In a nutshell
Irrespective of whether the UK leaves on a 'no deal' or not there are actions you can take now to prepare for Brexit.
What are the risks?
Given the uncertainty it is wise to be as prepared as possible for Brexit and to take steps to protect your business.
Key steps to manage this issue
This page outlines the steps you can take to prepare for the following issues:
- Impact of ‘sterling volatility’ on salaries and other payments
- Risk of reduced labour needs due to higher tariffs and delay of goods
- Ensuring continued operations in the EU
- Managing business relocations
- Supporting EEA nationals in the UK
- Changes to Right to Work and new skills-based immigration system
1. Sterling volatility
Currency fluctuations occur daily, based on traders' analysis of several factors, such as monetary policy, price inflation, confidence and sentiment, economic growth (GDP) and the balance of payments.
If you have employees working in EU countries then the fluctuations in currency could affect your pay bill considerably. Buying Euros every month to make payments to suppliers and pay salaries in the EU could cost you more, unless you purchase Euros in advance through a forward contract with a foreign currency specialist. It is advisable to ensure that your chosen foreign currency specialist is regulated by the Financial Conduct Authority for the services you wish to purchase. A currency specialist will buy you Euros in advance at the best rate available to ensure you are not affected by future sterling volatility in the exchange market.
Be aware though that paying salaries in Euros could also mean you are breaching the contract of employment by decreasing the employee’s salary through the fluctuations in sterling currency. Make sure that you agree in advance with the employee the contractual clause regarding how and when and in what currency their salary will be paid.
Jill is a GB citizen employed by your company at your Paris office. Her statement of particulars says that her salary is paid in Euros on the last working day of each calendar month. Her salary is €2500. In June, the Euro is worth 0.81p, thus Jill’s salary is paid into her account for this amount and the exchange rate means that the employer transaction cost was for £2025 (£0.81p x €2500=£2025) . In July, the Euro is worth .90p increasing your transaction to £2250, costing you an additional £225 this month. In August, the Euro is worth 1.06, costing you £2650, costing you an additional £400 this month.
If you have several employees paid in Euro each month, fluctuations in currencies can result in significant increases to your pay bill. By using a forward contract with a foreign currency specialist, you could save on the fluctuations and pay £2025 per month at the exchange rate of 0.81p being the date you signed the contract with the exchange specialist.
If you cannot afford to pay out large sums of money in advance, you can still purchase currency at a fixed rate through a forward contract specialist but for a much shorter timescale.
2. Reduced labour needs
Without a trade deal, goods and people entering the UK from the EU will be subject to full immigration checks. This could mean that you have a need to reduce your labour as you have no goods to sell or materials to manufacture your goods. This could be for a short period of time or it could be for longer.
The contract of employment (and specifically the written particulars) is an important document in allowing you flexibility as an employer to deal with reduced labour needs as and when required. Ensuring that you build agility into the contract will save you time later on deciding what payments and options are available to your employees.
There are four options to consider as follows:
- Short-time working
- Scaling down on agency and temp workers
You can ask your employee(s) to stay at home or take unpaid leave if there is not enough work for them. Your contract of employment needs to stipulate whether an employee will receive full pay on a lay-off day, reduced pay, or whether they will be entitled to a guarantee payment.
A guarantee payment is £29 per day (and is a statutory rate as of April 2019), but to be entitled to this payment, an employee (with employment status) must have been employed by you for at least one month, and not receive full or reduced pay from yourself. If the employee(s) does not earn £29 per day, based on their salary, then their guarantee payment will be whatever they earn per day below £29. Guarantee pay is only available for 5 days over a three-month period.
Failure for you, as the employer, to make a guarantee payment to an employee with at least one month’s service is an unlawful deduction and the employee(s) can make a claim against you in the Employment Tribunal.
It is unlikely that employees would be able to manage financially with long periods of lay-off at £29 per day, so the fact that lay-off pay is capped at 5 days means that this option will be useful to you on the occasion when planned work has to be rescheduled due to late deliveries, for example. It cannot become a regular occurrence and from an employee motivation point of view, employees would look for alternative work if they felt that lay-off periods would become regular. Therefore it is advisable that you consider other options as longer term fixes.
You can ask your employee(s) to reduce their hours of work for a period of time. Should this mean that their daily pay falls below £29 per day for 5 days in a three-month period, they may be entitled to a guarantee pay to bring their daily pay up to £29.
Bella has been working for her employer for two years and today her employer has notified Bella that, due to the fact that there has been a delay to a shipment of goods, they do not have any work for her for the next two days. The shipment has been delayed for 48 hours.
Bella earns £100 per day and her contract of employment states that in the event of a lay-off period, she will be entitled to the statutory rate of lay-off (currently £29 per day as of April 2019). This means that if Bella is laid off for 2 days, instead of receiving £200 for two days, she will only receive £58 for the two days. As this is a drop in money of £142 over the two days, Bella will be in financial difficulty. She asks her employer to seek other options.
Her employer meets Bella and explains the situation in more detail:
- Bella has signed a contract of employment stating that she accepts that statutory lay-off pay will be paid if a situation arises whereby the employer has no work to give Bella.
- The contract states statutory lay-off pay and this is currently £29 per day as of April 2019.
- The contract does not offer a higher rate than the statutory rate of lay-off pay as the employer will suffer financial loss for the delay of the shipment and therefore they cannot offer a higher rate of pay.
Bella asks her employer what will happen if the shipment is delayed further or if this happens again.
Her employer explains that they can offer 5 day’s statutory lay-off period or alternatively ask employees to work short time. Either way, the minimum pay that Bella will be entitled to is £29 per day, and if short term working was implemented then the employer would agree with Bella at the time, how many hours a day they could afford for her to work. The employer also stated that they could not legally reduce her hourly rate, so whatever agreement they came to would be at her hourly rate.
With either lay-off or short-time working your employees are entitled to work casually for another employer, as long as they do not take work on the days/hours you require them to work for you. If you are on a part time contract then the employee can only ask you to work on the days for which you are contracted to do so. If you are on a zero hours contract or annual hours contract, then there is no exclusivity clause that prevents you from working elsewhere. If you do not want your employees to work elsewhere, then you need to stipulate this in their contract of employment, and the action that will be taken should they breach this clause of their contract. Note that you cannot have an exclusivity clause on zero hours contracts. If you cannot provide your employees with full time work at their current salary, to restrict them from looking for and taking work outside of the hours that they work for you, will seriously impact their earnings and standard of living over time, and therefore may affect your employee retention rates.
Your employers can make a claim for redundancy pay if they have been on lay-off with no pay, or short-time working with reduced hours and pay that equates to less than half of their salary, for more than 4 weeks in a row or 6 weeks or more in a 13 week period. To claim redundancy pay, the employee(s) must give you written notice within 7 days from their last day of lay-off or short-time working that they intend to make a redundancy pay claim. If, as the employer, you do not consider this a redundancy situation, you can reply to their notice with a counter-notice stating when work will resume (and this should be in the near future). If you do not reply then the employee(s) can assume that you have accepted their claim, and they then have 3 weeks to resign from your employment to claim a redundancy payment. If you do reply with a counter-notice stating that you not consider this a redundancy situation, you must state your reasons and when normal working will resume.
An employee needs to have two years continuous service to make a claim for a redundancy payment.
Scaling down on agency and temporary workers
You can scale down on the use of agency and temporary workers, and whilst employees would expect their employer to do this ahead of laying off employees, you might like to consider if this will mean extra work for employees. It is advisable to communicate and consult with your employees on any choses you make, and reducing agency and temporary workers ahead of any lay-offs or short term working is the safest option in terms of legislative risk and employee engagement.
Redundancy is an option for you, as an employer, to terminate the contract of employment for employee(s) where you do not foresee that there will be sufficient work for the employee(s). Should you choose redundancy as an option you need to ensure that you comply with the relevant legislationWhilst it will mean that those made redundant have to look for alternative work, you can offer additional support to employees in the form of interview skills, CV writing, as examples, to support them into their transition to a new role.
Review your terms and conditions of employment for clauses on pay, lay-off, short-time working and working for others during employment with yourselves.
Set up communication and consult channels to keep in touch with your employees and ensure that they are fully informed on the rationale for all of your actions concerning reducing labour.
3. Ensuring continued operations in the EU
If you have employees working in EU countries then you have a duty of care to ensure your employees know what steps they need to take to ensure they can continue to work in the EU post-Brexit, irrespective of a ‘no deal’. For most of the actions that your employees need to take, the onus is on them making applications and providing relevant documentation, not you as the employer, as applications must be made by the individual, save for permits and visas where you will need to support and/or sponsor the application. You could provide support documentation or access to each European Country’s residency and work permit websites, and to the Schengen website to help workers complete the processes. All nationals of third countries, which have yet not reached a visa-liberalization agreement with the Schengen member states, need to obtain a visa prior of their arrival in Europe.
To remain working for you in the EU, your employees will need support with:
- Residency controls
- Permits and visas
- Recognised Professional Qualifications
- Tax payments
- Driving licences
- Health Insurance.
Organisations that employ UK nationals for work within EU countries will need to be aware that those employees will become subject to third country, full immigration requirements after free movement comes to an end. UK nationals will need to comply with the relevant residency controls within the respective EU country and obtain the necessary permits and visas to live and work there.
Each country has its own regulations, but generally, foreign nationals will need to have lived there for five years to qualify for permanent residence or indefinite stay. UK citizens are encouraged to apply immediately post-Brexit, but at least within six months. Different countries will have different timescales for applying so it is important for your employees to check each countries official website information.
Permits and visas
A residency permit does not give UK citizens the right to work in an EU member state, and therefore your employees will need a work permit or visa to work in an EU member state within the Schengen area, and each country will have its own visa policies reflecting their respective labour or skills needs. The process can be complex with long timescales, so it is important to build these timescales into your workforce planning.
EU business travellers coming in to the UK will not be affected by any changes post-Brexit and the system of entry for business travel will remain the same.
If you are sending UK employees out to EU member states to conduct business, post-Brexit there will be changes. If the employee is on business to attend meetings this is likely to be acceptable without a visa for most EU member states. Those attending training are less likely to be accepted by some EU states and so it is advisable for you to check before arranging for business travel for employees to attend training courses. Within most EU states, UK citizens entering the country to conduct productive work (defined as where an employee creates or produces something of value to the business) will not be allowed without a work visa. To apply for a work visa you will need to go through the same process of those applying to work in the European country, albeit your application will be for a much shorter stay.
Recognised professional qualifications
The European Commission has advised holders of qualifications obtained in the UK to obtain recognition in an EU27 member state. The processes and requirements can vary depending on the profession and whether it is regulated in the EU country. The European Union website contains an easy to use tool to help workers determine whether they need to apply, and if so, how.
The UK and EU have committed to not changing the current double taxation arrangements, whereby a British national in an EU country would only pay tax once on their income and gains.
Holders of UK driving licences who expect to continue living and working in an EU country are advised to exchange their UK licences for one from that country to avoid the risk of being required to retake a driving test after Brexit.
UK employees will not receive health care in EU countries through the EHC post-Brexit, and will either need to pay for private medical insurance or return to the UK for medical treatment. As an employer, you will probably be able to obtain a group health insurance for a much smaller fee than an individual, and whilst you are not obliged to do this, it could be an attractive retention tool.
Review your contract of employment to ensure that you have sufficiently covered the responsibilities of the employee and the employer in employing UK workers in EU member states.
If you are not sure what constitutes written particulars and other documents as part of a contract of employment, revisit the Contracts and employment status page.
Provide guidance in the form of business travel policy documents and EU residency permits and visas.
4. Managing business relocations
You might have a need to relocate an employee to an EU country for a period of time. Terms and conditions usually specify that the employee will not be expected to work for more than 30 days outside of the UK, and indeed, there might never be a need for an employee to undertake work overseas. Where you are likely to require your employee(s) to work for more than 30 days outside of the UK or to relocate for a period of time, a specific set of contractual terms need to be drawn up, offered, considered and accepted by you and the employee(s).
The main terms that you will want to include are as follows:
- Whether there is a mobility clause within the existing contract that already covers this relocation, or whether you will offer a variation to the existing contract to the employee.
- The length of the relocation and what visa requirements will be necessary
- How salary will be paid and in which currency
- The arrangements at the end of the relocation period. Will there be a role for the employee back in the UK, and if so, will this be their previous role or a new role, or will their contract of employment end when the relocation period expires (please note that this will be a dismissal for which you must undertake a lawful process)
- Who will have responsibility for repatriation costs (if applicable) and what specifically will these include.
Draw up a policy for business relocations stating your responsibilities and payments and those of the relocating employee(s).
5. Supporting EEA national employees in the UK
A key priority for you as an employer will be workforce planning to ensure that, post-Brexit, you have the right number of people, in the right place, at the right time, at the right costs and with the right skills. The Government has introduced the EU Settlement Scheme (EUSS) to help transition from the EU free movement we have today to a domestic system of skills-based immigration for future migrants. Under the EUSS, all EU nationals (along with EEA and Swiss citizens) living in the UK have the right to register for pre-settled or settled status, which would allow them to continue living and working in the UK.
In the future, the documentation and status for Right to Work will change, so it is a good idea to audit your workforce now so that you are aware of potential gaps in the workforce, and support your employees to gain the status to stay living and working in the UK. However, you need to be mindful that this is collecting data on your employees, and you would need to check that the purpose of collecting this data is covered in your consent forms and contracts of employment. If collecting this data is not covered in your consent forms and contracts of employment then you would need to rely on the employee to provide this information to you willingly, or enter into further consultation with your employees to gain agreement to collate this data for a legitimate reason.
Some of your employees may already have decided that they want to obtain status under the EUSS, and below we give you some details on how you can support these employees, but others might not know what they want to do, and it is advisable that you provide them with information to help them make informed choices now, rather than miss out on choices later. The government’s website on settled status is a useful source.
Dahlia works in a digital role for a challenger bank and is a German citizen. She has been in the UK for 3 years and her family are all in Germany. Dahlia is not sure of her long-term plans as it very much depends on the career opportunities available to her in the digital world. She asks you, as her line manager, what advice you would give her about whether she should apply for the EUSS.
Let's work through the options you have in your reply.
Firstly, Dahlia has not been in the UK for 5 years, which is the required length of time in the UK she would need to apply for settled status. As she has been in the UK for 3 years, she requires an additional two years to obtain full settled status, but she can apply for pre-settled status which will ‘bank’ her 3 years living in the UK. A no-deal Brexit will bring forward the last date to apply through the EUSS scheme, as the freedom of movement transition period will shorten.
If Dahlia is successful in an application for pre-settled status, she can spend up to two years in a row outside of the UK without losing her pre-settled status. If she then returns to the UK, Dahlia can continue to accrue her residency towards settled status.
So, what would this mean for Dahlia? After a ‘no-deal’ Brexit and the subsequent date for the end of free movement, without pre-settled or settled status Dahlia will be in the UK illegally and would not be able to access work, rent a property or receive NHS treatment. For EU citizens who arrive in the UK after the no deal Brexit date but before the new immigration system comes into place, they will be able to apply for European Temporary Leave to Remain, which will allow them to live and work in the UK for a period of 36 months. After this time, EU citizens will only be able to remain by obtaining a work visa through the skills-based immigration system. To obtain a visa the individual must be supported and/or sponsored by an employer or take part in a training programme, such as the Youth Mobility scheme. With Bella’s skill set she may obtain a work visa if she can gain sponsorship from a job offer with an employer. The employer has to pay government fees and needs to demonstrate that there is a skill shortage for the time of work that Bella would be undertaking. The following Government website on work visas is a useful source.
The best advice you could give Dahlia would be for her to look through all of the options and how this might affect her employment opportunities in the UK. Whilst you can’t make the decision for Dahlia, you can keep her well-informed. Without applying for any status Dahlia would no longer meet the right to work in the UK requirements unless she has any other type of visa which allows her to remain.
Helping your employees to apply to the EUSS is a good approach to engagement, particularly as employees are not always clear of their options and timescales for making the decision.
It is important that your employees understand what the two types of status are:
- Settled status, which a person with 5 years continuous residency in the UK can apply for
- Pre-settled status, which a person with less than 5 years continuous residency in the UK can apply for.
NB: Five years' continuous residence means that for 5 years in a row you have been in the UK, the Channel Islands or the Isle of Man for at least six months in any 12-month period. EU citizens do not have to leave the UK to make an application for settled or pre-settled status. If EU employees do not want to stay and have plans to leave the UK, then they can give their contractual notice period of intention to terminate their contract of employment. Alternatively, if they are still in the UK without appropriate status post-Brexit, then they would be classed as an illegal worker, for which the employee can terminate their contract of employment with immediate effect.
Introduce 'surgeries' for employees to meet with you to understand their choices and the actions they should take. Provide them with as much information as you can on how to apply for the relevant status.
The current right to work documentation
Currently, as an employer, you must check that a job applicant is entitled to work in the UK and in the role for which they are applying before you employ them, irrespective of their nationality. Failure to check their right to work in the UK could mean you are given a civil penalty which could be £20,000 per illegal worker.
You can either check an applicant's right to work in the UK through their original documentation or online if the applicant gives you a share code. Applicants can apply for a share code when they apply online. If you are using their original documentation, you must do this in their presence, and you must record the date you made the check, sign the documentation and keep copies of the documentation you used to verify the applicants right to work in the UK.
It is better to check the right to work documentation at the recruitment stage, but you can provide an offer letter with a clause stating that the offer is 'subject to the employee's right to work in the UK and in the job for which they have been employed'. There are occasions where a person would not be allowed to work in certain roles, such as their professional qualifications are not recognised as equivalent or accredited within the UK.
Some right to work visas are time-limited so it is important to make a note of when the visa expires and check the employee(s) right to work documentation again at that time.
- You must check that a job applicant is entitled to work in the UK and in the role for which they are applying before you employ them. This applies to UK applicants as well as EU nationals and non-EU nationals.
- You can check the applicant’s right to work through their original documentation or online.
- Original documentation needs to be checked in the presence of the applicant.
- Record the date you checked the right to work, the documentation you used to verify the check, and any time-limited documentation.
- Set up flags to remind you to check time-limited documentation before it expires.
- Make sure all offer letters of employment have a clause that states that the employment is 'subject to the right to work in the UK and in the role offered'.
- Train hiring managers on the evidence to be checked for right to work in the UK.
- Ensure your systems record dates for expiry of right to work in the UK.
Checking existing employees post-end of free movement
You do not have a legal responsibility to re-check existing employees for their right to work in the UK post-end of free movement. It is the employee's responsibility to gain status to live and work in the UK, not the employers, and as stated above, the right to work in the UK is a pre-requisite to an employment. Should an employee advise you that they have not applied for status, you are knowingly employing an illegal worker and are subject to civil penalties. If your data consent forms allow you to collect data this data then you can check with all employees.
New right to work process from 1 January 2021
Post-Brexit there will be no change to the right to work documentation required, nor to the rights and status of EU citizens currently living in the UK, until 30th June 2021, or 31 December 2020 if the UK leaves the EU without a deal.
If the UK leaves the EU with or without a deal, after the 31/12/2020 new employees will need to provide evidence of their right to work in the UK. This can be a passport, settlement status, work visa, or other acceptable evidence. If the UK leaves the EU without a deal this will bring forward the last date for applying for status for EU citizens through the EUSS to the 31st December 2020, and after this date, a temporary leave to remain for 36 months may be available.
It is important that you track the expiry date of any right to work in the UK that is not indefinite, as these people may be in the UK illegally after the expiry date.
Proposals for new Skills based Immigration System
The UK is looking to bring a new skills-based Immigration system into place on 1st January 2021. The proposal is currently in the consultation process and it is likely to be confirmed by the end of 2020. The new system looks to prohibit lower-skilled workers from working in the UK unless they hold the low skilled temporary worker visa, Youth Mobility, or self-sponsored visa.
For more information on the proposed changes, watch the CIPD’s webinar on preparing for the new post-Brexit immigration policy.
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