Expat or UK Employee - Advice

[Business Class]

I am considering taking a position with a UK company and relocating to London. I was an expat about 10 years ago and know the drill. However, this new opportunity wants to bring me on as a UK employee not an expat. I am looking for some advice on the benefits and disadvantages of each. Frankly, I wasn't aware that a non-UK citizen could be hired on as a direct employee. Any feedback would be appreciated.

[Bevdeforges]

Hi and welcome to the forum. Actually, the matter of "expat" vs. local payroll is more a matter of company policy and circumstances than any legal considerations - at least as long as your employer has received permission to hire a foreigner for a job.

I've been on both expat and local payrolls, and it primarily depends on what your goals are. Expat payroll normally gives you a number of "perks" mostly aimed at maintaining your place in the pecking order back home. There are a number of countries where you could, as an "expat" continue to contribute to US social security and to be covered by your US health insurance (assuming you were covered by the company policy while working in the US) so that you don't lose any time or credit while you are working overseas - however these kinds of arrangements are usually limited to 3 to 5 years. After that time, you must switch over to the local social insurance scheme.

If they are strictly a UK company, you may not have an "expat" option. They want to hire you, so they will handle getting you the appropriate visa. You then relocate (under whatever terms they offer you) and you are paid in sterling and are subject to all the same social insurances and conditions as those on the local payroll.

Main disadvantages over an expat contract: you won't be guaranteed repatriation should the job not work out (some employers will guarantee to repatriate you if the job doesn't work out but only within the first year or two); you pay for your own housing (like a local employee) and car (unless the job normally provides a car as part of the deal); no annual home leave allowance; no tax assistance (unless maybe for the first year) or tax gross-up; no exchange adjustment to keep you "even"with what you would be earning in the US. And, of course, no promise from your old job or employer to take you back.

But, if you're planning on making a permanent move, it can be a big advantage to be on the local payroll - if only because you won't be called back home by the head office should they need to cut costs. (Expats are dreadfully expensive to the company.) Your visa to remain in the UK will probably be dependent on your job, so if you lose your job for any reason, you could find yourself on your own to leave the UK (usually within something like 30 days) - at least during the first few years on the job. (Do check what sort of visa they are planning to apply for on your behalf.)

Those are the main things that leap to mind.
Cheers,
Bev

[Punktlich2]

Originally Posted by Bevdeforges

Hi and welcome to the forum. Actually, the matter of "expat" vs. local payroll is more a matter of company policy and circumstances than any legal considerations - at least as long as your employer has received permission to hire a foreigner for a job.

I've been on both expat and local payrolls, and it primarily depends on what your goals are. Expat payroll normally gives you a number of "perks" mostly aimed at maintaining your place in the pecking order back home. There are a number of countries where you could, as an "expat" continue to contribute to US social security and to be covered by your US health insurance (assuming you were covered by the company policy while working in the US) so that you don't lose any time or credit while you are working overseas - however these kinds of arrangements are usually limited to 3 to 5 years. After that time, you must switch over to the local social insurance scheme.

If they are strictly a UK company, you may not have an "expat" option. They want to hire you, so they will handle getting you the appropriate visa. You then relocate (under whatever terms they offer you) and you are paid in sterling and are subject to all the same social insurances and conditions as those on the local payroll.

Main disadvantages over an expat contract: you won't be guaranteed repatriation should the job not work out (some employers will guarantee to repatriate you if the job doesn't work out but only within the first year or two); you pay for your own housing (like a local employee) and car (unless the job normally provides a car as part of the deal); no annual home leave allowance; no tax assistance (unless maybe for the first year) or tax gross-up; no exchange adjustment to keep you "even"with what you would be earning in the US. And, of course, no promise from your old job or employer to take you back.

But, if you're planning on making a permanent move, it can be a big advantage to be on the local payroll - if only because you won't be called back home by the head office should they need to cut costs. (Expats are dreadfully expensive to the company.) Your visa to remain in the UK will probably be dependent on your job, so if you lose your job for any reason, you could find yourself on your own to leave the UK (usually within something like 30 days) - at least during the first few years on the job. (Do check what sort of visa they are planning to apply for on your behalf.)

Those are the main things that leap to mind.
Cheers,
Bev

One important issue which I have litigated (it settled in the client's favor) is whether the firm is responsible for repatriating you at the end of your employment. It is better to get that in your contract, especially if you lose your status, and have household goods to ship, at the end of your employment.

[Business Class]

Thank you for the quick and informative summary, you raised some good points that I shall consider in my negotitations. The company is multi-national and could pay me in USD$ if they choose to. The company would apply for the proper visa but you raise a great point regarding termination for some reason, will I lose my UK working permit and be forced to cover my cost to return to the USA. Does anyone know the best Visa to have to work in the UK?

Tax equalization and tax prep will be part of my negotiation however I am concerned as a direct UK employee that since I will not be contributing to the USA Social Secutiry while employed in the UK I may be financially penalized in the future when I retire in the USA. Does anyone know how long a USA citizen cannot contibute to Social Secutiry before they lose some of the benefits in the future?



Again, thank you for the insight, it is very helpful.

[Bevdeforges]

Originally Posted by Business Class

Tax equalization and tax prep will be part of my negotiation however I am concerned as a direct UK employee that since I will not be contributing to the USA Social Secutiry while employed in the UK I may be financially penalized in the future when I retire in the USA. Does anyone know how long a USA citizen cannot contibute to Social Secutiry before they lose some of the benefits in the future?

For US social security, it's a matter of whether or not you qualify for benefits when you retire. To qualify, you need at least 40 quarters of paying in to your credit (that's 10 years). Once you have that, the rest just goes to calculating your eventual payout. If you retire back to the US and are a few quarters shy, they will usually count your working time abroad to get you up to the 40 quarters - but will not use your salary during those quarters in calculating your benefit.

If you don't already get one, you should request an estimate of benefit from your social security office. That will show you how many quarters they have you in for already and at what salary levels.

The one way in which you may be financially penalized is if you work overseas long enough to qualify for a foreign pension. In that case, you may become subject to the WEP (Windfall Elimination Provision) Windfall Elimination Provision - then again, all this may have changed by the time you actually retire.
Cheers,
Bev

[Punktlich2]

Originally Posted by Business Class

Thank you for the quick and informative summary, you raised some good points that I shall consider in my negotitations. The company is multi-national and could pay me in USD$ if they choose to. The company would apply for the proper visa but you raise a great point regarding termination for some reason, will I lose my UK working permit and be forced to cover my cost to return to the USA. Does anyone know the best Visa to have to work in the UK?

Tax equalization and tax prep will be part of my negotiation however I am concerned as a direct UK employee that since I will not be contributing to the USA Social Secutiry while employed in the UK I may be financially penalized in the future when I retire in the USA. Does anyone know how long a USA citizen cannot contibute to Social Secutiry before they lose some of the benefits in the future?

Again, thank you for the insight, it is very helpful.

On Social Security, Google the following, exactly as written except for the quotes: 'site:ssa.gov wep' If you will have worked 30 years under SS at 'substantial wages' then the WEP doesn't concern you.

In any case if you work fewer than ten years in the UK and other EU/EEA/Swiss countries combined, then your UK contributions will be 'totalized' into your US ones. That actually is not usually to your advantage and if you can pay 'voluntary class 3 NICs' (currently around £7.35 x 52 = £ 382 for a year's credit) to make up ten years, then that's to your advantage. You could pay in for the past six years now (6 past years is the limit).

For the US you need 40 quarters (also ten years) to get at least some SS pension and to get Medicare. I assume you have that.

Most multinational firms have their pension schemes 'integrated' with SS for their US employees worldwide. With the proliferation of totalization agreements the system will have changed since I looked at it years ago, and anyway 401-k's have replaced many or most pension schemes. But if that's not so in your case you should inquire of your firm;s HR.

The USA's totalization agreement with the UK requires the UK to pay you full pension when you retire in the USA. They do not pay full COLA if you live outside the EU/EEA/Switzerland or USA. Thus British retirees in Canada and Australia, etc., get cheated. Long political story on that.

As for visas: there are several kinds that could be used. The easiest is a 'sole representative' but that would be inappropriate if your firm has other employees here or you are not involved in sales or purchasing or support. UK Border Agency | Sole representatives of overseas firms
A technical position would require proof of qualifications. It is almost certain that your firm would retain immigration counsel to do the administrative work to obtain a visa. The two likely categories for you are Highly skilled workers, investors and entrepreneurs and Sponsored skilled workers -- the second of these being the more probable since you are not self-sponsored. Here is the material on intracompany transfer: UK Border Agency | Tier 2 (Intra Company Transfer)

In the USA that is called an 'L' visa and requires one year of prior employment with the same firm; I don't see that requirement for the UK.

If you do not now live in a state such as NY, CA, IL which do not impose state income tax on expatriate workers or a state like TX, FL or NH that has no income tax then you should contrive to change your US domicile to one of those states prior to leaving. While you can argue to a US state's tax authority that you have established an English or Scottish domicile if they don't accept your argument (and with a temporary visa it's a hard argument to make) then they will just seize your property to satisfy state tax on UK income. Badges of domicile are driving license, voter registration, ownership of property (but if rented out that reduces the strength of the 'badge'), church membership, cemetery plot, library card and so on...

You may be treated as non-domiciled and your US investment income not subjected to UK tax unless remitted to the UK. This benefit is still available for those who have not lived in the UK for 7 of the previous 10 years. For more info Google 'nondom'.

Be careful: few accountants are competent to deal with cross-border US-UK tax issues; those who do tend to be expensive. Try to get your firm to pay. I am not an accountant but a lawyer and I have seen some serious blunders. Here's one: Grimm v. Newman (Grimm v. Newman).

There's a lot more to say, but that comes to mind in view of your specific questions.