The workplace has become global, but what does this mean for businesses hiring overseas?

The events of the last few years have shaped many business decisions, no more so than in the area of skills and talent.

Endemic talent shortages, the fall-out from Brexit, COVID-19, the cost-of-living crisis, and growing economic uncertainty; each one has been layered on top of the other to create a growing problem around recruitment and retention, with many companies exploring alternative ways of bringing the best people into their business.

Unsurprisingly, our latest bi-monthly survey of 500 mid-sized businesses, Rethinking the Economy, perfectly plays this out. According to the survey,97% of North West businesses would consider hiring candidates based outside of the country they’re located in, to work in a remote capacity. When you dig a little deeper, nearly a third would only recruit from countries where they had an office, with 37% only taking on people in territories where they had a strong client base. What’s more, 28% suggested they would hire anywhere in the world.

Finer details aside, the sentiment is very clear and the reality is, companies are struggling to find domestic talent, making the issue of global mobility rocket up the recruitment agenda. There’s little doubt that having an overseas presence brings with it considerable challenges. Geo-political instability, cultural differences, funding overseas growth, and ensuring supply chain resilience, to name but a few. But it’s the people aspect that can equally pose problems for employers – an area that is often neglected in the pursuit of growth.

There’s little doubt that employing international workers, or placing UK workers overseas, is a highly complex area, with rules differing from country to country and the issue of double tax treaties and social security agreements frequently rearing their heads. While post-Brexit, bi-lateral agreements with most major countries in the world still apply, enabling individuals to claim relief from being taxed twice on earnings, all too often, businesses fail to consider the wider risks and make the incorrect assumption that the employee has not triggered a liability overseas because they have only been in the country for less than six months; however, the reality is, you can trigger liabilities from day one.

Therefore, as we see a big shift in the global mobility world, what are the key considerations for businesses looking to expand their workforce overseas – whether that’s in Europe, North America, Australia, or the Middle East?
 

Considerations

The right to work should be the starting point and the first consideration for businesses. Is the individual entitled to be in that country from a legal perspective? If legally they don’t have a right to work, then there can be serious ramifications for getting it wrong, including severe penalties.

As we know from our recent Rethinking the Economy survey, the reasons for hiring overseas can vary from one business to the next and, with it, bring varying degrees of red tape in the pursuit of new talent.

In the scenario where a company already has an entity in that region and wishes to recruit, they will already have various functions in place, such as payroll, HR, and onboarding. As such, this can create less of a headache, because the infrastructure already exists. If the employee is working on behalf of the entity in that location, the corporation tax risks may also be ringfenced. Placing individuals in target markets where you have clients makes complete sense, but the key thing to consider is whether by doing so you are increasing the risk of creating a ‘permanent establishment’. When you have an employee working internationally, it’s typically the individual who triggers the likes of income tax and social security liabilities. But the biggest consideration in the corporate tax arena is the risk of deliberately, or inadvertently, creating a taxable presence outside of a business’ home territory.

For those companies choosing to recruit anywhere in the world, the main driver is undoubtedly the issue of trying to plug the skills gap, particularly in certain sectors, such as software where the shortage of skilled professionals is rife. Businesses often look at other countries to try and solve the problem. The danger there, is that need, plus speed, can equal costly mistakes.

Very often, we help organisations to identify where the risks are in employing people based overseas. However, it’s also essential to understand what your onboarding costs are going to be in making such a move.

For example, France has an extremely high employer social security rate (on average the employer’s share represents 45% of the gross salary), when compared to UK National Insurance. When you’re looking at other countries, on the surface there may be a low salary base, which can prove advantageous in choosing a desired location, but when you factor in social security and any required payroll processing fees, you may not be making any savings overall. This may not be a key driver, when plugging the talent gap is your primary focus, but it is still worthwhile understanding upfront as part of the budget approval process.

Other legislative considerations to be aware of include the Posted Workers Directive (PWD). This has been around for many years, to ensure people are treated as fairly as other workers and to address concerns such as ‘social dumping’ – undermining local labour markets through the use of cheap labour. However, it’s commonly overlooked by employers and can lead to significant financial and operational consequences if ignored – either deliberately or inadvertently.
 

Why is it important?

If you get the issue of immigration wrong, there are significant consequences for the individual. For example, in the US, you may get banned from being able to enter the country in future. Perhaps an extreme example, but one we often ask clients is: how do you compensate people when you have to tell them that they are unable to take their family on holiday to Florida?

On the other hand, if a company falls foul of European Directives, for example, the penalties can be astronomical. Many businesses often seek advice after the event. As such, there’s a real education piece around the obligations placed on businesses in these circumstances - it’s much more cost effective in the long run to deal with these things proactively.

Increasingly, authorities, both within the same country (such as immigration and tax authorities) and cross-border, are sharing data, making any movement far more visible and the job of identifying people far easier. Because of Brexit, UK citizens may also now require a visa when working in the EU, which means there’s no longer the same free flow of movement between countries. Post-COVID, tax authorities will undoubtedly be looking for ways to generate more income, so breaches such as this are anticipated to be on their radar more than ever.

One thing is for sure, the momentum behind global mobility is growing at a pace in a post-pandemic world. While from a business perspective it makes complete sense to hire the best people, regardless of their location, there are a plethora of considerations to bear in mind before pressing ahead.

If you would like to find out more about our Global Mobility Services, email me on laura.burton@bdo.co.uk or click here for more information on our mobility toolkit.