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5 Tips for Ensuring Tax & Regulation Compliance for Relocating Employees

It’s an exciting time in business and in the job market, with companies offering more flexible and remote opportunities than ever since the pandemic. However, this does come with new challenges and responsibilities, especially when trying to retain valuable talent who wish to relocate.

Employers and businesses now have the responsibility of managing the tax and immigration implications of employees relocating. They are the ones who need to find solutions for the fallout of tax and governmental fees and have to protect employees and their value. This process can feel daunting. With no one-size-fits-all solution, businesses must decide what works for them in each scenario. To help, we’ve created 5 tips for ensuring payroll overseas and tax regulations comply for employees who wish to relocate.

Tip 1: Research the Legal Requirements

Before allowing an employee to relocate overseas, it’s crucial to understand how the tax and immigration regulations in their new country may affect PAYE and national insurance contributions in the UK. Research until you’ve learnt it inside out because it is the employer’s duty to ensure that an employee complies with all legal requirements and that the business is meeting its obligations.

As an employer, you must inform the HMRC about paying employees overseas. The regulations can vary significantly between countries and can depend on the duration that the employee is there. For example, if the stay is short-term (less than 3 months), then the employee is still classed as a UK resident and should continue to pay PAYE in the UK. However, once again, this depends on the destination country.

Wooden blocks with letters spelling tax placed on gold coins

Tip 2: Choose an International Payroll Model

Choosing a payroll model comes down to the goals and the situation of the company. The employee relocating abroad may be the only one, or you may choose to hire talent from the same place that the employee has relocated to. For example, an employee relocates to the US and in the next round of hiring the company is open to hiring talent who reside in the US.

This is a great advance as it will expand the hiring pool, help with acquiring specialist skills, and allow the business to gain a competitive edge. However, managing payroll can pose significant challenges. The top priority is to ensure compliance with local regulations and payroll procedures, which can vary widely across different countries. Here are some options for companies with employees outside the UK.

Money in many international currencies

Option 1: A local legal entity

An option for employers looking to employ a small number of people abroad. This involves opening a branch of your business in the country your workers are based. It’s usually the most thorough option but can be complex and expensive. Seek expert advice to provide local guidance.

Option 2: Use an Employer of Record (EOR)

An EOR is a partner with a presence in many countries, and will employ talent locally on your behalf, complying with local laws and regulations. It’s a cost-effective option and you will be partnered with local experts to ensure compliance.

Option 3: Hire independent contractors

This option allows for flexibility in exchange for limited control, but be sure to correctly classify workers as independent contractors to avoid legal consequences. This is an option if you are a smaller company looking for infrequent or more casual workers overseas.

Tip 3: Tax and Social Security are Separate 

Before starting the process, it’s vital to understand that taxes and social security contributions are separate. Taxes are mandatory payments made to the government. Social security contributions are payments made to a system that benefits the employees directly, such as healthcare, retirement, disability, and unemployment insurance.

Each country has its own social security system, and they can differ widely in terms of eligibility, benefits, and contribution rates. For example, in some countries, employers pay most of the social security contributions, while in others, the employee bears the cost.

Make sure to understand the social security system in the country where your employees plan to live. Like tax, a failure to comply with these regulations can result in significant financial penalties and legal issues.

Tip 4: Determine the Costs Involved 

Whether you have asked the employee to relocate or it is employee-driven, it is vital to compare the costs involved while working in the UK and the new country. This includes costs to the employee. Tax and social security contributions may be higher in the country they are going to live than where they currently reside. This may mean discussing salary and benefits before the move.

By determining the costs, you can have an open and honest discussion with the employee before making any decisions. This will help ensure that the employee fully understands the financial implications of the move and may help them make a decision about whether or not to relocate. For more, read our blog on expenses involved in employee relocation.

working out the costs involved for relocating with graphs and a calculator

Tip 5: Seek Professionals

If this is the first employee relocation or there have been many, a tip is to seek professional advice. Whether you need help with the logistics surrounding the relocation or with tax and immigration laws, a trustworthy professional can make the process easier for you and your employee.

Seeking professional advice can also save both time and money. This can be done by outsourcing to a professional relocation company or hiring a specialist to join your global team. These professionals can guide compliance with international laws, regulations, and tax obligations. They can also help with the logistics of the move, such as visa applications, housing arrangements, and cultural training. Working with experts in this field can help avoid costly mistakes.

Gerson Relocation offers a personal and professional service for all stages of relocation. With dramatic improvements in the success rate, employees feel supported throughout the process. To find out more about what Gerson Relocation can do for you, request a removal quote today.

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