What does a ‘hard Brexit’ mean for your international company and UK employees?

Regulation

If no agreement between the UK and the European Union is reached at the EU summit on 18 and 19 October, the transitional period that would have applied until the end of 2020 will expire. As a result, on 29 March 2019, the UK’s membership in the EU will end, and EU law will no longer apply. If your company employs people in or from the UK, this change could be far-reaching. So, take the bull by the horns and avoid unpleasant surprises caused by a ‘no deal’ scenario by making the right preparations.

 


In the following concrete example, we outline how much the situation will change in the case of a hard Brexit without a transitional period for international organisations.

1. Assigning a Belgian employee to work in the UK

Tom is a Belgian worker assigned to the UK for 12 months by his Belgian employer.

Current situation:

The Belgian social security system remains in place, allowing Tom to further build up his Belgian social security rights for, among other things, his pension, health insurance and unemployment. He doesn’t need a work permit and can move to the UK with a valid residence permit. Tom’s normal pay and working conditions apply there, unless they would be more favorable in the UK. His Belgian payroll structure will remain in place to handle his social security contributions and taxes.

New situation after a hard Brexit:

During Tom’s foreign assignment, he is covered by the British social security system, which means that he will most likely have to pay and withhold British social security contributions from his salary. Even more, if his secondment lasts a maximum of 12 months, he will still pay social security contributions in Belgium if he chooses to do so. Since he can no longer invoke the ‘free movement of workers’ principle, he needs a UK work permit – and he will not automatically receive a valid residence permit. In principle, Tom will have to go through the full administrative merry-go-round. Also important: during his employment in the UK, British wage and employment conditions will apply. This means that Tom may lose his current pay and employment conditions. Finally, as an international employer, you will have to set up a payroll structure in the UK. If it is a short secondment, Tom may be listed on two payrolls. 

2. Secondment of a British employee to Belgium

Alex is a British employee assigned to work in Belgium for 12 months by his British employer.

Current situation:

The British social security system remains in place, meaning that Alex continues to build up his British pension rights during his secondment. He doesn’t need a work permit to work in Belgium and can move to Belgium with a valid residence permit. Alex is certain of his normal British wage and working conditions: unless they would be better in Belgium, British conditions would apply. Alex stays on the British payroll structure, which handles his social security contributions and British income taxes.

New situation after a hard Brexit:

Alex could come under the jurisdiction of the Belgian social security system during his secondment. However, the British social security system may still also apply – leading him to pay social security contributions twice. He cannot transfer his accrued social security rights to another EU country – a problem for British nationals wishing to enjoy their pensions in the sunny south. Without the ‘free movement of workers’ principle, Alex must first apply for a work permit in Belgium. He can no longer just move here – doing so will require quite a bit of paperwork. Because Belgian wage and working conditions will apply during his temporary assignment in Belgium, he may lose his current British wage and working conditions. His employer may have to initiate a Belgian payroll structure for Alex, while he may also be simultaneously listed on the British payroll.

 

In short

If no agreement is reached, the consequences of a hard Brexit for employers and their employees around the world could be challenging:

  • the application of two social security legislations, which may require social security contributions to be paid twice
  • work and resident permits must be applied for;
  • current pay and working conditions will no longer apply;
  • double payroll formalities lead to associated costs. 

Be prepared for the ‘no deal’ scenario

Hopefully, UK and EU leaders will shake hands at the next European summit on 18-19 October. But if they fail to reach an agreement once again, rumours of possible new elections may well be true. What does the future hold for multinational organisations? Stay tuned with us. 
 
 

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