24 March 2023
Global mobility and life sciences
The UK life sciences sector historically gained its talent globally, with large-scale international hiring, permanent moves and commuters being commonplace. However, Brexit undid what was an almost seamless transfer process within Europe, before Covid saw the world transfer to remote working almost overnight.
Despite this double whammy, statistics show that the UK life sciences sector is growing, with foreign direct investment increasing three-fold since 2019, employee numbers on the rise and revenue increasing. While this is good news, the UK’s reputation as a ‘science superpower’ may be under threat with some reports suggesting that more highly trained staff are leaving the UK than entering, creating a ‘brain drain’ of key talent and increasing the undersupply of key skills.
These numbers will be tested once the trailing impact of Covid subsides.
Against this backdrop, attracting and retaining key talent can be increasingly difficult. UK companies in the life science sector therefore need to use all the tools possible to ensure they are competitive in a difficult recruitment market. The idea of ‘presenteeism’ is no longer as prized, allowing for UK companies to use international mobility/flexibility as a driver in both recruiting and retaining key staff. However, companies should proceed carefully as the risks can be complex, administratively burdensome and come with a cashflow disadvantages and tax costs.
The life sciences sector has specific additional risks – the development of intellectual property is fundamental, as is gaining essential R&D reliefs. An employee working in the ‘wrong’ location may inadvertently move the jurisdiction of key intellectual property or put at risk the availability of R&D reliefs; coupled with employees who have revenue-generating roles, the risk of international reporting obligations arising is high.
Talent strategies including global mobility can use the traditional ‘international assignment.’ However, outside of this, short-term placements, virtual assignments, short-term remote working (personal) and longer term international remote working (eg hire in location) can provide similar benefits, without the costs associated with a large-scale assignment programme.
Let us explore some of these options in more detail, including how this can support your organisation and the pitfalls to be wary of:
Short-term placementsShorter term placements (ie those up to six months) can be a great way to incentivise individuals allowing them gain experience of working internationally, while learning from other global teams and from living and working in another culture. With potential use of the UK’s network of double tax treaties and social security agreements, with the correct structure, many compliance obligations in the host location can be mitigated.
Caution should be taken as interpretations of double tax treaties is changing and reliance on what some perceive as the ‘183-day rule’ should not be taken for granted. Additional consideration should be given to the nature of the duties undertaken in the host country (and to who these benefit), social security regulations and employer legal obligations regarding immigration and the gaining of local employment rights.
Employees may trigger the creation of a PE (permanent establishment – a corporate presence for tax purposes) for the home country employer dependent upon the inter-company agreements in place or when they remain working for the home entity.
Virtual assignmentsGaining experience from international teams need not always mean physical relocation to another jurisdiction, which can be disruptive to the organisation, and may not appeal to all employees. Having an employee remaining in their home country, while working for a different team, may give the right developmental experience. One recent report showed only 50% of UK life sciences employees who left the UK chose to return; virtual assignments can therefore be an enabler method to retain key talent in the UK.
To ensure the success of the new relationship, appropriate governance and management should be in place, with caution taken to ensure the intercompany agreements are set out correctly as PE risks could be created for the new ‘employer’ by the ‘virtual assignment. If there are any physical duties in the ‘virtual assignment country,’ tax relief via a double tax treaty might not be available, creating the compliance obligations which may have been an objective to avoid.
Short-term remote working (personal request)Prior to Covid, this was an area that was virtually absent in the world of global mobility, and rarely used as a talent strategy. We now live in a world where this is not only available, but employees expect this. The UK Office of Tax Simplification even recently acknowledged that many employers are allowing some form of remote working and it is here to stay. Prior to Covid, the life sciences industry was lagging behind other industries in offering flexibility, however, over the last three years, many life sciences companies have become global leaders in providing flexibility to their workforces. Allowing your employees to work remotely for a fixed period (eg at the end of a holiday) can be a differentiator in your employee engagement strategy.
While such an approach has its risks, mitigation is possible with tracking, reporting and presence thresholds in place. A policy to define these and a due process for reviewing requests can support the management of immigration considerations (does the employee have the right to work in that location), social security (is there a risk of social security due), employment law (is the employee potentially gaining employment rights in the host), and of course, the corporate risk of creating a PE).
The exact policies and procedures vary across employers but generally seek to balance permitting employee flexibility with managing risk for the business.
International remote working (e.g. hire in location or permanent international remote working requests)Since Covid-19, we are seeing an uplift in the number of skilled employees hired from outside the country of the employer, or for employees to request to work internationally. This can be effective in expanding the workforce, and enabling retention of key employees. A recent McKinsey report found that 80% of pharma-manufacturing companies reported a skills mismatch; with a separate Manpower Group report showing 78% of life sciences companies having difficulty in finding the talent they need – expanding the talent horizon globally could alleviate this.
That said, many of the same pitfalls arise with this as with shorter term remote working cases. However, the risks greatly increase with the permanence of the arrangements. For example, it is almost certainly giving rise to additional employer obligations, such as social security and employment rights.
Organisations could consider the use of alternate employment models, for example, global employment companies, or the use of an employer of record (EOR). These might not mitigate all risks but can form part of your policy considerations.
The cost differential of working outside the home country of the employer can bring not only compliance headaches, but also considerations with regards to reward. How much should you pay this employee and is the home country compensation structure appropriate for the new location?
Businesses must continue to balance their commercial needs and objectives with the risks of employees working outside their home country or, potentially, for an employer outside where they normally live.
While there are a range of risks to consider and to address, the benefits to your workforce can be significant. Care is needed, however, as tax, immigration and labour authorities employ increasingly sophisticated ways of reviewing tax affairs. Therefore, it’s important to seek guidance when developing any kind of global mobility policy to help retain and motivate your current employees.