Financial point of view: Sending employees to work outside the UK

Lee Hamilton

Lee Hamilton - Credit: NG

Many Cotswold employers and families have a member who is being posted abroad on business. Lee Hamilton, Director of International Mobility Services at national audit, tax and advisory firm Crowe Clark Whitehill, explains why the three Ps (Policy, Process and People) are important when sending employees overseas.

Whether you are sending one person or several overseas, it is important that you support them, they understand what is required of them and thatthere are clear policies in place.

Having an International Assignment Policy (IAP) is important for consistency across employees. A few years ago, we dealt with an organisation that had five expatriate employees working in Chile. They had all been sent overseas at different times and were provided with very different support by their employer.

One employee was required to settle personal tax in Chile while another had his tax paid for him by the company. The accommodation allowances provided to the employees were markedly different. Some of the employees received a ‘Cost of Living Allowance’ or ‘COLA’ whereas others did not. These differences, once they became apparent to the employees, caused unnecessary tension between the employees based in Chile and also with their employer. Having a clear and consistent policy in place at the outset could have prevented these issues.

An IAP does not need to be a weighty tome but should include such elements as support for the employee while on assignment, related benefits and allowances, employee’s obligations, whether the employee pays own tax while abroad, and emergency procedures.

Benefits and allowances need to be clearly understood from the outset. These include issues such as accommodation allowance, shipping, air fares, schooling, cost of living allowance and any other benefits the firm may choose to offer.

Expatriate employees can be very expensive with costs often double that of UK-based staff. Having a clear policy means that costs can be estimated in advance and managed.

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Managing the process of sending staff abroad is also important. Issues to consider include immigration, assignment contract, payroll, relocation and personal tax.

EU citizens have freedom of movement within the EU and visa and work permits are not required. Outside the EU a visa will normally be required, but be aware - obtaining one can take a long time. An assignment contract should set out the key terms of the assignment such as how long it is expected to last, procedure for early termination etc.

Consider how you will pay the person working abroad. Continuing to pay them from the UK payroll may be an option, but in many cases tax withholding will be required overseas and so an overseas payroll may be necessary. Often assignments go wrong because the employer has not thought through each element of the process in sufficient detail. Even when you have worked hard to get the policy and process right, you can still fall down on the people front.

In order to manage expatriate employees effectively, organisations should review their internal capability and ensure that staff are adequately trained to deal with expatriate employees.

For example, we have seen many instances where UK payroll staff are expected to navigate the pitfalls of international payroll for the first time without any real understanding of this complex area. This can and does lead to substantial problems when it comes to tax compliance in the UK and overseas.

Our International Mobility Services team provides advice and support on all aspects of tax, social security and payroll implications of overseas assignments. We work closely with third parties such as immigration lawyers, international banks and relocation providers to deliver a joined-up international mobility service.

Getting the management of expatriate employees right can often be a challenge but the cost of getting it wrong can lead to financial penalties and unexpected cost for the employer as well as disgruntled employees.

Investing time to get the three Ps right can pay dividends. In our experience, organisations which successfully manage their expatriate employees are more likely to succeed in developing in overseas markets. They are also more likely to retain staff and essential skills in the long term.