Addressing employment challenges in the energy sector

The energy sector, particularly in oil and gas, is facing significant employment challenges throughout the UK. From talent leakage, caused by an ageing workforce and global competition for talent, to the UK government’s focus on renewables and the announcement of GB Energy, businesses and workers in the energy industry must navigate an increasingly complex landscape in the coming years. 

Oil and gas industry - global job market and opportunities for the UK

The UK oil and gas sector employs approximately 200,000 workers and supports £25bn in economic gross value add. Despite this, the as projects are stalled. This highlights the need for some areas of the workforce to transition and transfer their skills. 

While this outlook seems bleak, the recent announcements of GB Energy, increased focus on renewables, and continuing recruitment overseas provides workers with wider opportunities. The future is less clear for businesses, which understand the oil and gas market will naturally slow due to its reliance on natural resources and change in demand. However, the impact of GB Energy is hard to assess until more information becomes available. 

The post-pandemic era has also led to increased global mobility in the oil and gas market, with professionals seeking roles in emerging energy hubs such as the Middle East. The Middle East becomes even more attractive to those looking to stay in the oil and gas industry due to its preferential tax rates when compared to the UK, especially given the sector in the UK is largely dominated by Scotland, which has the highest marginal tax rates in the UK. 

This has left an ageing UK oil and gas workforce, with little support to train the next generation due to the limitations of the Apprenticeship Levy. Yet, the UK’s strong regulatory framework, access to advanced technology, and attractive long-term career prospects in the energy transition have the potential to create significant opportunities for businesses to draw talent back or attract new workers from abroad. 

Recent surveys have shown that the UK's long-term commitment to the energy transition, particularly its focus on renewable energy and net-zero goals, still make it an appealing destination for professionals seeking stable and impactful careers.

While international mobility within the oil and gas sector is nothing new, the growing demand for talent is accelerating the number of workers moving abroad. This increase in international movement brings tax risks with significant consequences for both the workers and their companies if not managed correctly. 

Pay and reward - attracting talent through competitive packages

To address talent shortages, UK oil and gas companies have adapted their remuneration strategies to remain competitive in a global marketplace. Many companies are enhancing their pay and reward packages by offering flexible working arrangements and benefits, enhanced performance bonuses, and opportunities for career progression.

While the Middle East continues to offer competitive salary packages, the UK’s oil and gas sector can capitalise on its long-term career development opportunities and the rising demand for skilled professionals in renewable energy. According to the Global Energy Talent Index (GETI), professionals in the UK can expect a 10-20% increase in salary compared to previous years, largely driven by the increased demand for talent in both traditional and renewable energy sectors.

The tax landscape also plays a crucial role in shaping the reward structures for UK-based energy businesses. With Scotland being a key hub for the UK’s oil and gas operations (one in five workers in the North-East of Scotland are directly employed in the industry), the tax regime is particularly important. 

While Scotland's tax rates may appear higher compared to the Middle East, the UK offers a range of incentives for energy companies, including the upcoming UK green energy fund and tax credits for investment in carbon capture and renewable projects. Measures such as these could potentially help balance the cost of employment and enhance the overall attractiveness of working in the UK energy sector.

Additionally, the high prevalence of off-payroll workers in the UK oil and gas sector (estimated at around 30% of the workforce) presents an opportunity for businesses to access a flexible talent pool while controlling costs. The recent changes in the off-payroll working rules (IR35) have prompted many companies to reassess their workforce structure and it is common for errors to be found.  For example, where there are long-standing arrangements with individuals who operate through their own Personal Service Company (PSC) and have provided their services to the same “end user”.

This has become especially relevant in merger and acquisition situations in recent years, with numerous deals being significantly impacted or cancelled due to non-compliant worker engagements. However, with careful planning and obtaining tax and legal guidance, companies can continue to leverage this flexible model while ensuring compliance with UK tax laws.

Tax risks for overseas and offshore for oil and gas businesses.

Many businesses in the UK oil and gas sector are ‘parented’ overseas, and as such, have overseas resident directors on the board of the UK company who will enter the UK to attend board meetings. The reliance on non-resident directors is well-established in the UK’s oil and gas sector, and while this practice brings expertise and governance advantages, it also introduces specific tax risks. Non-resident directors who spend limited time in the UK must navigate the complexities of UK tax law, including the treatment of travel and accommodation expenses.

By ensuring compliance with HMRC guidelines and keeping accurate records, businesses can avoid unnecessary tax liabilities and penalties. It is important for companies to seek professional tax advice to ensure that their non-resident directors’ expenses are properly categorised and compliant with current regulations.

Another area of focus for the UK oil and gas sector is the treatment of travel expenses for offshore workers. Employees working on offshore oil rigs often have to travel to Aberdeen for an early morning helicopter journey to the oil rig. Frequently, they will stay overnight in a hotel before being transported to the heliport. While the hotel costs are typically tax-deductible, there are complex rules governing the classification of the travel costs from home to the departure point (ie heliport). A recent survey established that approximately 50% of the offshore workforce live more than 75 miles away from the departure point, meaning expenditure on travel costs can be significant. To mitigate risks, companies should work with tax professionals to ensure that all expenses are correctly documented and comply with UK tax laws.

The UK’s role in the global energy market

The formation of GB Energy, its skilled workforce, and attractive long-term career prospects have the potential to make the UK oil and gas sector a key player in the global energy market. 

In order to compete in a very competitive global market, the UK energy sector appreciates that it needs to invest in training and development, adapting competitive pay and reward packages, and staying ahead of evolving tax regulations.

It is also undergoing a transformation, and businesses that remain agile and proactive in addressing employment challenges will be best positioned to capitalise on emerging opportunities. However, it does face some significant challenges in talent retention and global competition. Government policy, and the general ban on approving new oil and gas developments has resulted in some companies pulling out of the North Sea and re-directing investment elsewhere. 

Companies have to navigate these challenges strategically, to ensure their long-term success whilst continuing to strive to attract top talent in an increasingly competitive global market, but will only be able to do so with a more supportive UK government energy policy.

How we can help with your oil and gas business

With extensive experience working with clients in the oil and gas sector across the UK and globally, we are dedicated to supporting businesses in the industry.

Our deep understanding of the oil and gas industry enables our clients to comply with regulations, minimise risks, and maximise opportunities to reach their business goals.

Our people advisory services team helps our clients execute their people and talent strategies and manage their people challenges using a multi-disciplinary approach across the UK and globally. The team combines experts across employment tax, employment law, payroll, HR, equity reward, and global mobility, working collaboratively to bring our clients a seamless service offering.

For more information on how we can help you navigate employment tax challenges in the UK energy sector, please contact James Hemphill and Neil Bridgeford. To discuss the impact for your oil and gas business, please contact Grant Morrison.