Brexit, the ‘British Exit’ from the European Union, has finally occurred. As of 1 January 2021, the transition period is over, and the United Kingdom now sits outside the European Union (EU). This means that there are new restrictions in place with respect to UK businesses that operate in the EU. Here we set out five key human resources challenges for UK businesses operating in the EU post-Brexit, and explain how a Global PEO can help manage those challenges.
The Key Elements of Brexit
Following a referendum on membership of the EU in 2016, the UK formally left the EU on 31 January 2020. As part of transition arrangements, it continued to be treated as part of the European Single Market and EU Customs Union until 31 December 2020.
On 1 January 2021, this transition period ended, and the relationship between the United Kingdom and the EU is now governed by a range of co-operative mechanisms. The most significant of these is the UK-EU Trade and Cooperation Agreement (the ‘free trade agreement’ or ‘FTA’).
Perhaps the most significant consequence of this agreement is the absence of tariffs or quotas on the movement of goods between the UK and the EU.
Another key element of the FTA is the trade arrangements for Northern Ireland. The Northern Ireland/Republic of Ireland border is now the de jure (i.e., ‘legal’) border between the EU and the UK. However, a new de facto border will be created over the Irish Sea, negating the need for a ‘hard border’/customs checks between Northern Ireland and the Republic of Ireland. Border checks and customs documentation will instead be applied at the Irish Sea border (with a range of exceptions).
Another significant element of Brexit is the end of free movement of people between the UK and the EU. From now on, movement between the UK and the EU will only be available under the usual visa and visa-waiver arrangements.
So far, much of the discussion about Brexit’s impact on UK businesses has focused on the impacts on trade in goods. For example, the application of VAT and excise duties on certain products being imported from the EU, and the requirement to comply with customs formalities when importing and exporting.
Our focus in this guide, however, is on the people impact for UK businesses operating in the EU, such as those doing business in Germany or France. We explore how Global Professional Employer Organisation (‘Global PEO’) solutions might be utilised to rise to these human resources challenges.
Five HR Challenges for UK Companies Post-Brexit
- Prior to Brexit, ‘freedom of movement’ meant that there were few barriers to UK companies directly hiring staff from all over the European Union.
- This was easiest if the staff physically resided in the UK, but it was also feasible if the staff were based elsewhere within the EU, as long as tax, benefits administration and other employment obligations were also complied with in the EU country/countries.
- As of 1 January 2021, UK employment law means businesses must apply for a sponsor’s licence in order to hire EU staff (who don’t otherwise have permission to work in the UK), and EU applicants will need to apply for a skilled worker visa with that employer’s sponsorship.
- Recognition of Qualifications
- Pre-Brexit, an EU mutual recognition scheme mean that professional qualifications and accreditations from one EU member state (including those held by doctors, nurses, dentists, architects and accountants, for example), had their qualifications automatically recognised in other EU countries.
- Post-Brexit, there is no automatic recognition of qualifications and credentials between the UK and the EU. This means, for example, that a qualified UK auditor will no longer be automatically able to sign of audit reports in the EU.
- Note that, as part of the FTA, there is an agreement for limited recognition of legal professionals. UK-accredited barristers, solicitors and advocates will be able to advise EU clients using their UK professional titles, but only under certain specified circumstances.
- European Mobility
- Prior to Brexit, UK business people could travel to the UK, visa-free, for as long as necessary in order to conduct business. Now, business travel will only be permitted only where a range of visa and visa-free travel conditions apply: For example, short-term business travellers will be permitted to enter for 90 days in a 180 day period without holding a visa.
- Permanent Establishment
- ‘Permanent establishment’ (or ‘PE’) is the test used by tax authorities to determine whether an enterprise is liable to pay corporate income tax in a country. Under this test, even where a business is not incorporated in a country, it may be liable for corporate income tax where it has a “fixed place of business” where it carries out the activities of that business, in that country.
- There are various ways in which restructuring and re-organisation of UK companies in response to Brexit could affect whether or not the business has a permanent establishment in the EU. For example, as many UK businesses can no longer provide regulated services from the UK (see ‘Regulated Services’ below), those businesses may second or assign staff to EU countries: These staff would help those businesses and their staff become accredited in-country. The prolonged presence of UK staff in the EU increases the risk of what is called a ‘dependent agent‘ PE being created.
- Read more about PE risk at What is Permanent Establishment and Why Does it Matter?
- Regulated Services
- Prior to Brexit , under ‘passporting‘ arrangements, various services that were regulated in the UK, such as banking and financial services, were able to operate and deal with customers in the EU without further regulatory approval.
- The ‘passporting’ mechanism is now gone, and unless a service is recognized under the FTA or other affiliated Brexit agreements, recognition by UK authorities is no longer sufficient to do business in the EU. The biggest example of this is the financial services and banking industries. Until an ‘equivalence’ agreement is worked out, financial and banking services may need to get separate regulator approval in each EU country that they operate in.
The image below summarises these Global PEO benefits:
Hire in the UK in 24 hours with Horizons EOR services.
Five Ways Global PEO Can Help with BrexitOne option for dealing with the HR issues created by Brexit is to engage a Global PEO. A Global PEO is able to recruit and hire staff for UK firms, in Europe (or pretty much anywhere else in the world). This means that the Global PEO takes over compliance and tax responsibilities in Europe for the UK company. Sometimes a Global PEO is known as a global employment organization or ‘GEO’. Find our more about what a Global PEO can do at 8 PEO Benefits That Will Help Your Business Expand Quickly, Compliantly, and Reliably Below we consider the five ways in which a Global PEO can help with all the HR challenges listed above.
- Recruiting in Europe
- Global PEOs operating in the EU have recruitment networks within each country, and can hire and onboard staff in each European state. Once onboarding is complete, the Global PEO is responsible for payroll, payroll tax, benefits administration and employer compliance in those countries.
- The staff hired by the Global PEO still work exclusively for the client company (i.e., your company), and at the day-to-day direction of the client company.
- With a Global PEO solution, Europe-based staff would not require UK visas (as their ‘Employer of Record’ is on EU soil).
- Staff Qualifications
- Global PEOs within EU countries (also known as ‘Europe PEOs‘), can act as the conduit between a UK business and EU bureaucracies: They are familiar with the rules for recognising qualifications in EU states, and can ensure that your staff working in the EU meet the requirements for operating there.
- Visas and Permits
- Global PEOs are global mobility experts. This means they are able to liaise with authorities to ensure that staff have all the necessary visas and work permits to perform their work.
- Global PEOs can ensure that UK staff operating in the EU, and EU-based staff working in the UK, have the necessary visas and permits for the work they are engaged in.
- Advising on Permanent Establishment Risk
- Global PEOs can advise on permanent establishment risk for UK companies in the EU, and whether a ‘dependent agent PE’ of a UK company might exist.
- Note, however, that there is no ‘hard and fast’ rule as to when an enterprise’s business activities in an EU state will constitute a PE, and it will vary on a case-by-case basis.
- Approval for Regulated Services
- Global PEOs are global compliance specialists. This means that they are familiar with all the regulatory requirements for specific industries in EU states. This ensures that any activity from UK companies only occurs with the necessary approvals.
Given that 80 percent of the UK economy is made up by services, rather than goods, it is unfortunate that relatively little attention has been paid to the HR issues that inevitably arise when trying to export services after Brexit.
For a UK company continuing to operate in the EU, engaging a global PEO is of enormous benefit. A Global PEO can ensure that all EU staff are employed in full compliance with UK and EU laws and regulations. This is usually a more efficient and cost-effective option than setting up separate legal entities in each EU state that the UK enterprise wishes to operate in.
Horizons specialises in EU employment solutions for UK clients. They recruit, hire and onboard EU staff, and provide expert advice on support on visas and applicable regulations. This ensures that the business activities of a UK enterprise in the EU are fully compliant with both UK and EU law.