Timebomb: The Implications of Brexit on Global Mobility

Key Learnings from a Sterling Lexicon and BDO Webinar

With free trade agreement negotiations between the United Kingdom and the European Union going down to the wire before the end of the transition period on December 31, 2020, there is still a great deal of uncertainty around the regulatory environment which will govern how businesses can move labor between the U.K. and European Union member states in both a ‘deal’ and ‘no-deal’ scenario. A recent survey issued by the U.K.-based Institute of Directors indicated that close to a third (29%) of company directors reported that they weren’t sure they would be ready for Brexit by the end of the year. In the same survey 63% of respondents agreed that maintaining ease of movement of people and labor between the U.K. and the EU is considered to be among the most important priorities for post-transition negotiations with the EU.

With this in mind, Sterling Lexicon and BDO recently hosted a webinar to highlight what we know will be in place on January 1 and what is still to be determined. This informative discussion emphasised that while movement of labor between the EU and the U.K. will still be possible in a post-Brexit environment regardless of a free trade agreement, there will inevitably be an impact for organizations relating to the speed and cost of deploying employees.

The Immigration Landscape

The U.K.’s new points-based immigration system is designed to attract the brightest and best talent from across the globe. However, it does of course draw a line through the freedom of movement European citizens coming to the U.K. have previously benefited from. As of January 1, EU nationals coming to work in the U.K. who have not already applied for settled or pre-settled status will be obliged to obtain permission to work in the U.K., either through the Skilled Worker route which replaces the Tier 2 (General) system, or through the Intra-Company Transfer system. While having to go through the work permit application process will undoubtedly slow the speed to deployment for European nationals, the removal of the Resident Market Labor Test for Skilled Worker applications may well expedite the process of bringing in international new hires for many organizations. Furthermore, the revision of the required skill level from the equivalent of degree level to A-level and the lowering of the general salary threshold will potentially make it easier for organizations to bring in labor of any nationality. That said, there is no avoiding the fact that U.K. government work permit application fees are comparatively high and will in some cases add significant cost to bringing talent into the U.K. This means that the cost of bringing a European national into the U.K. will leap from just the airfare to thousands of Pounds. Leanne Cottrell, Sterling Lexicon’s Head of Immigration also highlighted that while government fees for European Union member states were comparatively lower, organizations need to consider that the speed at which they can deploy British labor into Europe may be hampered by immigration systems which are less efficient. Moreover, processes tend to be more protracted with a greater requirement for administrative work such as document legalization, translation, consular application and residence permit. The overall time to mobilize a British national into Europe may therefore be significantly longer. Global mobility teams will need to be mindful about managing expectations within their businesses. While not all EU member states have set out guidance as to what the immigration process will look like for British nationals at this stage, those which have indicate that they will take a third country national approach. Global mobility teams will need to maintain awareness of some of the more nuanced implications of this approach, which include limitations on permitted activities of both the employee and dependents.

Global mobility will of course be cognizant of the impact to business travelers as of the beginning of next year as well. While prior to Brexit there was no limitation to the duration of business visits to the U.K. for European nationals, the new system will impose a 6 month cap (notwithstanding frequent or successive visits) and permitted activities will be limited to attending meetings, negotiating deals, site visits, and intra-corporate activities. Similarly, hands-off, observational activities will apply to U.K. nationals undertaking business travel governed by the Schengen scheme. The resultant tracking and compliance related activity is likely in many cases to fall under global mobility’s purview. Moreover, it may well fall to global mobility to provide guidance to the business on permitted activities.

Social Security

From a social security perspective, the cost implications to current and future assignments are somewhat opaque while trade negotiations continue. The U.K. government has confirmed that existing posted workers, multi-state workers and frontier workers will be covered by the withdrawal agreement and that their A1 certificates will still be valid provided that the start date falls before January 1, 2021 and that there is no interruption to their circumstances. While both France and Germany have confirmed that existing A1 certificates can be extended as necessary, the Italian government is currently stating that A1s will not be valid after the end of the year in the absence of a deal, leading to the possibility of double contributions. For new secondments, much rides on whether the EU and the U.K. can agree on a deal. In the event of a deal, the U.K. government’s aim is to mirror existing EU Social Security Coordination Regulations, however this would need to be agreed with the EU. In the event of no deal, U.K. nationals working in Europe would be subject to the same 52-week rule applied to other nations without a reciprocal agreement in place. Existing reciprocal agreements with EU nations are dated and in many cases considered not fit for purpose in the modern working world, leading to a double-edged sword whereby U.K. NIC would be payable for 52 weeks for U.K. workers posted within the European Union, resulting in potentially higher costs, and EU workers posted to the U.K. being exempt from U.K. NIC for 52 weeks, potentially reducing costs if their home country does not apply social security. Global mobility teams will need to work with their tax provider to monitor the situation as it evolves over the coming days and weeks, in addition to working with their business stakeholders to plan for higher costs where applicable. Further in-depth insights can be found at BDO’s dedicated Brexit resources.

Other Considerations

Container shipping ports within the United Kingdom have been experiencing significant congestion and delays resulting from the effects of both Covid-19 and Brexit as companies stockpile goods in anticipation of disruption in January. The dual effects of both space and carrier haulage capacity shortages are therefore causing challenges not only for the household goods transportation and moving industry, but for supply chains worldwide. Sterling Lexicon recently advised its clients that availability for the rest of December is nearly exhausted, and that we anticipate delays to continue through at least the Chinese New Year on February 12, 2021. Container congestion at the port is likely to be exacerbated by additional customs requirements and congestion in accessing the ports in the south of England. The implication for organizations with assignments into and out of the U.K., particularly in the early part of next year, is that additional temporary accommodation or use of rental furniture may be required where the assignment is scheduled to start ahead of a feasible delivery date for the household goods shipment.

One webinar participant enquired about the position some British banks are taking with regards to the withdrawal of current accounts, savings accounts and credits cards for U.K. citizens living in Europe in anticipation of losing permission to operate on the Continent. It has been widely publicized that some financial institutions have taken a decision not to apply for licences in every EEA location once Britain leaves pan-European banking rules known as passporting. This has resulted in accounts being closed for tens of thousands of Britons living in Europe where the account is not linked to a U.K. residential address. In practical terms this may mean that some assignees may need to switch banks in the U.K. or open an account with a local bank, dependent on the product and the location. From a global mobility perspective, impacted assignees may request guidance or assistance with their international banking arrangements or may require clarification on the corporate policy approach to reimbursement of international wire transfer fees.

In Summary

Global mobility, like all areas of the businesses they represent, has to contend with a wide range of implications resulting from Britain’s decision to leave the European Union. With a trade deal still hanging in the balance, many of these still remain unclear. With the prospect of a Covid-19 vaccine giving rise to the possibility of increased levels of employee mobility in 2021, Sterling Lexicon will continue to monitor developments and provide insight into those areas of greatest interest and focus to global mobility.