29 March, One year before the UK leaves the EU. What does Brexit mean for employers and employees?

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1 29 March, 2018 One year before the UK leaves the EU What does Brexit mean for employers and employees?

2 Impact of Brexit on people and companies The Brexit negotiations between the UK and EU are well under way. A joint legal text outlining an agreement between the two parties was presented at the European Council on Friday 23 March According to the EU s chief negotiator Michel Barnier, a large part of this text has already been agreed on between the two parties, making it a decisive step in the Brexit process. Brexit is expected to have a major impact on EU nationals living and working in the UK, as well as UK citizens living and working in the EU. It will lead to questions and uncertainty for employees and employers alike. How and when will they be affected? Will there be new immigration rules and requirements? What will happen to social security and pension rights? How should companies communicate with employees in these uncertain times? Figure 1 Timeline for the remaining Brexit process March 2018 Conclusion of negotiations on new EU-UK trade relationship, and beginning of ratification Oct 2018 Brexit timeline Ratification process Nov 2018 March Dec 2020 End of transitional agreement: new rules for EU-UK trade come into effect Jan 2021 This newsletter highlights the key issues related to Brexit which have an impact on individuals. 29 March 2018: one year to Brexit 29 March 2019: the UK leaves the EU Key negotiations Transitional period PwC Brexit p.2

3 Immigration requirements As part of the transition deal, the EU and UK have agreed that citizens will enjoy the same rights to enter, stay and work in their respective host states at least until the end of the transition period on 31 December This has taken place despite repeated statements by the British prime minister suggesting that those arriving after 29 March 2019 would not enjoy the same rights as those arriving before the official Brexit date. The extension of the status quo will give both citizens and businesses more time before they are faced with any new immigration or registration procedures. It is important to note, however, that the transition deal, which is part of the Draft Withdrawal Agreement, does not set out what the future restrictions to free movement will be after the transition period ends. Fall in net migration Official figures have shown that there has been a significant decrease in EU migration to the UK since the Brexit referendum, with 106,000 fewer EU nationals moving across the English Channel than during the year before the vote. This means that businesses in certain sectors, such as those employing low-skilled or seasonal EU workers, may already be feeling the impact of Brexit. PwC Brexit p.3

4 Social security coverage After Brexit, the UK will no longer be part of the EU coordination rules for social security. The Draft Withdrawal Agreement sets out the social rights of EU citizens and UK nationals as follows: Individuals will continue to be covered by the UK or an EU member state s social security scheme based on EU coordination rules as applicable before Brexit for as long as their situation does not change; In accordance with the EU coordination rules, the insurance periods in the UK and the EU will both be taken into consideration when applying for social benefits; EU citizens who begin a course of planned healthcare treatment in the UK or UK nationals who do so in the EU before the end of the transition period will still be eligible to have the treatment reimbursed; Family benefits will still be payable to EU citizens with family members in the UK or UK nationals with family members in an EU member state. In the case that the EU coordination rules for social security can no longer be applied, a bilateral social security convention concluded by the UK and the relevant EU member state may be applicable. The coordination rules set down in a bilateral convention may differ from the EU coordination rules in a range of aspects. Pension accrual / pension payments Brexit will cause several issues related to pension rights and accrual that companies and their employees should note. Tax relief for tax-approved UK plans From the moment the UK withdraws from the EU, it is possible that the right to claim tax relief will become void or limited for expats who continue their pension plans in the UK. It is therefore important to research local tax relief regulations, as these may come to differ from what applied before Brexit. Right to a UK pension Individuals who have a UK pension but wish to leave the UK will have several options. They could continue to receive their pension as they have before; however, assuming they are moving to a euro country, this will imply long-term exposure to EUR/GBP currency risks. They will also be able to transfer their pension to other pension plans denominated in euros. There will be several pros and cons to each possibility, and it will be important to assess carefully what the best option is. Industry-wide mandatory pension plans UK employees who work in the EU but are covered by UK social security and pension will automatically continue to be exempted from participation in mandatory local mandatory plans. However, this rule will apply only to EU citizens. Once the UK withdraws from the EU, participation in local plans will become mandatory except in cases where a special exemption is granted. Tax relief for EU employees in the UK Subject to conditions in the various tax treaties the UK has agreed with other countries, and depending on the conditions of the relevant Qualifying Recognised Overseas Pension Schemes, expats from the EU will be able to continue to claim tax relief in the UK for pension contributions made in their home country. However, this relief will be limited by UK tax limits, including the annual and lifetime limits. The GBP/EUR exchange rate may come to have an impact on the exact amount of the relief: if sterling declines after Brexit, tax relief for contributions denominated in euros will decrease. Income and wage tax After Brexit, any double taxation agreements concluded between the UK and individual EU member states will remain in force. This will minimise the impact of the UK s departure on income and wage situations across the UK-EU27 divide. However, additional benefits afforded to cross-border employees by EU jurisprudence may no longer apply. For example, under European case law, UK residents who currently spend more than 90% of their time working in the Netherlands are entitled to the same personal deductions mortgage interest deductions, for instance as employees who are formally residents of the Netherlands. This benefit has been partly implemented in Dutch law. PwC Brexit p.4

5 Many similar perks, however, may no longer apply after Brexit and this would have a major effect on the net income or salary costs of the affected employees. It is therefore crucial that companies investigate the possible impact of Brexit for these employees and review their employment contracts accordingly. Labour law The agreement between the UK and the EU regarding Brexit does not directly affect existing UK labour law. In the longer term, however, EU-derived UK employment law may be amended where the UK Parliament considers this appropriate. This could be the case for UK legislation based on Directive 2001/23 EG, Protection of Employee on Transfer of Undertaking (so-called TUPE ). Such changes could become relevant for Dutch employers in the event of a cross-border merger or takeover involving companies in the Netherlands and the UK. Under TUPE, after a merger or transfer, agreements with individual employees are automatically transferred to the new employer (except for pensions). If there is a collective labour agreement, the new employer must continue to comply until the agreement expires or is replaced. Employees of both the companies involved are entitled to be informed of the merger. Dismissals are prohibited except for economic, technical and organisational reasons. There is a possibility that certain aspects of the existing UK regime may be amended after Brexit. The limitations previously placed on companies by TUPE may be lifted by the UK Parliament in order to give companies greater flexibility and more possibilities regarding their workforce. A potential change could be to allow the new employer to harmonise pay and other working conditions between existing and transferred employees. This may lead to a divergence of approach between the UK and EU member states. If the UK regime is set to change, the contracting parties may wish to make arrangements regarding the work conditions of transferred employees before the merger. Conclusion One year before the UK leaves the EU, there is still no real clarity about the rules, regulations and processes that will be in place from March This creates questions and uncertainties for employers as well as employees. Companies can also see this as an opportunity, however: this could be a good time for them to take a closer look at their workforce and the underlying processes. The prolongation of the status quo during the transition period means there is still ample time. Start now by looking at your current and future workforce and determine the potential impact of Brexit on all relevant areas. Take into account the diversity of your mobile workforce, i.e. making a distinction between short term business travellers, traditional long term expats and foreign local hires. Assess whether you have ample labour forces on all relevant levels available after Brexit. Inform your employees with social rights and benefits accrued in the UK and the EU about the expected impact of Brexit. Likewise, assess the likely effect of Brexit on tax-approved pension plans held by UK employees in the EU and vice versa, and inform your employees. PwC s Global CEO survey indicates that the availability of key skills is still one of the top five bottlenecks in growing a business. Access to talent and specific competencies is important for any company that aims to grow and develop its activities, whether they are based on low, medium or high-skilled workers. To support future business growth, it is crucial to maintain an agile workforce as well as a strong pipeline of skills and talent by exploring new talent pools. By now, most companies have already informed their workforce about the expected consequences of Brexit. Make sure this is not a one-off: continue to keep them informed. Prepare a clear communication and HR strategy that considers all the different stakeholders and relevant affected areas. If you start assessing the impact of Brexit now, your company will have sufficient time to find solutions and opportunities in all relevant HR policies and procedures ensuring alignment with the business strategy. Start preparing now! PwC Brexit p.5

6 Contact Marieke Kees-van der Zwet Partner People and Organisation Reward Tel: +31 (0) Nicolien Borggreve Director People and Organisation Labour Law Tel: +31 (0) Marlous van der Zande-van Wouwe Senior Manager People and Organisation Global Mobility Tel: +31 (0) Elieke Vastenhouw Senior Manager People and Organisation HR Consulting Tel: +31 (0) This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors PricewaterhouseCoopers B.V. (KvK ). All rights reserved. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see for further details. At PwC in the Netherlands, over 4,200 people work together from 12 offices. PwC Netherlands helps organisations and individuals create the value they re looking for. We re a member of the PwC network of firms in 157 countries with more than 195,000 people. We re committed to delivering quality in assurance, tax and advisory services. Tell us what matters to you and find out more by visiting us at PwC Brexit p.6