With the freedom to work from anywhere, we're seeing a large-scale migration of remote workers away from their hometowns and countries to new locations around the globe. And why not? Your employees might be able to save a bundle in cost of living by relocating to a less expensive locale. Or maybe they want to make their lifelong dream of living in Ibiza a reality.
Now that we are coming to the other side of the pandemic, it looks like remote work will be here to stay. Many people have become accustomed to their work-from-home (WFH) arrangement—and want to keep it. Gallup found that almost 60% of Americans would prefer to work remotely “as much as possible” after restrictions are lifted.
That is great news for growing the talent pool, but now businesses desperately need to upgrade their remote work solutions and policies—or face issues with remote work compliance.
Here are some compliance issues to navigate when it comes to your remote workforce.
Remote work compliance for taxes
When your company and your employees are located in the same city, state or region, the ins and outs of paying and withholding taxes are pretty straightforward.
But one big drawback to remote working is blurring the lines between tax responsibilities. To make things worse, how these new changes are handled by individual states or countries is inconsistent.
Paying taxes for remote workers and figuring out who your company might owe taxes to is becoming a big headache. And the more cross-border employees you have, the bigger that headache is. Right now, in the United States alone, some states have issued guidance counting remote employees as taxable under the company's home state—not necessarily the state where the employee lives. Neighboring states disagree because they are missing out on that tax income and are challenging those cases in court.
As more local taxing authorities—in the US and abroad—struggle to adapt to the changing employment landscape, we can expect more changes to come. One big question is—how will the WFH revolution change the game for permanent establishment (PE) rules? PE defines the criteria that determines if a company is doing business in a country and therefore liable to pay taxes in that country.
There is already a lot of variation in how PE is defined in different countries. Some of these countries will probably try to lay claim to a share of the revenue generated by remote workers in their countries—or at least challenge employee classifications for remote workers in order to force permanent establishment.
To mitigate risks when it comes to payroll taxes, build a policy that addresses where you will and will not allow employees to work from. You'll also want to define limits on the length of time that work can be remote—with or without the presence of an emergency order.
Timekeeping and labor laws for remote employees
Another hiccup in the nature of remote working is accurately recording hours. Employers are required to compensate employees for hours worked, and they are generally required to pay overtime for hours worked over a designated amount. At the office, physical presence and time clock systems make it fairly easy to keep track.
But remote work compliance presents a new problem.
Employees have access to work around the clock. Conversely, they also have varying demands in their personal lives that are constantly present at home. Consider the work/life lines blurred. Many employers are therefore struggling with finding ways to accurately track hours and compensate employees appropriately.
Other labor laws are somewhat of a mixed bag, with many countries outside of the US offering a range of social benefits, minimum paid time off, and strict termination rules. In short, if your remote employees are working outside of your home country for extended periods of time, you may be required to follow the employment laws where the work is being performed (as opposed to where your business is located.)
Classifications for remote workers
With the rise in remote working arrangements, there is a proportionate rise in contractors performing work remotely. At face value, it seems like a great solution. If a company classifies a worker as a contractor, they maintain a clear separation that can protect them from permanent establishment risk if those contractors perform work in other countries. This can save a lot of money on corporate tax bills.
Working with contractors vs. employees also eliminates the need for the company to worry about the hassle of timekeeping or managing productivity for remote workers. You can pay by the project and not worry about the details. Your business ends up with fewer employees to pay benefits for—and you aren’t on the hook for severance packages when things come to an end.
But it’s not all roses—a solution that seems too easy is a magnet for scrutiny. Taxing authorities are already up to speed on this particular workaround. When you hire remote contractors in other countries, you can expect local governments to take a close look at how you manage your relationship with them. And if authorities don’t agree with your workers’ classification, expect to pay big fines and back taxes when it comes time to file.
Best practices for building a global remote work policy
There are pros and cons to offering permanent remote work alternatives for eligible employees. A lower overhead cost of maintaining office facilities and wider reach in the talent pool are some of the most obvious upsides. But immigration, taxes and compliance can be a big turn off too.
To stay ahead of the changing landscape, build a remote work policy that clearly defines expectations and limitations. Include things like:
- Matching work locations to your global growth strategy.
- Consulting legal counsel for payroll taxes and immigration concerns.
- Defining the duration of remote work agreements.
- Providing compliance notices and training online.
- Communicating timekeeping and work arrangement expectations.
The reality of making remote work possible—without bumping into compliance problems—is complicated and continuously changing.
But that doesn’t mean you should scrap it.
If your best talent live and work in a country where you don’t have an entity—or a solution to pay them compliantly—a global employer of record, like Global Employment Outsourcing (GEO), can help. This strategic partnership (sometimes called an international or global PEO) removes the burden of remote work compliance by legally employing workers on your behalf—no matter where they reside.
Speak with a global solutions advisor today to learn how GEO can eliminate your compliance risk as you grow and manage a remote global workforce.