Life’s a beach? Working remotely from Barbados
12 August 2020
Barbados has announced a new scheme designed to encourage overseas individuals to relocate there and work remotely. What issues arise for employers if their employees want to do this?
Just imagine being able to walk out of your office straight onto a beach with crystal clear water and soft white sand, or spending the day working in the shade of a large palm tree, cocktail in hand… It might sound too good to be true but, except perhaps for the cocktail, this dream could now become a reality for some employees currently based in the UK.
The government of Barbados has announced that it will be offering a 12-month “Welcome Stamp”, permitting overseas individuals with an annual income of at least USD $50,000 to work remotely from the island without the need for any visas or immigration permissions. Barbados’ economy relies heavily on tourism, an industry which has been severely affected by the Covid-19 pandemic. Travelling for short periods has become more difficult, so it is hoped this initiative will encourage people to visit Barbados for longer periods of time.
If an employee wishes to take advantage of the scheme, there are several issues their employer should consider before approving the request.
Income tax and social security
The employer should continue to deduct UK income tax from the employee’s earnings in accordance with their PAYE code. While the general starting point is that tax is due in the country in which the employee is physically carrying out their duties, there is a double tax treaty between the UK and Barbados which cuts across this.
The treaty provides (subject to certain conditions) that, if the employee is UK tax resident and not present in Barbados for a period that exceeds 183 days in any 12-month period (commencing and ending in the Barbadian tax year concerned), they will be exempt from paying tax in Barbados. This would normally mean that, if the employee were to take advantage of the full 12-month period, they would be required to pay tax in Barbados as well as in the UK but would get credit for the Barbados income tax they pay. It has now been confirmed, however, that employees will not be required to pay income tax in Barbados if they have a valid Welcome Stamp.
The employer should also continue to deduct employee National Insurance contributions (NICs) and pay employer NICs. Under an agreement between the UK and Barbados, so long as the employer obtains a valid “Certificate of Continuing Liability” from HMRC, the employee can stay within the UK social security system for any secondment of up to three years and no Barbadian social security will be payable.
Both the employer and employee should seek local advice regarding whether there will be any additional tax or reporting obligations in Barbados. Any written agreement with the employee governing their time in Barbados should confirm that they will be liable for any additional tax or social security that becomes payable as a result of their decision to work abroad. The agreement should entitle the employer to deduct this from the employee’s pay or seek reimbursements if necessary.
Permanent establishment risk
There is a risk that the employee’s activities or presence in Barbados could create a permanent establishment for the employer there. This would be the case if, for example, the employee has a sales or business development role and is habitually exercising an authority to conclude contracts in the employer’s name while in Barbados. If a permanent establishment is created, the profits attributable to it would be subject to corporate tax in Barbados.
If the arrangement is relatively short term, it would be difficult for the tax authorities to argue that a permanent establishment has been created. The longer the arrangement continues, however, the greater the risk. This is particularly the case if the employee is routinely negotiating the principal terms of contracts with customers which are then simply “rubber-stamped” without amendment by UK personnel. Accordingly, the written agreement relating to the individual’s time in Barbados should make clear that it is time limited, with the employee having no authority to enter into contracts with customers or hold themselves out as having such an authority while in the country.
If employees live and work abroad, even for short periods, they can become subject to the jurisdiction of the country in question and start to benefit from local mandatory employment protections. This could potentially cause issues if the employer wishes to terminate the employment relationship and the employee asserts that they have acquired rights under local employment law. In Barbados, for example, employees can bring a claim for unfair dismissal after one year’s service, whereas in the UK they need to clock up two years’ continuous employment to qualify.
Before an employer allows someone to work from Barbados, therefore, it should seek advice on the possible impact of local employment law, particularly if it considers the employment relationship may terminate while the individual is overseas. In addition, any agreement with the employee regulating their time in Barbados should make clear that their employment contract will remain subject to UK law and jurisdiction.
If the employee’s role involves processing personal data, their temporary relocation could give rise to data protection issues as Barbados is outside the European Economic Area and so not subject to the General Data Protection Regulation (GDPR). Although Barbados has implemented similar data protection laws to those under the GDPR, the employer should still approach this issue with caution. It should ensure it is comfortable that any data transfer will not constitute a breach of the GDPR, which could expose it to a substantial fine among other things.
Health and safety
UK employers have obligations to ensure the health and safety of their employees, including providing a safe working environment with adequate facilities and ensuring employees are provided with training, information, instructions and supervision to allow them to work safely.
These duties are unlikely to involve safeguarding employees against shark attacks or jellyfish stings (depending, of course, on the nature of their role). They would, however, extend to carrying out a risk assessment to identify any potential risks to the employee and taking measures to reduce those risks as far as possible. This might, for example, include providing training on how to minimise the risk of poor posture and back issues when working remotely.
The employer must also ensure that it is complying with the applicable local health and safety laws in Barbados, which contain similar obligations to those that apply in the UK.
Before an employer approves an employee’s request to work remotely from Barbados, it should ask them to enter into an agreement covering the issues that might arise during their time abroad. In particular, the agreement should document the employee’s return date and confirm that the employer can require them to return to the UK (on reasonable notice) at any stage if the arrangement is not satisfactory. It could also address practical points such as:
- who will pay for any work-related costs
- how the employee will be supervised while they are abroad
- remote attendance by the individual at team meetings (bearing in mind the time difference).
The employee’s ability to participate in company benefits such as pensions, private healthcare, income protection and life assurance may be adversely impacted by their relocation, so it is important to raise this issue with them before they move. Moreover, Barbados’ scheme requires employees to have health insurance coverage for the 12-month period. It will be necessary to clarify whether the employer’s health insurance scheme will suffice for this or if the employee needs to obtain their own cover.
A more flexible future?
Recent studies have shown that many employees would like to continue to work flexibly even after the Covid-19 pandemic has subsided. Although few are likely to take this as far as working from Barbados for a year, it seems plausible that this approach could become more commonplace. Employers may come under increasing pressure to provide greater flexibility - for example, employees may wish to relocate to warmer climes such as Spain or the south of France during the winter months.
In any such situations, employers should carefully consider the risks involved before agreeing to a new working arrangement and ask the employee to enter into a written agreement documenting the arrangements while they are abroad.
For further, more detailed discussion of the issues outlined above, please see our previous article Home and away – when ‘working from home’ means working abroad.
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