In an ever more globalised economy, the cross-border flow of workers has in many ways become more prevalent than ever. Whether it’s to help establish a footing in a new market, or simply a lifestyle choice while continuing to work remotely, companies of all sizes can find themselves managing the process of sending employees abroad. However, while technology makes the process of actually working internationally much easier, there is still a lot to consider from a financial point of view.
Sending an employee abroad versus hiring abroad
The first important point to make when considering sending someone abroad is that the process is not entirely identical to that of hiring someone in that country. If you’re transferring a colleague who is already on your payroll, you will have some specific obligations due to their prior employment.
We will cover these in more detail in just a moment, but before diving in, one area that is similar between the two is how you choose to employ your new employee long-term in their new country.
Managing employment status for relocating employees
The same as hiring abroad, you have the choice of either continuing them on your payroll, using an employer of record (EOR) or, depending on local rules, having them set up as a local contractor.
However, the last of these, setting up as a contractor, is much less likely than when hiring abroad as the individual in question will likely require a visa to be able to move to the new country. This is usually a lot more difficult, particularly to obtain when there is no history of self-employment before trying to move.
That leaves you then with either remaining on your payroll or using an EOR.
If you use an EOR, then their employment contract with you will be officially terminated and their new legal employer will become the EOR, to whom you will pay their salary (plus fees). They will act in all ways as the employer – not just in payroll terms, but also tracking holiday and sick days, managing annual leave, and so on.
In this case, you will probably want to duplicate the records by the EOR to keep a full view of your own workforce, but in practice the process work and paperwork will be transferred to them.
On the other hand, you may choose to have them remain on your payroll. This is certainly the most traditional route and, depending on your EOR’s fees versus the internal costs of managing your taxation obligations (more on that later) and the number of employees moving, may work out cheaper but require more paperwork.
In the remainder of our points, we will take the scenario that the employee is still legally yours (i.e. has remained on your payroll when you have sent them abroad).
Taxation requirements when you post an employee internationally
The most important difference between hiring and sending an employee abroad is that, in the UK, you must continue to calculate and deduct all UK PAYE tax from payments you make to them once they’ve gone abroad.
It’s then the responsibility of your employee to complete a P85 form to find out whether they’ll be able to claim tax relief. In most countries where there are double taxation treaties, this will usually be possible.
Likewise, as an employer you normally need to continue to pay your contributions to their National Insurance for the first 52 weeks if your employee was also previously and ordinarily resident in the UK. Your employee will also need to keep paying their own contributions.
Rules may differ in the EU; you should complete form CA3821 to verify with HMRC.
Record-keeping obligations when the transfer happens
When your employee’s time abroad begins, be sure to record in a written letter to them the full date that they were posted abroad, their gross pay from the start of the tax year until that date and any tax deducted to date. They will be able to use this as evidence of their new situation with both HMRC and local tax authorities.
If you are operating separate payrolls for your domestic and international employees, such as for record-keeping and taxation purposes, remember too that you will need to complete starter and leaver information as your employee will be moving between two PAYE programmes.
Deciding the currency salaries will be paid in
You have two main choices for how you pay your employee when you move them to another country:
- You continue to pay them in your home currency per their original contract
- You pay them in the currency of their new country of residence
From your perspective as en employer, the easiest is the first option, as long as your employee has a UK bank account or you have it in written agreement that their salary is before any fee deductions.
From your employee’s perspective, the first option will usually only be preferred if they want to keep their savings in their home currency or are planning to return in the short or medium term. Otherwise, option two is likely to be much easier; it does mean, however, that you need to plan for currency risk.
No matter what currency you decide to pay your employee’s salary in, ensure their new contract once they’ve moved abroad states their salary in that chosen currency.
Protecting against the currency costs of international salary
The set amount of your employee’s salary in that currency (let’s say euros) is fixed each month. In your local currency though (let’s say pounds), it will continuously change. The risk here of course is that you can’t accurately predict that actual payroll cost of that employee – unless you set up a hedging strategy.
This is quite easy to do. Using what’s known as a forward contract, you can lock in the same exchange rate for a set period of time, giving you certainty over the exchange rate.
All you need to do is to secure your rate and set your contract for up to twelve months. You then pay a deposit and can pay the rest of the funds at the agreed date. With that, you know exactly what your costs will be.
The same goes for your employee. In this example, if they do receive their salary in pounds but still need to transfer some of it to euros regularly, they too can set up a forward contract to transfer a portion of their salary into their new currency.
This way, a significant currency risk has been removed with a simple and efficient solution.
To find out more about the international money markets and how they could impact your business, be sure to contact us and we’ll be happy to help.
Alexander is a writer specialising in foreign exchange and overseas property, with seven years’ experience helping people to purchase abroad and send money safely, including hosting seminars on the topics around the UK. You can find him out hiking, travelling and working from Spain in the sunnier months.