Changes and challenges in maritime employment law – Q&A with CESG Ltd

With changing rules and regulations in the yachting industry, it’s vital that crew, captains and management companies are up to speed when it comes to maritime employment law.  

Established in 2007, CESG Ltd provides offshore employment services to the many forms of the marine industry, from superyachts and cruise ships, to cargo and safety standby vessels. As the company announces its eighth successful year of trading, Yachting Pages asked chief executive, Neil Carrington about the current trends and developments in crewing a superyacht, including concerns from captains and crew, and the importance of quality management.

Talk us through the biggest changes in your sector over the past eight years?

The biggest change in recent years has been the introduction of the Maritime Labour Convention 2006, which virtually transformed the regulation of the yacht industry overnight.  This was compounded by the fact that the size of commercial yachts being delivered has seen a steady increase over the past few years, and more and more of them are being affected by the regulations.

There have also been significant changes in social security legislation, for example, the increased co-ordination within the EU, as well as a general trend for authorities to try and increase their revenue because of the recent economic climate and a wider trend for social security systems costing more.  This is causing a culture shift in the yachting sector as owners, managers and crew review all of their arrangements to make doubly sure that they are running a compliant and cost-effective payroll.

What are the most common questions you receive from yacht crew members, in regards to their employment?

Crew very often ask if they can open a bank account offshore, and the simple answer to that is yes. However, when opening a bank account, there will be the usual due diligence to be completed by the bank, and most offshore banks charge handsome fees for their services. Seafarers also need to be aware that putting their salary “offshore” does not necessarily mean it is now tax-free, despite what they may hear 'on the grapevine'. 

Depending on their personal circumstances, a seafarer may still need to declare offshore income to their country’s authorities, with severe consequences for failing to do so – HMRC, for example, now has information exchange agreements with 90 countries and there has recently been legislation drafted in the UK that could lead to criminal penalties for failure to disclose offshore assets. We would always recommend a seafarer speak to a tax advisor about such matters.

Another very common query is whether we are able to pay their salary into two or more separate accounts. Again the answer to this is yes, and it’s not uncommon to do so in the marine industry. This is because historically, a system of allotments has been in place to enable seafarers to send money home to families whilst they are at sea.

I appreciate that this may not necessarily be the reason for two accounts, but the principle is the same. My previous comment about offshore accounts applies here as well though – using such arrangements for legitimate reasons is fine, but seafarers ought to talk to a professional advisor if they are trying to achieve some kind of tax reduction and not rely on hearsay.

What are owners, captains and management companies’ biggest concerns or queries?

It varies tremendously, but a common concern is management companies contacting us saying "Joe Bloggs Ltd has offered to provide the same service for X euros less per person", and the simple answer to that is that you really do get what you pay for in terms of service.

Captains have a tendency to ask questions about dealing with on board disciplinary matters or general employment queries, and we encourage this because it’s better to get things right at the first attempt, rather than having to resolve problems which arise later. The concept of ‘letting people go’ without a correct procedure has a tendency to backfire in these MLC days; this is another culture change that has to be embraced.

In what way do changing rules and regulations affect CESG Ltd as well as yacht owners, management companies and/or crew?

Our biggest challenge is balancing the needs of the client against the changing rules and regulations, so that we can still deliver a cost-effective service while dealing with an ever-increasing amount of administration.

In the medium to long term I have no doubt that further changes will occur as revenue authorities become ever more pro-active in attempting to increase their revenue, including looking at groups who in the past have been largely over-looked, like yacht crews. One of the overriding principles of EU legislation is that an individual resident in the EU should make a social security contribution, which is quite logical because when somebody requires health care or a pension, the benefit has to be paid for and social security payments contribute towards that.

I believe that the vast majority of owners are not engaged in anything untoward – however, what may put them at risk is that they may not have reviewed their payroll arrangements in detail, leaving potential gaps which a revenue authority could misinterpret as deliberate avoidance.

Ironically other sectors of shipping, which historically have been far more aggressively reviewed, have also tended to be more aware of the issue and so are more prepared for this new regulatory environment.

In my mind, it is important to properly review potential liabilities to make sure that, whilst everyone pays what they legally must, they are not losing out by paying more than that.  We work with our clients and advisors to ensure that the arrangements in place for crew are legal, efficient and economical. 

What are your personal concerns within the sector?

One of my personal concerns is that there is a proliferation of companies who market themselves as crew management/employment businesses. Many of these are actually finance and legal companies that probably deal with yacht purchase and registration and tag on the crewing bit because it makes them look like a ‘one-stop shop’. Employing crew is not easy; the obligations on an employer are many and can be onerous so need managing professionally.

How does the superyacht sector differ from others that CESG Ltd deals with in the marine industry?

Quality management is a phrase often bandied about, but of all the sectors we deal with, the one sector that really knows the meaning of the word ‘quality’ is the superyacht sector. However, this concept of being the best has to also apply to the management of the crew, as they have the responsibility of caring for an asset worth millions. High wages may be very good and loyalty inducing, but how people are treated overall is just as important as how much money they are paid.

For more information, visit CESG Ltd.

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