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Benefits and tax ramifications of employees working remotely overseas

by LLB Finance Reporter
16th Nov 21 10:02 am

Aon plc who are a leading global professional services firm, has advised UK employers to be mindful of the consequences that remote working outside the UK may have on employee benefits and tax.

Due to the changes in working patterns prompted by the COVID-19 pandemic, many employees have the opportunity to work not only remotely, but from outside the UK, as employers embrace a new agile working environment.

Though this flexibility supports an employer value proposition, as well as employee engagement and retention that builds more resilient workforces, it may also have ramifications on policies and benefits provisions that employers need to consider.

Policies that could be affected by such a move include pensions, medical benefits and group risk policies.

Adam Burn, Workplace Pensions Technical Lead at Aon, said: “Whilst there may be an understandable desire to accommodate employees’ wishes in respect of where they are located, there could be potential employee benefit issues if the employee’s work and living location is outside of the UK.

“The exact impact depends on various aspects. This includes the benefits provided, the insurer or provider of the benefit, where the employee will be based, including places such as the Republic of Ireland, Channel Islands and the Isle of Man, whether the relocation is temporary or permanent and potentially local legislation in relation to taxation and residency.

“With pensions, for example, employers need to establish if staff will continue to be paid under a UK contract in Sterling, and if they are subject to UK taxation. If the contract is changed and the employee is no longer subject to UK income tax, this could affect their tax relievable contributions.”

Many workplace UK pension schemes also need employees to have a UK address in order to enrol them, so employees may be excluded from joining any new scheme that their employer plans to implement.

For medical benefits, providers often do not cover treatment received outside of the UK. Employers with colleagues abroad may therefore need to consider international-based coverage – which can be expensive. But, if medical benefits are offered as a contractual right, then there could be an expectation that the employer will still offer this benefit at an appropriate level whilst overseas.

From a group risk insurance perspective, employees based outside the UK, even temporarily, could affect the perceived risk of the scheme. Additionally, if locations of employees are not declared, then the provision of cover could also be impacted.

Due to these potential issues, Aon advises employers to assess and continually track non-UK locations and the implications for each benefit, and communicate the impact with employees before a new location is agreed.

Catherine Stait, Risk Technical Lead at Aon, added, “Fundamentally, the first action for any employer is to ensure that they have a clear understanding of the intended location of all employees who work from outside the UK to ensure that they have the relevant information that a benefit provider may require. Once this information is obtained, employers can talk to their professional advisors and benefit providers to understand the impact for each benefit offered, enabling clarity and confidence to make better decisions.

“Additionally, it’s paramount to ensure employees understand the impact of being based overseas on their benefits packages. This communication not only protects individuals but also helps clarify why an employer may place some restrictions on the scope of a remote working policy.”

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