With the US set to open its borders more widely, and Canada having already done so, it increases the likelihood of transatlantic relocations as employees consider their next career move. Our practical case study illustrates the key headline issues for a UK employer to consider if an existing employee is planning to relocate to the US, or the aim is to recruit a US national to join a UK business. In particular we consider employment law, business travel restrictions, tax, immigration; and data protection perspectives.
GB Partners is an investment bank, with a thriving HQ in London. Over the five years prior to the pandemic, Sally Greenback and her team have been responsible for generating significant profits for the Bank. However, Sally reassessed her life recently and made the decision to relocate back to the US for lifestyle reasons and to be closer to her family.
GB Partners is very keen for Sally to continue working for the Bank in some capacity and envisages a part-time employed role, or an on-going consultancy relationship.
Sally’s network of contacts in the US includes some high-flying junior investment bankers, who are building a solid reputation within the US finance sector. GB Partners plans to leverage her contacts and make various approaches, with a view to recruiting a star performer to join the London branch of the Bank.
What are the key considerations for a UK employer seeking to employ people based in the US or to hire employees in the US with a view to relocating them to the UK?
1. Employment law
2. Business travel implications
5. Data protection
Employee based in the US
There are a variety of employment considerations which will apply to Sally’s proposed relocation back to the US. Three key issues are:
While the list above will assist with identifying the relevant legal issues, we always recommend that GB Partners seek tailored advice in relation to the proposed arrangements.
Relocating overseas talent to the UK
With regards to finding overseas talent to join the London office, GB Partners will be bound by UK employment law in relation to the recruitment process (for example, the prohibition on discriminating against job applicants under the Equality Act 2010 and the need to obtain a sponsor licence to employ a foreign national in the UK (see below)).
When it comes to negotiating an employment package, the recruited individual may expect GB Partners to cover some or all of their relocation expenses from the US to London. While the amount and the type of costs to be covered (such as temporary accommodation, travel, shipping, and insurance) are generally discretionary, a future employee’s expectations are likely to vary in line with his or her experience and seniority, as well as market demand.
Following relocation to London, and assuming the individual satisfies all the necessary immigration requirements, he or she will benefit from the same UK employment law protection as their colleagues in the London office. This will include, for example, protection from whistleblowing detriment or dismissal, discrimination and (after two years of service) unfair dismissal.
The ever-changing travel regime in the UK has recently been overhauled.
The traffic light system introduced in May was replaced by a single red list of countries but since 1 November there are no longer any countries on the red list. That means once Sally relocates, she will currently be able to fly back to the UK for business, so long as she complies with the COVID rules in force at the time. For example, since 24 October, if Sally is fully vaccinated, she must book and pay for a “day two” lateral flow test, take a photo of the test result with the booking reference, and send it back to verify the result. She must also complete a passenger locator form. If she finds a star performer in the US to join the London branch, he or she will also be able to travel to the UK without quarantine.
As far as travel in the other direction (from the UK to the US) is concerned, the picture is very different.
Since 16 March 2020, the general rule for passengers who have been in the UK at any time within the previous 14 days has been that they cannot enter the USA. There are some exemptions from this rule, including for permanent US residents, US citizens, specified close family members and diplomats. As it appears that Sally is a US citizen, she should be able to travel back to the US if she visits the UK. However, she will still be required to provide a negative COVID-19 test taken within three days of travel (regardless of citizenship or vaccination status).
The White House has now confirmed that it will lift most travel restrictions on fully vaccinated travellers from the UK with effect from 8 November. Nevertheless, when the travel ban is lifted, all UK passengers flying to the US will need to demonstrate proof of vaccination before boarding; proof of a negative COVID test (taken within three days of the flight) on arrival; and take a test within days three and five of arrival in the US.
UK employer with an employee based in the US
If Sally is sponsored by GB Partners, then it is important to consider whether any changes in her role will have immigration implications for both her and GB Partners.
The requirement to have immigration permission applies only where an individual is physically present in the UK. Therefore, Sally will not need UK sponsorship to work for GB Partners from the US. However, it is prudent to seek advice on what impact this will have on both Sally and GB Partners. As an example, should Sally need to visit the UK, GB Partners will need to assess whether Sally could enter the UK as a business visitor, or if she would require work authorisation.
Of course, if Sally were a British national relocating to the US, GB Partners would need to ensure that relevant US immigration requirements were met before she relocates and starts working in the US.
Relocating overseas talent to the UK
When considering mobility of talent, it is always prudent to seek early advice to foresee and iron out any issues that may arise. Recruiting a star performer to join the London office will have immigration and timing implications for GB Partners. In this case, unless the star performer already has permission to work in the UK without restrictions, GB Partners will need to consider whether sponsorship will be required. This will be a two-stage process:
Stage 1: Registration as a Licenced Sponsor
GB Partners will need to be registered with the Home Office as licenced sponsors unless they hold this status already. Specific documents will need to be provided to the Home Office as evidence that GB Partners is a genuine trading organisation with a functional Human Resource system, along with details of individual(s) in the UK who would take up the role of ‘Key Personnel’ (individuals responsible for compliance with the Home Office requirements). The Home Office will also need to be satisfied that GB Partners has systems in place to prevent illegal working.
The UK’s Points Based System broadly operates with the Home Office requiring licenced sponsors to ensure strict compliance with its sponsorship responsibilities. They do so by reserving the right to conduct unannounced or announced compliance visits to ensure that the sponsor is continuing to adhere to the Home Office’s ongoing compliance requirements.
Although most applications are dealt with in less than 8 weeks, and a 10-day priority service may be available, it is prudent to keep in mind that the Home Office may take the full 8 weeks or even slightly longer. The Home Office may also decide to conduct a pre-authorisation compliance visit to determine whether GB Partners have the relevant systems in place to ensure compliance.
Practically speaking, given that a refusal can carry a 6 to 12 month ‘cooling off’ period before a new application can be made, it is essential that the application is made correctly in the first instance.
Stage 2: Application for Leave to Enter the UK
Once GB Partners is registered as a licenced sponsor, it can proceed with issuing a Certificate of Sponsorship to the star performer, enabling them to prepare and submit an application for Leave to Enter the UK (i.e. a visa) at the British post near them to enable them to take up the role.
This stage requires the individual to meet Home Office requirements for the grant of the visa, which includes a lengthy application form requiring comprehensive personal information, such as meeting English language requirements in a prescribed manner. It is only when this application has been approved that this individual will be able to take up their role.
Importantly, the immigration authorities will need to be assured that any application is genuine in the sense that the role cannot be seen to have been ‘created’ to ensure a particular individual’s transfer/recruitment into the UK. If it falls foul of this requirement, an application for Leave to Enter the UK would be refused.
The good news is that although standard processing time for these applications is 15 working days, five working day priority and one working day super priority services are readily available. Therefore, this stage can be completed relatively swiftly.
Practically speaking, it is a good idea to start preparation for Stage 2 at the same time as the application to become a licenced sponsor is being prepared and considered. Of course, if GB Partners is already a licenced sponsor or wishes to sponsor talent in the future, then it will only need to consider Stage 2.
When considering internationally mobile employees, seeking early tax advice both in the country in which the employee is based (the home country) and in the country to which the employee is moving (the host country) is important. There may be corporate tax consequences as well as payroll and social security implications for employees moving between home and host countries.
UK employer with an employee based in the US
Income tax and payroll
It is important to establish whether Sally has relocated temporarily, on a short-term, or on a permanent basis. This will be an important factor in determining the impact of her move on her UK income tax and social security position, as well as the payroll position for GB Partners.
If Sally is working overseas only temporarily, then from a UK tax perspective, GB Partners should continue to deduct income tax and National Insurance contributions under PAYE, notwithstanding the change in working location to the US.
However, if it is anticipated that Sally will be in the US for at least a complete tax year, then GB Partners may apply to HM Revenue & Customs for a No Tax PAYE code. If such a code is issued, it authorises the employer to pay Sally’s remuneration without deduction of income tax under PAYE. However, GB Partners would still be required to deduct and pay National Insurance contributions in the UK.
GB Partners will need to consider whether Sally providing her services in the US as a part-time employee of, or consultant to, the UK business will give rise to local US income tax and social security liabilities (both on a federal and state basis). It would be prudent for Sally and GB Partners to seek specialist US tax advice on the extent of their tax liabilities.
However, by way of general commentary, the starting point for income tax is that the host country, in this case the US, has primary taxing rights over the employment income that an individual earns while physically working in that country. But this may not be the case if an exemption from host country tax is provided under the relevant double tax treaty, in this case the US:UK double tax treaty.
The US:UK Treaty broadly provides that the home country, in this case the UK, has employment income taxing rights, and exemption from US tax, if, broadly, Sally is in the US for a short-term secondment. In particular if:
For a more permanent relocation, it is important to note that if Sally falls outside of the double tax treaty exemption, she may be subject to income tax in the US and (unless she ceases to be UK statutorily resident) in the UK as well.
Specialised UK tax advice should be sought on ceasing to be UK tax resident. However, in broad terms, if Sally leaves the UK to work full time in the US, has no significant breaks from working in the US, works in the UK for less than 31 days and spends no more than 90 days in the UK overall, she should cease to be UK tax resident.
Similarly, the general rule in relation to social security contributions is that both the employee and employer social security obligations arise in the country in which the employee is physically carrying out their duties. However, this is subject to any reciprocal agreement between the home and host country.
In this case, as Sally is moving from the UK to the US, if she is moving there for five years or less then she can continue to be covered by the UK social security rules and will be exempt from social security contributions in the US, under the US/UK reciprocal agreement. GB Partners should request a certificate of coverage (form UK/US 1) from HM Revenue & Customs.
Is there a permanent establishment in the US?
Further, the presence of Sally as an employee or consultant working from the US raises the possibility of GB Partners being regarded as having a permanent establishment in the US. If a permanent establishment is created, the profits attributable to that establishment would be subject to corporate tax in the US. Specialised US tax advice should be sought on the extent of any US liabilities of GB Partners.
Relocating overseas talent to the UK
Income tax and payroll
As for Sally, the starting point for employment income tax is that the host country, albeit in this case the UK, has primary taxing rights over the employment income of new recruits who relocate and receive remuneration while physically working in the UK. This is subject to any double tax treaty exemption, but these are less likely to apply because the new recruits will not be paid by a US employer effectively seconding them to the UK. Accordingly, GB Partners should deduct income tax and National Insurance contributions under PAYE in respect of any work done in the UK.
Whether a new recruit becomes UK tax resident, such that their worldwide income will be subject to UK tax, will depend on the UK statutory residence requirements. Residence turns, broadly, on whether the new recruits have ever been UK tax resident before, how long they spend in the UK, and how many other ties they have with the UK. This would include, for example, having family or accommodation in the UK. Specialist UK tax advice should be sought on the residence position of relocating new recruits.
As for Sally, if the new recruit intends to relocate for five years or less then they should also continue to be covered, in this case, by the US social security rules, As such, they would be exempt from social security in the UK if they can provide a valid certificate of coverage (obtained from the IRS).
High level differences between US and UK regime
Processing of personal data in the UK is regulated by the General Data Protection Regulations (“GDPR”) which impose stringent and wide-reaching controls on the way in which organisations can use personal data. This includes having a lawful basis for each purpose for which the employer processes personal data and providing privacy notices to individuals informing them of the way in which the employer handles their data.
By contrast, there is no federal data protection law which applies generally in the US (although there are sector specific laws which may apply in certain contexts). As a result, privacy law in the US varies from state to state. Many states (including New York) are in the process of introducing more robust privacy laws in the wake of GDPR. The most notable state to have already introduced privacy legislation is California, which has implemented the California Consumer Privacy Act.
Data sharing arrangements
Where an organisation shares personal data with an employee, there is no “transfer” of personal data as such. The employee is essentially treated as being one and the same with the controller.
As such, if Sally remains an employee of GB Partners, the parties do not need to put in place any specific measures from a data sharing perspective (such as a data sharing agreement or data processing agreement). There will also be no “restricted transfer” of personal data (despite the fact that Sally will be accessing the data in New York) since data is not being transferred to a separate legal entity, and therefore there would be no need for a transfer mechanism to be in place under the GDPR based on the ICO’s current guidance around international transfers.
This can be contrasted to the position if Sally is engaged by GB Partners as a consultant. Here, personal data will be transferred to a separate legal person and therefore the parties will need to think about what data sharing provisions should be included in the agreement between the parties and the basis upon which personal data will be transferred to the US. This is the case irrespective of whether Sally contracts in her personal capacity or through a personal services company. On the data transfer point, it is worth noting that data transfers to the US have become significantly more complex following the Schrems II ruling of the European Court of Justice in July 2020.
In respect of GB Partners’ recruitment efforts in the US market, it is important to bear in mind that the GDPR will still apply to these activities given GB Partners is recruiting for its UK branch and therefore the usual data protection considerations which arise during the recruitment process (such as providing candidates with privacy notices) will still apply here. It is possible that local privacy law requirements may also apply to these activities, although given the current state of privacy law in New York, it is unlikely that these would impose any additional obligations on GB Partners on top of those it is already required to fulfil under GDPR.
Employee monitoring – Overseas employees
The appetite to monitor employees working from home (especially if they are overseas) has greatly increased over the past year as a result of the pandemic and many tech companies are providing products to assist employers with this. However, this raises the question of whether employers can use these products to monitor employees lawfully in accordance with data protection laws.
There are several factors that employers need to consider before implementing such technology:
As always, it is important to note that there is increased IT security risk when employees work remotely using their own networks. GB Partners should consider what additional security measures it will need to put in place because of Sally working from the US. Examples of measures could include:
If you have any questions about these issues in relation to your own organisation, please contact a member of the team or speak with your usual Fox Williams contact.
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