Here’s our round up of the most frequently asked questions from our clients and our advice for you, which we hope you find helpful. If you have a question you’d like answered next month, then just send it to us at firstname.lastname@example.org and we may include it in next month’s Top 5!
1. We are all working flexibly from home now, so I want to employ someone in France / Spain / Mexico. How do I go about this?
Whilst many companies are continuing to work flexibly from home or have a hybrid model of office/home based working, several of our clients are starting to consider employing staff from abroad due to the many staff shortages we are experiencing in the UK or reviewing whether current employees can work from other locations such as family homes outside of the UK.
This can be a great way to get the best talent into your business. However, where an individual works has a number of legal considerations including tax (both corporate and individual), health & safety, immigration, and employment law.
So, if you are considering employing people who will be working from a location outside of the UK you need to understand the legal and practical issues to consider when hiring someone based entirely in a different country. Here are just some of the things you will need to consider and we will help you to figure out:
- What employment contract will they be on (UK or overseas) and what employment rights will the employee therefore be protected by?
- Will they be working for a UK based and registered company or a branch of the company based overseas? If you are not sure, having an employee work in a different country to the UK could create a legal entity for your business in that country and therefore you may be liable to tax and social care payments for that employee.
- Is the employee legally entitled to work from the country they will be based in? So, just like someone having the right to work in the UK, you need to understand whether they are a citizen, have permanent resident status or require a working visa.
- Does your business have policies and practices set up to accommodate remote workers? There are a number of things to consider when drafting a remote workers policy such as; how you are going to communicate with employees in different time zones, what equipment and resources will you give them, how you will ensure you are not discriminating against those employees or your employees based in the UK, how you will involve remote workers in team meetings, 1:1’s and how are you going to transfer data between different countries and ensure you are meeting GDPR and ensure confidentiality of company materials.
- How and where are you going to pay the employee, and in what currency? There may be additional social security and benefit costs associated with employing the individual. We often think that the UK is an expensive place to employ people but wait until you see what the social costs are of employing someone in France or Germany for example!
- What are the tax implications of the employee working outside of the UK are if they are a UK national wanting to work and be based outside of the UK? They may be paying tax in two locations if this is not considered and reviewed carefully.
- Is the employee creating a permanent establishment for your business in another country? If this would be considered a fixed place of business, that generally gives rise to income or tax liability for you as the business in the location they are working in.
So, hiring someone overseas or allowing a UK employee to be based in another country is not as straight forward as it may seem! However, we work with a number of specialists that we can call upon to help you if this is something you are considering. We will help you to make sure you have completed your due diligence before making any offers of employment or promising something to an existing employee who wants to work from their holiday or family home in Spain, that the company is unable to legally or practically provide or financially afford.
2. I’m a small business, so I want to work with some freelancers to help me when I am busy, can you provide me with an agreement to do this?
Hiring a freelancer either as you are starting out in business or as you continue to grow can be a great alternative to taking on permanent employees, until you have a clear picture and evidence of what resource you need.
The number of freelancers in the UK is growing, which means there are plenty of people available with a wide range of skills that may be appropriate for your company and the job you need to get done!
There are some benefits to hiring a freelancer:
- They will be an expert in their chosen area of work.
- As an employer, you are not obliged to pay them holiday or sick pay, potentially costing less than an employee.
- You will only pay them for their contracted assignment or the work they perform.
However, there are also some potential limitations of hiring a freelancer:
- Experienced freelancers can be expensive.
- They may be working for multiple companies or projects, so they may not be able to commit to always being available when you need them.
A freelancer agreement is essential to have in place for any freelancer in your business. The contract should include all the details of the working relationship between the company and the freelancer and like all employment related contracts, should be written, agreed, and signed by both parties before any work commences. We are able to assist with the preparation of any freelancer agreements, appropriate to your business.
An important area to be aware of when hiring freelancers, is the IR35 legislation that was introduced in 2020. It is the government’s way to stop freelance contractors from working as ‘disguised employees’, which is when an individual whose engagement resembles employment works through their own limited company and therefore pays less tax than they should and of course as the employer, you are not paying towards their pension or making NI contributions.
If a freelancer is found to be working within IR35 rules, they would be considered an employee for tax purposes and would be subject to tax and NI contributions the same as any standard employee which could put you into the spotlight with HMRC and liable for fines or repayment of any tax or PAYE contributions.
However, the good news is that the IR35 rules will not apply for small businesses of all types. Where small businesses are engaging contract workers through an intermediary, often known as an “umbrella” company, the responsibility for applying the IR35 rules remains with the intermediary: an intermediary can be a partnership, LLP or single person limited company, but the most common example is a personal service company or ‘PSC’.
So, what is classed as a ‘small’ business for off-payroll/IR35 purposes?
A business will always be small for its first financial year (of trading) and will continue to be treated as small until it fails to meet the requirements to remain small. Intrigued? The definition of what is a ‘small business’ is taken from the Companies Act 2006 and will apply to limited companies, LLPs, unregistered companies and overseas companies. A business will be small if it satisfies two or more of the following requirements:
- It has an annual turnover not exceeding £10.2m
- It has a balance sheet total of not more than £5.1m
- It had an average of no more than 50 employees for the company’s financial year.
To determine whether the small business exemption applies to a tax year, these requirements are applied to two consecutive financial years; the latest financial year where the filing date for the accounts ends before the beginning of the tax year and the financial year before that one.
Where two or more of these requirements are met for two consecutive financial years, the small business exemption applies and responsibility for applying the IR35 rules remains with the intermediary.
If the requirements cease to be satisfied, the business must apply the IR35 rules from the start of the tax year following the filing date for the second financial year.
Whether you are hiring one freelancer or multiple, the risk is the same. We can assist you in assessing your freelancer(s), whether they fall inside or outside IR 35 regulations and whether they are technically classified as an employee and would be subject to tax and NI as well as employee employment rights.
3. I have an employee who has been diagnosed with Cancer. How do we deal with this from a pay perspective and as an employer that wants to be supportive?
Being diagnosed with cancer is an extremely stressful and worrying time for an employee and their family. They will not only be worrying about their health but also how their diagnosis may impact their work-life and career, and of course their ability to pay their monthly bills.
As an employer, it is important to know that when an employee is diagnosed with cancer, they will be considered “disabled” under the Equality Act 2010 and therefore protected against discrimination. I would like to think that every employer would be compassionate in a situation like this, but it’s always important to seek professional HR help and advice when looking at such a sensitive situation like this after diagnosis and throughout their journey of treatment.
Cancer and the side effects of treatment can vary from person to person. Some employees may be able to continue working, whilst others will have to stop working for a period of time as their treatment may be more aggressive.
An employee with a cancer diagnosis should be given time off to attend hospital and treatment appointments. If your employee is unable to work, they will usually be entitled to Statutory Sick Pay, however your contract and sickness policy may also allow for additional Company Sick Pay. There may also be other benefits that the employee is entitled to should they exhaust their SSP entitlement and still be unable to work.
You can help and support employees in a number of different ways, including making adjustments to their working hours, the work they are able to do, providing time off to attend appointments if required and staying in regular contact with them whilst they are way from the workplace so they still feel part of the team, are just some examples.
Employers should also ensure the employee is aware of any company benefits that may assist them such as a company Employer Assistance Programme (EAP), private health insurance, an income protection or critical care scheme or a life insurance scheme.
4. I have two employees who are setting up in business in competition to me and have just resigned! I don’t know what to do, but I don’t want them to continue working for me, can I just ask them to leave today?
Leaving a job and setting up a competing business in direct competition to your business is extremely high risk for the now ex-employees and for you, their employer.
The first thing to do is to look at their contract of employment. If it contains restricted covenants that actually prevent an employee from setting up a business in direct competition when they leave the company, they could be in breach of contract. There could also be restrictions prohibiting moving and working with another individual that they worked with at a previous employer, especially if the individuals are considered influential.
Obligations may not solely be listed in an employment contract, but may also be found in service, shareholders, or partnership agreements, so it is important to review any document that might protect your business. Alongside this, it would also be important to truly understand the nature of the new business and any potential ramifications on the company and seek HR or legal advice if necessary, as to whether the covenants can be enforced and what action could be considered.
If you do have restrictive covenants in place, then it’s important that you confirm in writing to the resigning employees what their obligations are to you as their former employer and make it clear that you will pursue this legally if they are found to be in breach of any of the restrictive covenants in place.
As they are setting up a business in competition with you, you may also not want them to work out their notice period and could therefore place them on garden leave and prevent them form working on the business during this period or terminate their employment if they are found to be working on their business.
If no restrictive covenants apply, or you are happy with the employees leaving to establish another company, you could look to mutually agree an appropriate termination date which may be shorter than their contractual notice of employment.
5. I have an employee who was on sick leave just before they went on holiday and I have now seen pictures of him on holiday, having a whale of a time. What can I do?
If an employee is suffering from an illness or an injury, they are entitled to take time off work. However, whether going on holiday while on sick leave is acceptable will depend very much depend on the nature of their illness or injury and the circumstances involved.
Going on holiday, can often be justified, especially if the employee is suffering from stress or some other condition affecting their mental health. In this context, taking a holiday may actually help with their recovery and facilitate a speedier return to work.
However, you would not ordinarily expect an employee to be going on holiday while on sick leave. In many cases this would serve to undermine the extent of any reported illness or injury, providing grounds for disciplinary action or even dismissal where this is indicative of what’s known legally as “malingering”.
If an employee goes on holiday while on sick leave, and there is evidence of alleged malingering, you may be justified in taking disciplinary action against the employee for misconduct.
You are required to accept a Doctor’s fit note at face value, unless you have clear evidence that casts doubt on whether the employee is genuinely unfit for work, so prior to instigating any disciplinary proceedings, it’s important that you carry out a full investigation to understand the reasons behind an employee’s decision to go on holiday while on sick leave.
If you have doubt over the employee’s fitness for work, it may be appropriate to involve an independent medical assessment via an occupational health professional, who can review the employee’s condition objectively. You should also carry out a return to work interview when the employee returns from their period of holiday/sickness. Once you have all the required information, it is important that any action you take is in line with your company’s sickness policy and disciplinary policy/procedure and involve an HR professional for their advice and support to ensure any unfair discrimination or dismissal claim is avoided.