Global compliance
27 August 2015
The international movement of talent is full of complexities
for staffing agencies — and in the UK, recent legislation means recruiters could be hit with heavy fines for any incorrect tax
payments.
Thu, 27 Aug 2015
for staffing agencies — and in the UK, recent legislation means recruiters could be hit with heavy fines for any incorrect tax payments.
Supplying workers across the globe just got more complicated. That’s the view of Lee Mitchell, operations manager at international professional recruiter Quanta Consultancy Services after the deadline for new HM Revenue & Customs (HMRC) reporting requirements passed on 5 August.
After that date any recruitment agency that reports late or sends incomplete or incorrect payment details to HMRC of overseas workers not paid through PAYE (pay as you earn), who are required to pay tax in the UK, as well as UK nationals temporarily working abroad, face tough new penalties. Not only are they liable for a penalty of up to £1k, but for any underpaid tax and National Insurance Contributions (NICs), a sum that could potentially run into tens of thousands of pounds.
Mitchell describes the new rules which required the company to report on 150 of its contractors covering the three months to 5 July, as “fairly onerous”. “Some of the required information is not held on our system, and so we have had to collate it,” he explains.
Mitchell says the big concern is that “we have to take the contractor’s word for it” that they are not resident for tax purposes in the UK. He adds the company has been advised to get confirmation from a reliable third party such as an accountant.
Brian Daly, managing director of international risk and compliance consultancy Crescenzi Consulting, says the new HMRC reporting requirements are “the major current compliance issue” for agencies involved in moving contractors in and out of the UK. “If in any doubt you should still record them on the report because it is at the agency’s risk if they don’t,” he advises.
However, Daly and other experts in international staffing compliance say the new reporting rules are only one of many pressing issues currently affecting recruiters who supply talent across international borders. The compliance landscape is constantly shifting and recruiters need to keep up with developments or face what can be severe consequences, they warn.
Important recent changes include a new requirement in Denmark that anyone supplying an end user must make sure the contractor is using a payroll solution that is compliant with Danish law, says Daly. “Otherwise, the client is allowed to withhold tax from any payments that it makes to the agency, amounting to 35.6% of the invoice,” he explains.
An amendment to the French Labour Code in April is another significant change. “An umbrella company is not a valid route to market for contractors supplied by a recruitment agency anymore,” says Daly.
With the mobility of talent across the globe predicted to rise by 50% by 2020, according to PwC, international compliance “is much more of an issue than it has ever been”, says John Chaplin, executive director at professional services firm EY.
According to Chaplin, recruiters often fail to understand the complexity, not just of immigration rules, but also social security and NICs legislation. “There is a myth out there that as long as you don’t send anybody abroad for six months or more you don’t have to worry about local tax compliance — I am afraid that is a myth.”
Equally, he adds, “for someone sending a worker to work here for a UK company to assume they don’t have to worry about PAYE is somewhat of a naïve assumption”.
A complicating factor, Chaplin says, is that while a worker in a foreign country may not ultimately have to pay tax in that country because of reciprocal tax agreements with their home country, there is still a payrolling requirement, which at the very least requires NI and other employment taxes to be paid.
Chaplin says the complexities facing recruiters within the compliance sphere must be seen in the context of the current global economic climate. “Most countries want their pound of flesh, and when somebody works for a local company for any length of time, there can be consequences,” he says.
Expanding on the theme, Iain McCluskey, director of human resource services at professional services firm PwC, says: “There is a conflict between the rhetoric of free movement of talent and the reality driven by national tax authorities and immigration departments.” This is having consequences for employers, he says, citing how the Spanish tax authorities sought to charge the UK arm of a Spanish company tax simply because some of its Spanish-based employees worked a few days in a UK branch.
“In an ideal world we would have a really mobile workforce, where talent follows demand and opportunity,” McCluskey continues. “But what is preventing this happening is a much more aggressive approach to protecting their tax revenue by national tax authorities and by immigration departments to protect their own country’s residents [from foreign workers].”
He cites the UK, Germany, the US and India as prime examples. McCuskey says that not only can this have tax implications, “it can lead to the company not sending the person overseas in the first place”.
Paul White, chief revenue officer at compliance automation consultancy NowWeComply, says that recruiters supplying workers between different countries are caught between two often competing pressures: higher levels of compliance demanded by clients and driven by regulation, and commercial pressures for faster results. Not good news for recruiters, says White, with one consequence being they have to employ more compliance staff. Another is, “the process of selling candidates is slowing down”.
If dealing with the here and now of compliance is not tricky enough, recruiters in the business of moving talent internationally must also keep an eye out on the future, says Ann La France, chair of global data protection and cyber security practice at law firm Squire Patton Boggs.
LaFrance says one issue is a threat to the so-called US/EU Safe Harbour agreement, under which data about candidates is supposed to be protected by EU data protection rules. This could particularly affect recruiters who supply talent to the US, she says.
LaFrance explains that after the EU raised concerns over an exemption on grounds of national security that allows the US National Security Agency to trawl through that data on EU citizens, “there is talk of the EU cutting it off”. If that is the case, LaFrance says, “recruiters are going to have to employ other mechanisms to allow for the free flow of data”.
A second related issue is tougher EU data protection regulations that are expected to be adopted by the end of the year.
For recruiters that supply talent around the world, the sheer weight and complexity of having to comply with the never-ending stream of rules and regulations can seem a costly and time-consuming burden. But with governments around the world showing no signs of wanting to lighten the compliance load, and if anything in many countries quite the reverse, recruiters would be better advised to accept that it is part and parcel of doing business in the modern, connected world.
Chaplin advises recruiters “to give the issue the seriousness it requires”.
“Make it one of the goals of your business,” Chaplin goes on to say, “and make it part of how you go to market rather than it just being a back office function, and that means having clear policies, processes and appropriately qualified staff.”
ANNA LAFRANCE
FROM SEPTEMBER 2015'S RECRUITER MAGAZINE
The international movement of talent is full of complexitiesfor staffing agencies — and in the UK, recent legislation means recruiters could be hit with heavy fines for any incorrect tax payments.
Supplying workers across the globe just got more complicated. That’s the view of Lee Mitchell, operations manager at international professional recruiter Quanta Consultancy Services after the deadline for new HM Revenue & Customs (HMRC) reporting requirements passed on 5 August.
After that date any recruitment agency that reports late or sends incomplete or incorrect payment details to HMRC of overseas workers not paid through PAYE (pay as you earn), who are required to pay tax in the UK, as well as UK nationals temporarily working abroad, face tough new penalties. Not only are they liable for a penalty of up to £1k, but for any underpaid tax and National Insurance Contributions (NICs), a sum that could potentially run into tens of thousands of pounds.
Mitchell describes the new rules which required the company to report on 150 of its contractors covering the three months to 5 July, as “fairly onerous”. “Some of the required information is not held on our system, and so we have had to collate it,” he explains.
Mitchell says the big concern is that “we have to take the contractor’s word for it” that they are not resident for tax purposes in the UK. He adds the company has been advised to get confirmation from a reliable third party such as an accountant.
Brian Daly, managing director of international risk and compliance consultancy Crescenzi Consulting, says the new HMRC reporting requirements are “the major current compliance issue” for agencies involved in moving contractors in and out of the UK. “If in any doubt you should still record them on the report because it is at the agency’s risk if they don’t,” he advises.
However, Daly and other experts in international staffing compliance say the new reporting rules are only one of many pressing issues currently affecting recruiters who supply talent across international borders. The compliance landscape is constantly shifting and recruiters need to keep up with developments or face what can be severe consequences, they warn.
Important recent changes include a new requirement in Denmark that anyone supplying an end user must make sure the contractor is using a payroll solution that is compliant with Danish law, says Daly. “Otherwise, the client is allowed to withhold tax from any payments that it makes to the agency, amounting to 35.6% of the invoice,” he explains.
An amendment to the French Labour Code in April is another significant change. “An umbrella company is not a valid route to market for contractors supplied by a recruitment agency anymore,” says Daly.
With the mobility of talent across the globe predicted to rise by 50% by 2020, according to PwC, international compliance “is much more of an issue than it has ever been”, says John Chaplin, executive director at professional services firm EY.
According to Chaplin, recruiters often fail to understand the complexity, not just of immigration rules, but also social security and NICs legislation. “There is a myth out there that as long as you don’t send anybody abroad for six months or more you don’t have to worry about local tax compliance — I am afraid that is a myth.”
Equally, he adds, “for someone sending a worker to work here for a UK company to assume they don’t have to worry about PAYE is somewhat of a naïve assumption”.
A complicating factor, Chaplin says, is that while a worker in a foreign country may not ultimately have to pay tax in that country because of reciprocal tax agreements with their home country, there is still a payrolling requirement, which at the very least requires NI and other employment taxes to be paid.
Chaplin says the complexities facing recruiters within the compliance sphere must be seen in the context of the current global economic climate. “Most countries want their pound of flesh, and when somebody works for a local company for any length of time, there can be consequences,” he says.
Expanding on the theme, Iain McCluskey, director of human resource services at professional services firm PwC, says: “There is a conflict between the rhetoric of free movement of talent and the reality driven by national tax authorities and immigration departments.” This is having consequences for employers, he says, citing how the Spanish tax authorities sought to charge the UK arm of a Spanish company tax simply because some of its Spanish-based employees worked a few days in a UK branch.
“In an ideal world we would have a really mobile workforce, where talent follows demand and opportunity,” McCluskey continues. “But what is preventing this happening is a much more aggressive approach to protecting their tax revenue by national tax authorities and by immigration departments to protect their own country’s residents [from foreign workers].”
He cites the UK, Germany, the US and India as prime examples. McCuskey says that not only can this have tax implications, “it can lead to the company not sending the person overseas in the first place”.
Paul White, chief revenue officer at compliance automation consultancy NowWeComply, says that recruiters supplying workers between different countries are caught between two often competing pressures: higher levels of compliance demanded by clients and driven by regulation, and commercial pressures for faster results. Not good news for recruiters, says White, with one consequence being they have to employ more compliance staff. Another is, “the process of selling candidates is slowing down”.
If dealing with the here and now of compliance is not tricky enough, recruiters in the business of moving talent internationally must also keep an eye out on the future, says Ann La France, chair of global data protection and cyber security practice at law firm Squire Patton Boggs.
LaFrance says one issue is a threat to the so-called US/EU Safe Harbour agreement, under which data about candidates is supposed to be protected by EU data protection rules. This could particularly affect recruiters who supply talent to the US, she says.
LaFrance explains that after the EU raised concerns over an exemption on grounds of national security that allows the US National Security Agency to trawl through that data on EU citizens, “there is talk of the EU cutting it off”. If that is the case, LaFrance says, “recruiters are going to have to employ other mechanisms to allow for the free flow of data”.
A second related issue is tougher EU data protection regulations that are expected to be adopted by the end of the year.
For recruiters that supply talent around the world, the sheer weight and complexity of having to comply with the never-ending stream of rules and regulations can seem a costly and time-consuming burden. But with governments around the world showing no signs of wanting to lighten the compliance load, and if anything in many countries quite the reverse, recruiters would be better advised to accept that it is part and parcel of doing business in the modern, connected world.
Chaplin advises recruiters “to give the issue the seriousness it requires”.
“Make it one of the goals of your business,” Chaplin goes on to say, “and make it part of how you go to market rather than it just being a back office function, and that means having clear policies, processes and appropriately qualified staff.”
ANNA LAFRANCE
