Mercer talks about BREXIT

Memo from GLOBALHRnews:   This was prepared/written prior to the House of Commons vote March 12

By Kate Fitzpatrick, Mercer

 

At the time this article is published at the beginning of March 2019, the United Kingdom is legally set to leave the European Union without a deal on 29 March 2019, unless a breakthrough on the current political impasse can be achieved.

Such a breakthrough would either result in a version of the current proposed deal being ratified by UK and EU parliaments, or an extension to the Article 50 agreement to be agreed by both parties.

Whatever happens, the ongoing uncertainty has made it difficult for companies with operations in the UK to plan effectively with regard to short-, medium-, and long-term investment, supply chain management, talent acquisition, and retention strategies, and the management of their cross-border EU workforces.

Preparations for all scenarios are being made in the UK and EU at a government, industry, and organization level, and individuals directly impacted by this situation (i.e. UK nationals living and / or working in the EU, or EU nationals living and / or working in the UK) are seeking legal clarification on their residence and right to work status.

While many have taken a ‘watch and wait’ approach to this issue from a Mobility perspective until recently on the expectation that a deal would be passed to allow further time to plan for future changes, most are now taking steps to be prepared should a ‘no deal’ Brexit on 29 March 2019 come to pass.

IMMIGRATION, SETTLED STATUS, AND EMPLOYEE SUPPORT

The most pressing personal and legal issue for most employees and employers is the post-Brexit immigration status of UK nationals in the EU, and EU nationals in the UK. Should the current Withdrawal Agreement be approved, free movement will continue until 31 December 2020, and a transition period for EU nationals to acquire ‘settled status’ in the UK will apply until 21 June 2021.

While the majority of impacted jurisdictions have confirmed that those already in country on 29 March 2019 will have their rights protected and be granted leave to remain regardless of whether a formal deal is reached, the rules and mechanisms for achieving this status vary from state to state, and much of the detail is yet to be clarified.

BE PREPARED ACTIONS

  • Audit your current assignee and cross-border worker population into the UK and EU to determine their nationality(ies), as well as those of any accompanying family members.
  • Flag any assignments into the UK or EU with start dates post-29 March, which had until this point relied upon EU freedom of movement rules for the right to work and reside in the host location (including assignments from third countries where the employee or their accompanying family members may be EU or UK nationals). Manage expectations with the business and employee, and consider bringing start dates forward if practical to do so.
  • Determine what level of support – if any – you will provide to impacted assignees and their family members, and communicate this to them. Support may range from ‘light touch’ (i.e. directing employees to relevant government websites), to covering formal legal advice and processing support for more complex cases on a case-by-case basis. Consider the support being offered to EU or UK nationals employed locally in each country, to ensure a consistent experience for all those impacted by this change.
  • Consult with your immigration provider to see what resources they have available to support you.

PREPARE YOUR EU AND UK EMPLOYEES FOR BREXIT: RESOURCES FOR EMPLOYERS

The UK’s Settlement Scheme to register EU nationals in the UK for settled status after Brexit is already open in pilot phase and launches in full on 30 March 2019. EU member states are also now implementing their plans to settle UK nationals in the EU.

Business immigration specialists Newland Chase have covered many of the latest updates in their new white paper BREXIT: Current Status for EU and UK Nationals in the Event of Either an Orderly or Disorderly Brexit and live webinar Remaining in the UK after Brexit: Essential Settlement Guidance for EU Nationals on 11 March.

 

SOCIAL SECURITY AND PAYROLL

As with the immigration situation outlined above, if the EU and the UK agree the proposed Withdrawal Agreement, current UK / EU social security arrangements will continue on an ‘as is’ basis, and employers will  be able to continue to obtain A1 certificates during the transition period, expected to last until 31 December 2020. Should the UK leave the EU on 29 March 2019 without a deal however, the UK would no longer be party to existing EU social security regulations, effective immediately. In that case, existing bilateral Social Security Agreements between the UK and certain EEA countries may came back into force, however these agreements are generally limited in scope, are by definition outdated, and do not exist with all of the current EU member states.

The consequences of a no deal arrangement therefore fall into three main categories: cost, coverage, and compliance.

  • Cost and Coverage: Additional social security liabilities may be incurred as a result of the application of higher host country rates of social security, or because dual liabilities in both the UK and EU member states will apply. There may also be a cost impact to individuals in terms of reduced access to state benefits like pensions, welfare, and healthcare if home country contributions are not maintained, and associated company costs to provide insurance coverage in lieu of access to state benefits, in particular regarding healthcare.
  • Compliance: Accurate and timely reporting of company sourced income is already a challenging part of mobility administration and compliance, and any changes to the status quo will result in further complexity and levels of activity, particularly regarding payroll.

 

BE PREPARED ACTIONS

  • Audit your current assignee and cross-border worker population to identify those who would be no longer eligible for an A1 certificate from 29 March in the event of a no deal.
  • Identify any assignments between the UK and EU with start dates after 29 March.
  • Work with your tax, payroll and benefits providers to identify and calculate any additional potential costs (e.g. liabilities, additional administration costs, the provision of expatriate benefits in lieu of those covered by the state (e.g. healthcare).
  • Manage expectations with the business and employee: pro-actively communicate any information regarding additional costs, compliance activities, risks and support provisions.

COMPENSATION, ALLOWANCE, AND CURRENCY CONSIDERATIONS

As many will recall, GBP suffered a significant depreciation immediately after the result of the referendum to leave the EU was announced in June 2016. This impacted the spendable or savings portions of income for assignees both into and out of the UK to varying degrees, and many organizations conducted interim cost of living or currency protection reviews later that year to address this issue for international assignees negatively impacted at that time.

While we cannot predict the impact of either a deal or no deal on currency markets towards the end of March this year, there are well-established protocols for addressing currency volatility and inflation fluctuations depending on policy type, the use of home or host compensation models, the ability to deliver split payroll, and company policy and processes.

For further information on these approaches, please refer to our article on this topic, Talent Strategy in Times of Currency Volatility and Inflation Fluctuation.

 

With regard to the specific actions Mercer’s Mobility research teams will be taking in the coming weeks and months, we will be actively monitoring the following:

  • Exchange Rates. As part of our core service offering, Mercer publishes updated exchange rates on a regular basis, and will continue to do so. Please do note however that any volatility will not be evident in the rates available online immediately. The ICS/ORC data set uses a weekly average exchange rate, and the GHRM data uses a monthly average. As such, Mercer generally advises to wait for at least one full FX rate cycle to pass before making any off-cycle adjustments. However, both methodologies and online data platforms allow you to override these default rates with your own spot rate if required.
  • Cost of Living. Mercer will be publishing our March survey data for all locations including the UK in early May as scheduled. That said, it is widely anticipated that in the event of a no deal Brexit, there will be disruption to UK / EU supply chains which will impact the availability (and therefore potentially the costs) of some goods in the short to medium term. As such, Mercer will, if necessary, conduct interim surveys in June 2019 to assess the impact of such a scenario, and monitor prices of some key items more frequently if needs be. (To the extent such a scenario could impact other locations outside of the UK (e.g. the Republic of Ireland), then these locations will be also be considered for interim updates at the appropriate time).

    It is important to note however that there are almost 200 items in the cost of living market baskets, including goods and services, and only some of these items are heavily dependent on just-in-time UK / EU supply chains (e.g. seasonal fresh produce).

  • Housing and Quality of Living. We will continue to monitor the cost and availability of housing, and all of our Quality of Living factors in the usual way during this period, and conduct interim surveys and issue alerts should there be any significant changes.

 

BE PREPARED ACTIONS

  • Identify the assignee population eligible for any currency protection or interim cost of living review after 29 March.
  • Validate your policy positions with regard to any thresholds which would need to be met in terms of currency volatility or inflation, to trigger eligibility for any interim review / adjustment.
  • Proactively communicate your approach to assignees who may be impacted if you have not already done so.
  • Contact Mercerfor guidance if needs be.

 

WORKFORCE PLANNING AND SITE SELECTION

Any practical interventions required to mitigate the impact of a ‘no deal’ Brexit – should it come to pass – will create disruption in the short to medium term, but as mobility professionals we are experienced at dealing with such matters.

The longer term impact of the UK’s withdrawal from the European Union is already having far wider implications from a strategic workforce planning perspective, however, in the UK, the EU, and beyond. Cities like Dublin, Paris, Frankfurt, and Amsterdam have all seen an increase in the number of expatriates as multinational companies open branch offices in alternate EU markets, and other companies are relocating some of their operations out of the EU altogether to align with key markets, especially in Asia.

For those interested in Mercer’s research and expertise on these matters, we encourage you to access the following insights, and speak with your Mobility Consultant in the first instance to direct you to the relevant people in your local market.

Mercer’s Workforce Monitor Reports: Exploring in-depth the issue of UK talent shortages in light of Brexit, an aging workforce and the digital future of work, these reports highlight the impact of such changes by industry, region, and demographic, and encourage organizations to think more creatively about talent, development and productivity.

 

BE PREPARED ACTIONS

  • Engage with business leaders to understand future company strategy with regard to the opening or scaling up of operations in new or smaller locations. The earlier Mobility can be brought into the conversation, the more effective your planning for such cross-border talent deployments can be.
  • Collaborate with Talent colleagues to understand how cross-border work opportunities can be used to address talent shortages and develop skills and leaders for tomorrow, and ensure you have the policies and programs in place to support this.

CONCLUSION

Brexit is one of many geopolitical and economic issues impacting multinational organizations today, but it does present some unique challenges to HR and Mobility professionals trying to manage a complex issue in a time of particular uncertainty. We will provide further updates as and when there is further clarity on the legal – and therefore practical – way forward.

Should you have any queries in the meantime, please do not hesitate to contact Mercer.