Hong Kong has long been a hub for international businesses. Over time, it has built a highly sought-after workforce powered by a global mindset and a propensity for innovation. However, amid a widespread global labor shortage, employers in Hong Kong are facing challenges in recruitment, retention and engagement. At the same time, the city is seeing some of its talent leave for other destinations in recent years. This includes the United Kingdom, whose British National Overseas (BNO) visa is now available to many of Hong Kong’s citizens.
With recent changes to the BNO policy and more citizens of Hong Kong expected to take advantage of the new BNO visa in upcoming years, it is important for employers to understand how the movement may impact their workforce. Significantly, multinational companies (MNCs) located in Hong Kong may be able to retain their talent by partnering with an Employer of Record (EOR) in the UK.
What is the BNO Visa?
Back in 1985, the UK established the BNO status, a citizenship category intended for any Hong Kong residents who wanted to maintain their ties to the UK. Hong Kong citizens were able to apply for BNO status up through 1997, but it did not allow for the status to be passed on to family members. Since its implementation, the features of BNO citizenship status were fairly limited. The main benefit was the ability to visit the UK for up to six months without a visa.
However, in 2021, the UK government greatly expanded upon the benefit of the status by introducing the Hong Kong BNO visa scheme. BNO citizens and their close family members (dependents) are now eligible to apply for two five-year periods to relocate to and work in the UK. After the first five-year period, they can apply to remain indefinitely. This means, if approved, the individual would be able to live and work in the UK permanently without reapplying for a visa.
What does the BNO visa mean for employers in Hong Kong?
Estimates from the British government indicate 5.4 million Hong Kong residents are eligible for the scheme, which represents about 72% of its total population of 7.5 million. Interest in BNO citizenship status is rising. Between 2019 and 2021, nearly half a million (463,116) Hong Kong residents were granted a BNO passport, according to Quilter International, compared to the 68,914 issued in the preceding three-year period.
Since the introduction of the BNO visa scheme, data from the Home Office show over 100,000 people have applied for the visa. The majority of applicants are highly skilled professionals working in managerial roles. The number of applicants is expected to incrementally increase in upcoming years, a trend that could greatly disrupt Hong Kong’s talent pool.
With the COVID-19 pandemic proving the success of remote work, it is expected employers in Hong Kong will increasingly explore how they can retain employees that apply for the BNO visa and relocate to the UK. With this likely to be a ‘hot topic’ in upcoming months and years, it is helpful for companies to understand where potential pitfalls lie and what solutions may be available to them in keeping talent on board.
Hiring through a local entity in the UK
Rehiring talent in the UK through a local entity, if one already exists, may be the most straightforward option for Hong Kong companies. Another option is setting up a local entity, a process that entails numerous requirements, paperwork and time allowances.
Restraints in resources and time will limit the feasibility of these options for many companies. Furthermore, there are administrative burdens, expenses and operational risks that come along with operating a local entity in the UK. Taking these on can be especially difficult if the HR team is still located in Hong Kong. In general, rehiring talent through a local entity may not make sense for companies when there is only a small headcount in the UK.
A word of caution about engaging independent contractors
To avoid setting up a legal entity in the UK, some Hong Kong companies may try and reengage their existing talent by hiring them as independent contractors (ICs). Before doing this, however, companies must note the UK’s especially rigorous assessments for qualifying ICs.
The UK’s IR35 framework was introduced as the Intermediaries Legislation in 2000, aiming to address the government’s concern that individuals were using limited companies to mask the reality they were actually working in the manner of a regular employee. By diverting most of their earnings as profits for the limited company and paying themselves an annual dividend, ICs can circumvent tax liabilities and pay significantly lower levels of income tax and National Insurance contributions.
IR35 intends to prevent this practice by requiring individuals who use this arrangement – but are actually working as permanent employees – to follow certain rules.
In order to understand whether a worker will be required to follow IR35 rules, the following three principle tests of employment should be applied:
- Supervision, direction and control: What, if any, degree of control does the company have over where and how the work is performed?
- Substitution: Is the worker providing a personal service they must complete or could they provide a substitute in their place?
- Mutuality of obligation: Must the company offer work and is the worker obligated to accept it?
Other key questions to be asked in considering a worker as an IC or a permanent employee include:
- Does the company provide the worker with the necessary equipment to do their job?
- Does the worker perform a full-time schedule?
- Is the worker integrated into the company organization? For example, do they work with other full-time, permanent employees as part of a team? Are they included in organization charts?
If the answer to some or all of these questions is yes, the worker will likely be considered a permanent employee and will therefore be required to follow IR35 rules. Not following IR35 can have detrimental effects on the worker, including penalties and legal issues. Therefore, Hong Kong companies wishing to engage an IC in the UK must be mindful before putting this arrangement forward.
Applying an EOR model to retain talent
An EOR model is often the ideal solution for retaining workers that relocate to another country, whether temporarily or permanently. Essentially, an EOR service provider, such as GoGlobal, can offer Hong Kong companies the legal vehicle to rehire workers in the UK. The EOR will handle the responsibilities of managing payroll administration in-country, while assuming the legal risks and tax liabilities of operating a business in the UK.
If a Hong Kong company does establish and hire through its own local entity in the UK, the burden does not just lie in setting up the entity. The HR team would then also be tasked with learning payroll, visa, tax, compliance and other regulations specific to the UK. The EOR model enables companies to effectively circumvent these processes. It also mitigates the risks a worker would face if they were to try and set up shop as an IC in the UK.
An effective EOR will offer Hong Kong companies a combination of specialized knowledge in local HR regulations, statutory requirements, customary benefits, cultural norms and hiring practices in the UK. They also educate rehired workers on how the EOR arrangement works and ensure they are well-cared for throughout their entire employment tenure. Through the EOR partner, the rehired worker can rely on a team of local experts to answer any questions they have about payroll, contributions or taxes.
Partnering with an EOR helps you hire the best talent for the job, regardless of where they are in the world. For companies in Hong Kong, given recent trends, this may mean rehiring workers that have relocated to other destinations such as the UK. Essentially, the EOR offers the “next best thing” and allows you to keep key workers on your team, even if they leave Hong Kong temporarily or permanently.
By knowing your business is operating compliantly and seamlessly, you and your rehired talent can once again focus on the core business-growth activities that matter most.
Feel free to contact us with your questions about rehiring talent in the UK quickly, compliantly and cost-effectively with our proven EOR solution.