Brexit has thrown the UK’s thriving tech sector into a state of uncertainty about the future, which is never good for business. Or the stock market, for that matter.
In addition to a temporarily weaker economy, with higher inflation, higher interest rates and higher wages, all of which have been warnings from the Governor of the Bank of England and other economic experts, one of the main areas of uncertainty going to impact British employers is freedom of movement for EU staff, with many worrying this is going to make it far more difficult to set up shop and expand into other EU countries.
It’s important that British employers are fully clued-up when it comes to global employment in a post-Brexit age. So what do you need to know about your workplace expansion in Europe in the future?
Post-Brexit employment: all you need to know
Certainly, there are going to be numerous challenges, pitfalls and solutions available to different business across all industries to help them overcome this uncertainty.
Additionally, you are going to need to do plenty of research into all of the country specific nuances of setting up shop in particular countries like Ireland, Spain and Germany, and even non-EU European countries such as Switzerland that participate in the Schengen Ara and the European Single Market through bilateral treaties.
Unsurprisingly, according to a recent survey conducted by the Confederation of British Industry, around 40% said that the Brexit referendum was already having a negative impact on their investment decisions.
On top of that, the UK tech sector risks losing £1.7bn of its export revenues if the government takes the UK out of the EU with no trade deal, according to report. Arguments can be made for the UK being able to do more business around the world once divorced from the EU. But the reality is, trade agreements will take time to come to fruition, and most business will be more concerned about the short- to medium-term impact of such a seismic change in circumstances.
The future success of British industry is highly dependent on UK firms continuing to undertake commerce in the EU region, though with a few added complexities of tariff barriers and compliance with local regulations and standards. The biggest worry of all though is how the end of the EU’s freedom of movement is going to impact British companies. EU employees and British employees abroad are likely to need work visas, adding cost and complexity, while some employers might find they have to start looking further afield, beyond the EU, to find the talent they need, following a drop in net migration to the UK.
Avoiding a skills crisis
What is paramount is that British employers take all the necessary steps to avoid the situation where they don’t have the required skills to deliver goods and services. The tech sector in particular has a well-publicised dearth of talent in specialist fields, and finding the correctly-skilled workers at home in the UK or navigating the bureaucracy of employing EU nationals can become costly, complicated and time-intensive.
The alternative to employing EU workers in the UK, is to employ them in their home country. But this is far from straightforward and can incur considerable costs in doing so. This is particularly true if they haven’t gone through the process before.
Firstly, you have to make sure you know the local employment laws around paid vacations, public holidays and local payment practises. For example, in a number of countries such as Portugal and France, employers are also required to pay a 13th- or 14th-month bonus, which isn’t widely known about in the UK.
A common task for organisations wanting to expand into new markets is to hire foreign workers or contractors and pay them from their UK headquarters. And as an employer, you have to be aware of what needs to be included in an employment contract to comply with domestic legislation and what is negotiable or simply a nice-to-have.
Employment Contracts Across Europe
There are a number of country-specific things that British employers need to know when looking to expand into different EU countries and take on full time staff or contractors. Some examples of these follow:
For employment and payroll purposes, registrations with tax and social security authorities are required. Employee earnings are subject to withholdings for social security (19.425% employer and employee portion each, up to a ceiling of €6,350 gross per month) and wage tax (from 14% to 45%) to be done through payroll.
Employers are required to pay a universal social charge (up to 8%) and Pay Related Social Insurance (up to 10.75% for the employer and 4% for the employee).
Social charges vary according to canton and employer’s chosen pension fund scheme. Employer’s contributions have to be paid in addition to the gross salary, at approx. 12-20% of the gross salary. Employee’s contributions have to be deducted from the employee’s gross salary at approximately 10-17% of the gross salary.
In general, employees receive their annual salary in 14 payments (12 for each month, with additional payments in June and December).
The value of taking on an EOR
In addition to all of the above, it’s also vital to know that payroll rules are very different in each EU country, as they are based on local accounting and tax regulations. So, for example, in France, employers are expected to withhold 50% of each employee’s salary in tax and social insurance payments, while the figure is more like 30% in Germany.
One way of getting around the challenges and pitfalls all of this presents is to engage a direct ‘employer of record’ (EOR) service provider. EORs are third-party companies that take on all of the legal responsibilities involved in employing staff on your behalf in your target country. This means that, on paper at least, they are the primary employer of your workers and take on all of the administrative responsibilities relating to their employment, which includes writing employment contracts, hiring and on boarding staff, and dealing with local benefits.
Which frees you up for concentrating on running your business and you are of course responsible for the day-to-day management activities and any employee liabilities.
The real value of an EOR approach is the fact it saves you valuable time and resources setting up a legal business entity in the country you want to do business in. You can be confident that you are hiring staff fully in compliance with local regulations, which solves a big challenge for most employers and mitigates a major risk factor.
You can have workers up and running swiftly, in as little 48 hours, rather than having to wait months to set up a new subsidiary. It’s also a hugely beneficial way of testing out new markets, by using an EOR to run short- to medium-term projects in a country.
And, of course, it’s a failsafe way of dealing with expanding into Europe in a post-Brexit world. Don’t worry about the complexity or the uncertainty of local employment laws, because it makes sense at every level to partner with a direct EOR provider to help take that complexity and uncertainty away.
Rick Hammell, CEO at Elements Global Services
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