport changes while they are abroad, they will need to update their account before travelling back. Where an employee relocates overseas and no longer holds UK immigration permission, any return trips to the UK must fall within the visitor rules (or an appropriate work route) and, depending on their nationality, they will need a visa or an ETA. Visitors cannot work in the UK, except for limited permitted activities, including incidental remote work for an overseas employer. This must not be the main purpose of the visit.
Intellectual property, confidential information and restrictive covenants
The location of an employee should not impact the ownership of any intellectual property (IP) that they create, provided their employment contract has appropriate provisions covering this. So if they are, for example, developing a patentable product or registrable design, provided their employment contract stipulates that all IP rights in any material developed in the normal course of their role are owned by the employer, the place from which they develop the product or material should not have an impact.
The UK legislation generally provides that any IP created by an employee, in the usual course of their employment, belongs to the employer. So, if the employment contract states that it is governed by English law and is subject to the jurisdiction of the English and Welsh courts, the employer can rely on the UK legislation if the IP provisions are not so explicit in the contract.
The situation becomes trickier when there is no employment contract in place, or if the contract does not state the jurisdiction and local law that will apply. In these circumstances, the employer may have difficulty if there is a dispute over the ownership of the IP in material the employee has created while working abroad. The employer may be able to argue that the dispute should be governed by English law and determined in England and Wales, enabling it to rely on the employer-friendly legislation mentioned above. This may be the case if the employer is a UK company and the product/material was for the UK market. The employee, or even a third party looking to claim ownership of the IP, may however argue that it should be governed by the legislation and jurisdiction of the host country.
It all depends on the circumstances, such as the role of the employee, the material they have created and how they have developed the IP in issue. For certainty and protection against problems arising, it is advisable for employers to clearly set out in employment contracts that all IP in any material created during the course of the employee’s employment is owned by the employer, regardless of from where the employee is working.
Confidential information
One aspect of intellectual property that often gets overlooked is confidential information. Wherever an employee is working from, the importance of protecting information important to a company remains (e.g. customer data or trade secrets). In fact, greater practical measures are often needed when an employee is working from somewhere other than their private home or the company’s office.
For instance, if the employee is working abroad from a second home, or from a hotel poolside or other public place, they should continuously ensure that their laptop and work are fully password-protected and secured. Employers should consider security measures such as laptop privacy screens, minimising (or totally preventing) working in public locations and requiring loose papers to be kept locked away when not in use. This is important not just for the protection of confidential information but for practical reasons. If the employee has their phone/laptop stolen, it will not be as easy for the employer to get replacement items to them if they are working in a jurisdiction where the employer has no office or base.
Restrictive covenants
Employers who are concerned about the competitive threat an employee may pose following the termination of their employment will also need to consider how the overseas working affects the enforceability of any non-compete, non-solicit and non-deal provisions in their contract. An employee who remains employed on their UK employment contract can still in principle be sued under that contract in the UK courts, and an injunction awarded which has extra-territorial effect (provided the contract does not contain any outdated limitations on the geographical area to which it applies). There may however be additional complexities in terms of effecting service on that individual, and potentially also with the individual arguing that the employer can only take enforcement action against them in the country in which it has been agreed they may work. For these reasons, and particularly where overseas work is extended or indefinite, it may be advisable for the employer to consider transitioning the employee on to a local employment contract containing covenants which meet relevant local legal requirements (which in many European countries will include payment during the term of the restraint).
Employment law and data privacy implications
In addition to the tax, social security and immigration implications explained above, there are various other employment law and data privacy considerations.
Mandatory employment protections may apply
If employees live and work abroad, even for short periods, they can become subject to the jurisdiction of that other country and start to benefit from the applicable local mandatory employment protections. These may include minimum rates of pay, paid annual holidays and – perhaps most importantly in the event of a dispute – rights on termination. What protections, if any, an employee acquires will depend on the country in question as well as the duration of their stay.
Equally, an employee working remotely overseas for the benefit of a UK business may keep their UK statutory employment rights. For longer term overseas remote workers, this assessment is often very fact specific but can be a costly mistake if not considered carefully when approving longer term overseas working requests. This will become more significant when the Employment Rights Act 2025 reduces the qualifying period for unfair dismissal protection from two years to six months from 1 January 2027. In some EU countries (such as Belgium and France), even short business trips can be treated as postings under local laws implementing the Posted Workers Directive, triggering minimum terms and notification requirements.
If an employee is planning to stay in the host country for an extended period, the employer should consider transferring them onto a local employment contract. This approach will ensure that the employer is complying with any local requirements and that important provisions such as those relating to confidentiality and post-termination restrictions are fit for purpose.
Be careful about transferring data
Employees will typically process personal data as part of their role (e.g. emailing colleagues or customers), which could give rise to data protection issues (e.g. sending an email to the wrong recipient, failing to use bcc, transferring data to a colleague/customer located in a third country). The employer needs to be comfortable that it is not breaching any data protection laws by transferring the data to the employee and that they have technical and organisational measures in place to protect the data and keep it secure. This may involve, for example, reviewing the electronic equipment being used by the employee to ensure that it meets the required standards.
Any monitoring or location tracking by the UK employer of an employee will also need to comply with both the law and regulatory guidance in the UK and the host country. Where a host country presents heightened data or security risk, that may be a valid reason to decline a request, and employers may also restrict sensitive work to secure, VPN-protected environments or defer it until the employee returns.
Most of the Data (Use and Access) Act 2025 has come into force since this note was first published in 2023. This includes targeted changes to the UK’s international transfer rules, making it easier for employers to decide if transfers are valid or not. Although the UK still has no AI-specific legislation, employers deploying any AI-enabled tools in relation to overseas employees may raise similar data transfer and security risks, which should be considered in relevant data protection impact assessments and mitigated.
Local health and safety protections may apply
UK employers have a duty to protect the health, safety and welfare of their employees, which includes providing a safe working environment when they are working from home. If an employee works from home abroad, you should also ensure that it is compliant with any local health and safety requirements. For example, in the Netherlands, employers must provide employees with the equipment needed to ensure a safe working environment, which in some cases might involve purchasing or contributing to the cost of relevant equipment.
Regulatory implications
For regulated firms there are additional considerations when deciding whether employees may be permitted to work from home overseas. These can vary across sectors and may depend on the individual circumstances of each case (e.g. the nature and seniority of the role being performed).
For financial services firms, key practical considerations will be whether the employee can carry out their role effectively and compliantly from overseas, and whether the firm can appropriately:
- monitor, supervise and oversee the relevant employee;
- comply with its internal policies and procedures; and
- continue to satisfy its regulatory obligations.
Further, as part of their conditions for authorisation, financial services firms are required to:
- be capable of being effectively supervised by their regulator(s), which includes consideration of the way in which the firm’s business is organised (e.g. structure and geographical spread);
- have appropriate non-financial resources (including sufficient human resources in terms of quantity, quality and availability); and
- be managed in such a way as to ensure that their affairs will be conducted in a sound and prudent manner.
As well as these high-level requirements, financial services firms will have in place policies and procedures implementing a range of more detailed requirements ranging from overarching systems and controls to business specific requirements. During the pandemic, and in its subsequent remote or hybrid working expectations for firms, the FCA highlighted the importance of requirements in the following areas:
- Market trading and reporting: the need for all relevant communications, including voice calls, to be recorded when working outside the office and that all steps should continue to be taken to prevent market abuse.
- Information security: the need to ensure that adequate controls are in place to manage cyber threats
The FCA also expects firms to notify it of material changes to how they intend to operate and has reminded firms that it may visit any location where work is performed or employees are based, which may include residential addresses.
Against this backdrop it is perhaps unsurprising that financial services firms tend to be particularly resistant to requests related to overseas remote working arrangements.
UK solicitors working overseas can raise similar issues. For example, law firms must ensure that they can demonstrate how their professional and regulatory obligations are being met, particularly as regards supervision. Following the end of the Brexit implementation period, under the UK-EU Trade and Cooperation Agreement, UK solicitors may be entitled to provide services in certain EU member states on a temporary basis using their home country qualification but individual solicitors and those employing them will always need to check the position in the relevant EU member state to ensure they are complying with applicable national law. In addition, law firms should ensure they have appropriate professional indemnity insurance in place to cover advice being given from outside of the UK.
Employers of record
The shift in working practices has created a major upsurge of interest in and usage of so-called “employers of record”, also sometimes known as Professional Employer Organisations (or PEOs). This is a third-party organisation, akin to an employment business, which takes on the formal responsibility of employing the employee while overseas and accounting for tax, social security and other applicable local filing requirements. Using an employer of record or similar can be a way of minimising or mitigating the risks faced by the employer.
Employers considering this option should, however, carefully scrutinise the proposed engagement terms to understand exactly what protection is being offered and assess what gaps might still exist in the event of a dispute. For example, an employee might still be able to sue you in a local labour court or tribunal in the event of a breach. Employers will also need to consider whether the arrangement allows them enough control over someone they regard as “their” employee: the absence of such control may make the arrangement less attractive for some organisations. In employment relationships where ownership of IP created by the employee is important, or the employer has particular concerns about being able to protect its confidential information or impose post-termination non-compete restrictions, the employer will need to consider whether this can be achieved effectively in circumstances where it is no longer directly employing the individual working for it. Employers should also be cognisant of the fact that many countries operate strict licensing regimes for employment businesses, or have laws restricting the “lending of labour”, and failure to comply with these requirements can have adverse consequences for the end user employer as well as the operator: is the employer of record fully compliant with these requirements?
In our experience, enforcement in this area is real and can result in the employee being found to be directly employed by the end user. Employers should also note that an employer of record does not eliminate permanent establishment risk, often cannot sponsor the employee for immigration purposes, and that IP, confidentiality and post-termination restrictions may present challenges which need to be considered carefully.
Engaging the individual as a contractor instead is sometimes suggested as a way to avoid host country employer obligations. However, the risk of misclassification is high where the individual continues to do the same work under the employer’s control, reclassification would bring the withholding exposure back to the business, and permanent establishment risk remains.
How to minimise the risks
Undoubtedly, the pandemic brought about a major culture shift when it comes to the location from which work is done. Employers are increasingly opting to be flexible and seeking to accommodate requests to work from home overseas. Nonetheless, you will also want to minimise the risks as much as possible.
Depending on how many requests you expect to receive, you should consider developing a policy to ensure that these situations are dealt with consistently and fairly. A market-aligned approach that we see widely adopted is a tightly controlled, time-limited “workcation” policy: approval in advance through a single channel involving HR, legal and tax; a cap of typically 10 to 20 working days in any rolling 12-month period, taken in blocks of no more than five or 10 working days; exclusions for senior, sales and other market-facing roles and for high-risk countries; and a “hard stop” where host country registration, withholding, immigration permission, insurance gaps or permanent establishment risk would be triggered.
A policy is only effective if it is followed. Employers should be aware that some employees conceal their location (for example, by using a VPN), and that line managers may know about overseas working that has not been approved. Make clear that unapproved overseas working may be treated as a disciplinary matter, hold managers accountable for allowing it, and monitor repeat requests.
The key practical steps for minimising the risks are as follows:
- Only accept requests if the employee’s role can be effectively performed remotely and carried out lawfully from the country in question.
- The shorter the period the employee is working abroad, the smaller the risks are likely to be. Consider only approving requests for a short, time-limited duration where the employee’s expected return date is clearly documented.
- For any arrangement of an extended duration (or even short duration, depending on your appetite for risk) always take expert local advice on any tax, social security, immigration and employment obligations you may have in the host country. The employee may also need their own advice.
- Be aware that the employee’s ability to participate in company benefits such as pensions, private healthcare, income protection and life assurance may be adversely impacted by a move abroad. You should address this upfront with them.
- Much will depend on the identity of the host country and the employee’s nationality.
- Check what data processing the employee will be doing and that this can be carried out lawfully in line with your usual policies.
- Check relevant insurance policies, such as those covering employees if they have a work-related accident or any company property that is provided to employees (e.g. laptops and phones). Determine whether these are adequate or if you need to take out more extensive cover.
- Keep accurate records of the days the employee spends working in each country and diarise annual actions.
- Agree the terms of any overseas working arrangement and record them in writing. While the detail will depend on the circumstances typical provisions include:
- The employee will be liable for any additional income taxes or employee social security which may be charged because of their decision to work for a period in an overseas location, including any resulting fines, penalties and costs (with the employer being authorised to make additional deductions or seek reimbursements, if necessary, for this purpose).
- The employee will be responsible for any personal tax declarations that may need to be made.
- The employment contract remains subject to UK law and jurisdiction (subject to a possible review date for longer-term arrangements at which you might consider transitioning them to a local contract).
- The employee is continuing to work solely for the UK business.
- Any IP created by the employee will be owned by the employer.
- The employee does not have the authority to enter into contracts with local customers while in the host country and should not hold themselves out as having such authority, meet clients or customers in the host country, or work from any group or client premises there.
- The employee takes responsibility for ensuring they have the necessary technology and arrangements in place to enable them to work effectively.
- The employee accepts that they are working from home at their own risk and that the employer will not be liable for any loss they suffer due to their request being approved.
- The employee will keep a record of days spent in the host country, cooperate with any A1 or similar application, and complete any health and safety self-assessment the employer requires.
- The employer may revoke its approval and require the employee to return if it becomes apparent that the arrangement cannot be accommodated any longer – for example, if a tax liability is discovered, the employee ceases to have the right to work in the host country, the country becomes unsafe, or there are performance concerns.