News - International

International - August 2021

International Remote Working, Checklist for Employers

Are you ready for increased employee choices and flexibility in the workplace?

There is no doubt that we are all living through an exceptional period of time, as a result of the pandemic. We have seen a revolutionary and practically overnight shift from office-based work to  remote home working that became a necessity, as governments sought to control the spread of the virus.

This ‘new normal’ has come with lifestyle benefits for employees such as reduced costs of commuting, more time for personal development and a better work-life balance. Many employees have adapted successfully and would prefer to, at least part-time, continue working remotely as pandemic restrictions are eased. Business leaders, too, have embraced this ‘new normal’ and are more comfortable with the benefits of the shift to remote working, which include costs savings from reduced business travel and office space.

For business, one area that is emerging is the compliance challenge of international remote working, where employees working from ‘home’ may mean working in another country for an extended period of time. This can create additional compliance burdens both the employer and employee but these are generally not insurmountable and should not be a barrier to future international remote working.

At the start of the pandemic, it was almost impossible for any business travel to happen. Many employees posted or employed abroad returned to their home countries with the intention of working there temporarily until travel restrictions lifted. These temporary dislocations led to initial tax and social security questions around where taxes should be paid for the work being performed. Governments announced easements to avoid some of the unintended consequences, however as 2021 progressed and draws to a close, some of these easements will likely come to an end.

With continued restrictions, temporary displacements have become more permanent. The ‘home’ where the employee is working from is no longer necessarily the country of employment, and therefore the location of where the duties would have been performed has changed. This shift can impact the tax and social security position as well as employment law rights and employer obligations.

HR teams are grappling with complex legal, tax, social security, payroll and immigration challenges that are arising. Many of these do not manifest or become obvious in real-time, especially in the uncertain times we find ourselves in. Unfortunately, this does need addressing to avoid unexpected and costly outcomes.

The key areas of consideration

International remote working - key considerations

Tax and Social Security

As a result of the pandemic, international remote working has resulted in the following scenarios:

  • Some assignees returning to their ‘home’ country to work remotely

  • Commuters no longer commuting

  •  Individuals employed one country returning to their country of nationality, where the employer does not have a presence

  • Board meetings taking place remotely

  • New hires who are unable to relocate to a new country to start a new role

All of these changes to working may impact where the employee is classified as a resident and liable to tax. As a result, tax and social security may be withheld and reported in the wrong country. For example, for someone working cross-border, tax withholdings that take account of their work patterns are usually agreed with tax authorities in advance and have continued to be applied during the current tax year. For displaced workers, this can lead to tax adjustments being required when completing tax returns after the end of the tax year. It can also lead to common cash-flow issues, such as where a tax liability becomes due in the ‘home’ country before a repayment can be claimed from the country where the tax is withheld. Employees faced with such an outcome are likely to be looking for support from their employer.

There may also be differences in the tax treatment of employer provided benefits and incentives such as pensions and share schemes. Such plans may be tax effective in the country of employment but not in the country of remote work leading to a higher tax burden for the remote worker.

The compliance aspects are not just restricted to individuals’ tax return compliance. There is also a responsibility for employers to account for tax and social security withholdings and some countries such as the US (Federal and State), France and Canada may require the operation of withholding taxes by an employer that is not present there. Social security may become due in the country of remote work, and this may also be accompanied by the need for employers to register and account for employer social security costs that have not been budgeted for.

Legal and Policy Matters

Employment contracts will typically set out where the employee is required to work. Flexible arrangements such as working from home may be informally or formally agreed between the employer and employee. During the pandemic, governments required employees to work from ‘home’ where possible and employers supported their employees to do this. As highlighted earlier, in some instances, the ‘home’ is not in the country of employment. This does result in a number of legal and policy aspects that employers need to consider in order to formalise any international remote working arrangements.

Employment law

In the area of employment rights, most countries have mandatory provisions that apply as long as the worker is physically located within the jurisdiction, regardless of the law applicable to the contract. While a short period abroad for an employee, normally, might not have any effect on employment rights, longer periods that have become essentially open-ended as a result of pandemic-related travel restrictions. This may mean that HR teams will have to consider not just one but two or possibly more sets of employment laws, covering areas such as dismissal rights, health and safety, health care and pension benefits. There may also be regulatory consequences of long-term remote working.

Securities law

The grant of share options, and other forms of incentives using equity or other securities, may be subject to restrictions under the securities laws of the jurisdiction where the recipient is working remotely. When making such awards to employees, the implications of securities laws must be considered in each jurisdiction where the offer of shares or other securities is made.

Allowing employees to work from a variety of different jurisdictions will inevitably increase the number of different security regimes that must be checked by the company granting the awards. However, it is essential that companies follow through with this, as failure to comply with the requirements of a securities regime may, in some circumstances, constitute a criminal offence. In addition to the risk of any penalties for non-compliance (which may, in practice, be low), there is a reputational risk for a non-compliant company of being seen to operate in disregard of local law.

Data protection issues for employers with employees Working from Home

In a new business environment where most staff are working from home, employers will now, more than ever, need to be aware of potential data protection issues.

Employers need to be wary of their employees transferring data either abroad or from abroad. For example, if an employee’s role involves processing either personal data or sensitive personal data (such as data around an individual’s race/ethnicity, political opinions, religious/philosophical beliefs, trade union membership, genetics, biometrics, sex life/sexual orientation, or health) and the employee is currently displaced in a country outside of the EEA, additional restrictions around transferring such data apply. We would recommend employers seek legal advice, as the rules in this area can be complex.

Immigration

Employers should ensure that the employer is able to work in the country concerned. This will not be an issue if the country of remote work is the country of the individual’s nationality but the employee may wish to work in another location where they do not have a right to work. Whilst it may be possible to undertake limited duties for a limited time in that country, there is a risk of breaching the rules which could lead to fines for both the employee and employer and deportation of the employee.

Permanent Establishment

Where an employee works from home, their activities should also be monitored, as they can create a corporate presence or a permanent establishment in the country where work is performed. This could trigger new filing requirements and corporate tax exposure for the employer. What constitutes a presence varies by country but generally two areas need to be assessed:

  • Whether a fixed place of business of the employer is established in the country of remote work. This can include the employee’s home in some circumstances.
  • Whether the employer has the authority to negotiate and conclude contracts on the business’ behalf and habitually does so.

Some countries may determine that a remote worker working from home creates a fixed place of business for the employer after a fairly short period. Although governments have been encouraged by the OECD to consider the temporary and exceptional change of location as a consequence of the pandemic, for ongoing scenarios, the risk will need to be considered as there is currently no uniform approach.

How should HR functions approach International Remote Working?

There is clearly much to ponder. First of all, there will be a need to identify impacted individuals for 2020 and ensure that the business meets its compliance obligations and supports individuals to meet theirs. We expect there are likely to be some surprising and unintended outcomes as a result.

This should also help the business identify some key areas of risk going forward that will help decide what may be viable and supported in the future, helping shape recruitment and retention policies as well as track processes.

What about the post-pandemic world?

Much has and will be learned from 2020 and 2021 so far. There is no doubt that the pace of change has dramatically accelerated. Now that remote working has been embraced and its benefits more clearly understood, we can see its potential evolution:

  • In order to be competitive, employers may seek to access a broader global talent pool and offer employment to international remote workers.
  • Some future international assignments may look different, with some changing from the traditional ‘home’ to ‘host’ relocations or virtual assignments. An assignment is where an employee will remain working remotely from the ‘home’ country for most of the time and visit the ‘host’ country from time to time for focused and necessary visits.

Providing future flexibility for employees will be attractive. While compliance risks and associated costs will always exist and need to be managed, some cost savings may ultimately be achieved in both hiring costs and less usage of traditional expensive relocation packages such as tax equalisation. Awareness of the employment regimes, where remote working employees may be located, will be key in ensuring that those cost savings are not lost by inadvertent mistakes. Robust remote working policies should be established to manage risks.

How CELIA can help?

We offer a unique combination of integrated expertise including regulated Law and Tax services, People Consulting and Communications, both in the UK and internationally. We are happy to support you with all of the issues relating to international remote working. Please get in touch to discuss how we can help your business.