Structuring Remuneration as an International Employee or Contractor

For professionals working across borders — whether on a formal overseas assignment, as a permanent resident in a second country, or as a contractor with multiple clients in different jurisdictions — the structure of remuneration has profound implications for take-home pay, social security obligations, and long-term financial planning. A poorly structured package can result in double taxation, missed allowances, and significant administrative burden. A well-structured one can legally and substantially improve your net financial position.

This guide covers the principal mechanisms available: split payrolls, the employee versus contractor choice, overseas assignment allowances, and the trend towards localised packages. The focus is on UK-connected professionals, whether currently in the UK or working overseas.

Important: International tax and employment law is complex and jurisdiction-specific. This guide provides an overview of general principles. Always seek independent professional advice from a tax adviser qualified in the relevant jurisdictions before making decisions.

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The Split Payroll Structure

What Is a Split Payroll?

The split payroll is used when a professional works in multiple countries during the same period — spending, for example, three days per week in the UK and two days in another jurisdiction. The payroll is divided between the two countries in proportion to the working days.

The UK employer runs a UK PAYE payroll for the UK-attributable portion of salary. A separate overseas employer (typically a local subsidiary or a designated employer of record entity) pays the overseas-attributable portion through the local payroll system in the relevant country.

Why Split Payrolls Matter

Without a split payroll, the UK employer paying the full salary through UK PAYE deducts UK National Insurance Contributions (NICs) on the entire salary — including the portion earned in another country. Depending on the country, the same income may be taxed locally as well, creating a double NI/social security contribution situation.

A properly structured split payroll:

• Pays UK PAYE and NICs only on the UK-attributable salary.
• Pays local social security (if applicable) on the locally-attributable salary.
• Applies the relevant Double Tax Agreement (DTA) to ensure the same income is not fully taxed in two countries.

The PAYE Appendix 5 agreement (agreed with HMRC) allows net of tax UK payments in certain assignment situations — a specific mechanism for long-term assignees where the final tax position is complex.

The Employer of Record Option

For contractors or self-employed individuals working across multiple jurisdictions without a corporate structure, an Employer of Record (EOR) service provider can act as the legal employer in each jurisdiction, running compliant local payroll and social security, while the individual retains effective operational control of their work. EOR providers include Deel, Remote.com, Papaya Global, and others. This structure reduces the compliance burden significantly for internationally mobile individuals who do not want to incorporate locally in each jurisdiction.

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Employee vs Contractor: The IR35 Question

The Off-Payroll Working Rules (IR35)

The UK's IR35 rules (now called the Off-Payroll Working Rules for private sector engagements since April 2021) determine whether income paid through a personal service company (PSC) should be treated as employment income for tax purposes. If a contractor operates through a PSC and is deemed to be in an "inside IR35" relationship with a client (i.e., the working arrangement is in substance employment), PAYE and NICs must be applied.

Since April 2021, medium and large private sector clients are responsible for determining IR35 status (the "off-payroll" rules). Small companies (below the Companies Act small company thresholds) are exempt — the individual's PSC makes the determination.

The tests for IR35: The key factors are:

• Substitution: Can the contractor send a substitute to do the work, or must they personally perform it? A right of substitution is a strong indicator of genuine self-employment.
• Control: Does the client control how (not just what) the contractor delivers? High control indicates employment.
• Mutuality of obligation: Is there an obligation on both sides to offer and accept work continuously? Continuous obligation suggests employment.

Being "inside IR35" means the PSC income is effectively treated as salary — income tax and NICs apply, the flat-rate 5% expenses deduction previously available is lost, and the company dividends strategy becomes ineffective for that income stream.

Genuine Self-Employment and the Benefits

A contractor genuinely outside IR35 retains meaningful advantages:

• Corporation tax at 25% (or 19% small profits rate) on company profits.
• Ability to take income as dividends (currently taxed at 8.75%/33.75%/39.35% depending on rate).
• The ability to retain profits in the company and time the dividend extraction to match lower-income years.
• Full deductibility of genuine business expenses (a sole trader or PSC outside IR35 can deduct professional indemnity insurance, relevant software, travel to client sites, professional development — subject to the "wholly and exclusively" test).

For internationally mobile contractors, the position is more complex. If you are a UK non-resident working for a non-UK client through a PSC incorporated in a third jurisdiction, the UK IR35 rules may not apply — the engagement is entirely outside the UK's employment tax framework. Specific advice on the jurisdiction of the company, the client, and the work location is essential.

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Overseas Assignment Allowances

For professionals on formal overseas assignments from a UK employer, the compensation package typically includes allowances beyond base salary designed to compensate for the genuine costs and challenges of working abroad.

Tax Equalisation

Tax equalisation is the principle that an assignee should pay no more tax than they would have paid had they remained in the home country. The employer bears the cost of any foreign tax above the hypothetical home-country tax.

Practically: the employer calculates a hypothetical tax — what the employee would have paid in PAYE and NICs in the UK on their base salary. The employee pays this hypothetical tax out of their gross package. The employer then covers all actual tax liabilities in the host country (and any residual UK liabilities). If the host country tax is lower than the UK equivalent (common for Gulf postings, where income tax rates are zero), the employer may "claw back" the saving — the employee does not benefit from the lower tax rate personally.

Tax equalisation is the most employee-protective approach. Some employers offer tax protection instead: the employee pays host country taxes directly and is only topped up if the foreign tax exceeds what they would have paid in the UK. Under tax protection, if the host country tax is lower, the employee keeps the saving.

Standard Allowances

Cost of Living Allowance (COLA): Compensates for higher costs in an expensive posting (London to Zurich; Tokyo; New York). Typically calculated using indices from ECA International, Mercer, or KPMG Expatriate Services. COLA adjusts for grocery prices, transport, entertainment, and other household expenditures.

Accommodation Allowance: Often the largest allowance. Typically paid directly to the landlord by the employer to simplify tax treatment. In expensive cities (Hong Kong, Singapore, London, Dubai) accommodation allowances can be substantial — £3,000-£8,000+/month for family-appropriate accommodation.

Education Allowance: School fees for dependent children are typically covered in full. Private international school fees can run £20,000-£50,000+/year per child.

Hardship Allowance: For postings to genuinely difficult locations (conflict-adjacent regions, extreme climate, limited amenity) — typically 10-25% of base salary.

Foreign Service Premium: A premium simply for accepting the inconvenience of relocation — typically 10-20% of base salary for a standard posting, higher for very difficult locations.

The Trend Towards Local Packages

Many multinational employers have moved away from the traditional "balance sheet" expatriate package — which could produce a total compensation cost of 3-5x the employee's base salary once allowances, housing, and tax gross-up are included. The trend is towards:

• "Local-minus" packages: Local market rates plus a modest allowance for the international dimension — no full accommodation or COLA.
• "Local" packages: Standard local market compensation, identical to a locally hired employee.

This shift reflects both the cost pressure on international mobility programmes and the reality that many internationally mobile professionals now choose global careers voluntarily and are less dependent on the traditional expatriate "hardship compensation" model. For professionals accepting international roles, understanding which package model is being offered — and negotiating accordingly — has become significantly more important than it was a decade ago.

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The Impact on UK Banking and Financial Planning

The structure of your remuneration directly affects your banking and financial planning arrangements:

UK mortgage affordability: A split payroll with significant overseas income components can complicate UK mortgage applications. Lenders typically want stable, documentable UK income. The presence of overseas income in a foreign currency requires specific lender expertise.

UK tax residency and banking: If your split payroll structure places you outside UK tax residency (fewer than 183 days in the UK per year), your UK banking relationship and investment arrangements — particularly ISA eligibility — may be affected.

Pension contributions: UK pension relief (on contributions to registered pension schemes) is limited to UK-relevant earnings — broadly, UK employment or self-employment income. If your UK-payrolled income is modest, your annual pension contribution capacity through UK vehicles may be restricted.

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How Global Investments Can Help

Global Investments works with internationally mobile professionals reviewing their overall financial structure — from the banking arrangements that support international salary flows, through mortgage planning for UK property, to the investment vehicles appropriate for their UK tax position.

Whether you are negotiating a new international assignment, restructuring an existing cross-border arrangement, or planning a return to the UK, our team can connect you with the specialist tax advisers, mortgage brokers, and banking relationships that internationally mobile professionals require.

This guide is for general educational purposes only and does not constitute tax or legal advice. International tax rules are complex and jurisdiction-specific. Always seek independent professional advice before making decisions about remuneration structure or employment arrangements.