Archived decisions

HAMPSHIRE COUNTY COUNCIL

Decision Report

1. Executive Summary

1.1 At its meeting on 22 July 2009, EHCC requested comparative salary information and that further work be carried out to explore the option of paying the Brussels' office staff in Euros.

1.2 This paper seeks to:

_ Set out how the payment of salaries in Euros could be achieved, as a possible alternative to the current arrangements of paying in Sterling

_ Explain how other organisations manage the payment of staff in Brussels and what they pay

_ Clarify the proposed approach for adjusting the pay of staff as a result of fluctuations in the exchange rate

2. Contextual information

2.1 Hampshire County Council (HCC) currently employs two staff, based in Brussels, who work for and are funded by Southern England Local Partners (SELP). The employees are employed on EHCC 2007 terms and conditions.

2.2 At its meeting on 22 July 2009, EHCC agreed the proposal of compensating the Brussels' office staff for the significant financial loss in the value of their pay arising from the recent and ongoing fluctuations in the pound sterling/Euro exchange rate. This agreement was for the period 1 September 2008 to 30 September 2009. Arrangements beyond that will be subject to the outcome of this paper.

3. Payment of a Euro salary in Euros

3.1 HCC's payroll is configured in sterling. For payments to be paid in Euros it would require a separate payroll to be set up. Initial set up costs are estimated in the region of £3k. In addition there would be ongoing costs involved in maintaining a separate Euro payroll. As there are only two staff in Brussels the cost may be considered disproportionate to any benefit to the employees (who have not requested such a change).

3.2 Any move to Euro payments would have both tax and financial reporting implications. EHCC accounts are in sterling. Any Euro payments made to the employee would have to be converted to a gross sterling amount in order for UK tax to be deducted and to enable the payments to be included in the budget book. The net amount would then have to be converted back into Euros in order to be paid into a Brussels bank.

3.3 HCC's current practice of paying a fixed sterling salary and overseas allowance, into a UK bank account, which can be topped up via the use of an additional payment to take account of any currency fluctuations is a more straightforward and cost effective approach for the Council and fully compensates staff for any loses they might incur.

4. Payment of a sterling salary in Euros

4.1 An alternative would be for the sterling payments of these staff to be converted to Euros and paid into a Euro bank account, in line with arrangements currently used to pay pensioners living abroad. This approach would still require that additional payments be calculated to compensate the employees for any fluctuations in the exchange rate.

4.2 This approach would enable the gross payment to be taxed in the UK and paid net into a Brussels bank through a specific banking procedure. Payments into a foreign bank rather than a UK one is in itself unlikely to result in any liability to foreign tax due to a double-taxation agreement between the UK and Belgium intended to ensure that the same income is not taxed in both countries. However it is likely that interest earned on the Belgian bank account would be subject to a Belgian tax.

4.3 The usual procedure for National Insurance is that those working in the European Economic Area (EEA) should continue to pay contributions under their own national scheme where they are not expected to be abroad for more than a year, or otherwise (with the agreement of both countries) up to 5 years. However, there is an exception for "civil servants and persons treated as such" who remain subject to UK contribution irrespective of the length of stay. It is likely that the Brussels Office staff would fall under this exception.

4.4 Current arrangements are such that:

_ there is a charge of £3.15 per payment;

_ employees would receive payment six days later than at present due to bank processes required to clear funds

It would seem unreasonable to levy this additional cost on employees and confirmation would be needed from SELP that they would fund any additional costs.

5. How other organisations manage payments

5.1 To obtain a survey of salaries for similar jobs in Brussels would cost approximately £650. As an alternative we have obtained information from Kent County Council, the East of England Regional Assembly (EERA) and the Civil Service, who employ staff based in Brussels, regarding their level pay and approach to managing payments. .

5.2 These organisations pay staff a sterling salary, with adjustments being made up or down, as appropriate, to take account of fluctuations in the exchange rate against a reference ratio. Two of the organisations also pay staff an additional allowance to cover any extraneous costs of living abroad.

The Civil Service also employ some staff locally in the host country under relevant employment law and terms and conditions of that country, with no additional payments made. They employ another organisation to manage the arrangements on their behalf. However, the civil service employ a larger number of staff in Brussels which makes this approach more cost effective.

5.3 While it is not possible to directly compare HCC's practice, the level of overall pay and approach to managing payments seems appropriate in context of the data provided.

6. Proposed approach

6.1 The alternative approaches outlined above each carry additional administrative burden and costs and, in light of these, agreement is sought to proceed with the approach outlined in the paper of 22 July 2009; that payments be made in sterling, and compensatory payments be made to mitigate any negative fluctuations in the exchange rate, against both the salary and overseas allowance. However, in light of the further investigations a slight refinement is proposed with any payment in respect of currency fluctuations being calculated by reference to the average actual exchange rate for the previous six months and paid as a recurring payment each month for the following six months (rather than as a one off payment as previously proposed). During periods of rapid currency fluctuations the review would be carried out on a more frequent basis e.g. if the average exchange rate over a quarter is 5% more or less than the previous quarter payments will be reviewed at that time. If it is less than 5% the review will not be conducted before the end of the 6 month period as agreed.

6.2 If this approach is adopted it is proposed that while additional payments will be made as compensation of any negative currency fluctuations, if the exchange rate were to become favourable for the employee a deduction from the overseas allowance would also be applied.

6.3 The proposed base exchange rate is 1.47, with a tolerance of 5% above and below that rate. This rate reflects the approximate rate in place when the current staff were appointed and a period of relative exchange rate stability over the period from 2000 - 2008.

7. Cost considerations

7.1 As previously agreed by EHCC any additional cost of compensating staff for the impact of currency fluctuations should be funded by the Southern England Local Partners (SELP) in Brussels. If a situation arose where these costs could not be covered by SELP further decisions may need to be taken as to how this could potentially be managed.

8. Recommendations

8.1 EHCC are asked to approve that:

· the salary and additional payments continue to be paid to staff in sterling.

· the continued use of adjustments to mitigate any fluctuations in the Euro/Sterling exchange rate, against both the salary and overseas allowance as proposed under section 6 above. Any additional payments would be made on a recurring basis each month, rather than a one off payment.

· where the exchange rate became favourable for the employee, a deduction from the overseas allowance would be applied.

· during periods of rapid currency fluctuations the review will be carried out on a more frequent basis.

· HCC reserves the right to review and amend the approach and process for managing the impact of currency fluctuations as appropriate

CORPORATE OR LEGAL INFORMATION:

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IMPACT ASSESSMENTS:

1. Equalities Impact Assessment:

1.1. N/A

2. Impact on Crime and Disorder:

2.1. N/A

3. Climate Change:

a) How does what is being proposed impact on our carbon footprint / energy consumption?

N/A

b) How does what is being proposed consider the need to adapt to climate change, and be resilient to its longer term impacts?

N/A