When it comes time to expand a business overseas, U.K. companies have several options for employing someone outside the U.K. While hiring internationally is not as simple as hiring within the U.K., this guide will give you the basics on how to compliantly employ abroad.
3 Methods for a U.K. Company Employing Staff Overseas
There are three primary methods for employing overseas workers. Companies can either establish a legal entity, partner with an employer of record, or hire and pay staff as contractors.
Establish a Legal Entity Overseas
If a U.K. company plans to set down roots in a new country, it makes sense to establish a legal entity. A legal entity is more costly and time-consuming than the other methods, but it allows for long-term expansion.
For example, if a U.K. technology company wants to open Indian headquarters, it may choose to establish a permanent presence in India. Setting up an Indian entity ensures the company has complete legal control and can grow exponentially. However, payroll becomes a challenge once a U.K. company establishes a legal entity. That’s where a multi-country payroll solution is helpful, which allows global companies to pay employees where they have legal entities.
Partner With an Employer of Record
A more streamlined approach to employing overseas is partnering with an employer of record. A global employer of record (EoR) takes the guesswork out of hiring overseas and ensures U.K. companies remain compliant during international hiring.
An EoR streamlines the onboarding and payment process for global companies. Rather than set up a legal entity overseas, U.K companies that partner with an EoR don’t have to worry about the myriad processes of hiring staff in a new country.
For example, if a U.K. consulting firm wants to hire Canadian consultants for a new business offering, the U.K. employer would benefit from partnering with an EoR. Global EoRs ensure labour law compliance worldwide and make it easy to employ overseas safely and efficiently.
Hire and Pay Staff as Contractors
For short-term needs, hiring contractors is a great option for U.K. businesses that expand overseas. Hiring contractors allows a U.K. company employing staff overseas to quickly onboard highly skilled contractors with fewer or no payroll contributions compared to hiring employees.
However, hiring overseas contractors creates the risk of misclassifying workers. Depending on local labour laws, employment officials may see contractors as employees. Misclassifying leads to expensive fines, back pay, and reputational damage.
Paying overseas contractors is also a challenge for U.K. companies that expand globally. Payment services like PayPal won’t cut it—a more robust contractor payment platform is necessary for safe and streamlined payments. A contractor payment platform enables U.K. companies to onboard and pay contractors across multiple international markets.
Compliance Risks When Employing Overseas Workers
There are a number of common challenges that companies face when bringing their business overseas. Here are several compliance risks with employing overseas:
- Misclassification. Misclassification happens when companies hire and treat employees as contractors. Repercussions for misclassification include fines, reputational damage, and loss of business.
- Permanent establishment (PE). Companies that create a strong presence in a new country risk PE designation. PE is triggered when a company has a stable business presence in a foreign market, generates local taxable revenue, and regularly conducts business from a fixed location. Operating as a PE without becoming a legal entity has significant tax, legal, and reputational implications.
- Unfamiliar employment laws. Navigating complex labour laws in a different country leads to misunderstandings and compliance errors. Such oversights can lead to costly fines and legal consequences.
- Immigration requirements. If a U.K. company relocates or transfers its staff to a new country, it must obtain proper credentials to allow employees to work. Both the company and talent face fines and immigration penalties for failing to comply with immigration requirements.
- Inaccurate payroll contributions. Every country has a unique set of requirements for payroll contributions. Companies that expand overseas must comply with such requirements and accurately calculate their employees’ payroll taxes and payments.
FAQs When Employing Someone Outside the U.K.
Can You Put Your Overseas Employee on Your U.K. Payroll?
Probably not: Most U.K. payroll providers don’t cover international employees. A U.K. company employing staff overseas must outsource payroll by partnering with a third-party provider. Global payroll providers streamline payroll for multinational companies and ensure compliance with local payroll contributions.
Can U.K. Companies Employ EU Citizens After Brexit?
Yes, U.K. companies can employ EU citizens post-Brexit. There’s a caveat, though: The U.K. company would have to get a sponsor license and sponsor the employee for them to live and work in the U.K.
There are some criteria that an employee must meet to obtain a “worker license”:
- A job offer from an approved U.K. employer sponsor
- Job must be in skill level “A”
- Must be English-speaking
- Minimum salary of GBP 25,600 per year
- If the employee’s salary is less than that, “points” can be traded against the salary amount to qualify. Points examples include being in a “shortage occupation” or having a PhD.
As part of the Brexit agreement and EU settlement scheme, EU citizens who were already in the U.K. and working before Brexit concluded (prior to Dec. 31, 2020) can remain living and working in the U.K. The designation is not automatic and employees must apply to ensure their right to work.
While the EU settlement scheme is helpful for existing employees, U.K. companies still need to navigate the sponsorship process to hire new EU citizens. Rather than deal with a complex and lengthy sponsorship, U.K. companies can employ a remote worker in the EU through an EoR. Partnering with an EoR is quicker, easier, and less risky than managing sponsorship for a foreign employee.
Start Employing Overseas Workers in 185+ Countries
It’s a complex process to onboard and pay employees overseas, even for the most forward-thinking companies. Managing compliance risks takes time away from business operations, which is why partnering with a global EoR streamlines international growth.
Our Global Work Platform™ and full suite of solutions make it easier for U.K. companies to employ talent beyond borders. Our global Employer of Record allows a U.K. company employing staff overseas to onboard, pay, and retain its team while remaining compliant with foreign labour laws.
Contact Velocity Global today to find out how your U.K. business can expand across new markets with ease.