Contractual nature of the employment relationship
Typically, UK employers with individuals working for them outside the UK will set out the employment relationship in a secondment or employment agreement, which will govern the way in which they are remunerated.
However, the terms of this arrangement will depend on the individual’s status; whether they are an employee; employee / shareholder or director / shareholder.
Please note that we have assumed that the use of the word “remunerated” in the question means that the hypothetical individual in the question is an employee of the company and therefore this answer does not cover other scenarios such as payment of dividends to shareholders.
The contract with the EU shareholder or non-EU director can state that the employment relationship is to be governed by UK law and subject to the jurisdiction of the UK courts, however, in many cases, local mandatory laws will trump the contractual terms.
Of course, when remunerating a shareholder, regard should be given to the terms of the shareholder agreement between the employing company and the individual.
Agreement
The employer must ensure that the employee receives the mandatory pay provided for under the English or local law, including, where applicable, minimum paid holidays (inclusive of any statutory/public holidays); minimum wage and statutory sick pay.
Employers must also ensure that they do not unlawfully deduct wages and that they adhere to equal pay legislation.
Tax implications
There will be tax and social security implications for both the employer and the employee.
If the individual is neither UK resident nor working in the UK, there should be no UK tax or social security implications in respect of any remuneration, but the employer may have an obligation to register and account for taxes in the country where the individual is working (and resident, if different).
However, if the individual makes visits to the UK in the course of his / her work, that could trigger liability to UK taxes, again depending on the precise circumstances. An example would be a director attending board meetings in the UK.
Employers should also be aware that the fact of the individual working on behalf of the employer in the non-UK country may, depending on the circumstances, mean that the UK company has a “permanent establishment” in that other country which would mean that some of its profits could be liable to corporation taxes in that other country.
A number of factors need to be considered in an assessment of this risk, including where the individual is working from and whether that amounts to a place of business of the UK company, and the specific role and authority which the individual has on behalf of the UK company.
With contributions from Carlene Nicol, Associate in DLA Piper’s Employment Team