The last few years have forever changed the way we work, calling into question the importance of location.
“The blurring of the distinction between home and the workplace is here to stay, and the erosion of the 9-to-5 office-based model cannot be undone,” the ADP Research Institute’s People at Work 2022: A Global Workforce View study states.
The acceptance of long-term remote work has made it possible for employees to consider living in a different city, country or time zone from their workplace — something that would have been unthinkable just a decade ago.
But a permanently distributed workforce comes with complex legal, tax and privacy implications — something company leaders can easily overlook. Some of the most critical legal complications include those involving compliance with local laws, privacy, payroll policies and employee misclassification.
According to ADP’s findings, 53% of workers globally have thought about relocating within the country where they currently reside, 44% have considered returning to live in the country of their citizenship, and 44% have contemplated relocating elsewhere overseas. Nearly two-thirds of the global workforce (65%) said they already have or would consider looking for another job if their employer insisted that they return to the workplace full-time.
“Whether it is a pandemic bringing a host of compliance challenges and regulatory changes, or legislative changes happening in various parts of the world, global companies are having to quickly cope with rapidly changing rules and regulations,” says Cécile Georges, Vice President and Head of Global Compliance at ADP.
In managing a globally distributed workforce, organizations must comply with the applicable laws of the countries where they have offices as well as the laws of any states or regions where their employees are based. As remote working lets companies recruit talent from around the world, HR and payroll experts are rushing to keep up.
Payroll and taxes
With different states and countries having different laws on minimum wage, overtime calculation, deduction requirements and payday frequency requirements, managing a distributed workforce means being aware of — and in compliance with — the rules for every employee’s location.
Organizations also need to be sure of their employees’ whereabouts and should require them to disclose any permanent moves to a different state or country. “Generally, employees working remotely are subject to the laws of the state where they work with immediate effect,” Georges says.
When employees work in a different location or country, they could end up triggering a compliance requirement that would need company action. Depending on applicable local laws, this risk could be triggered in as little as a single day, or at 30-, 60- or 90-day thresholds. That means the employer could inadvertently become liable for following through on local benefit programs, leave requirements, new disclosures or different wage statement requirements.
Given this risk, it is entirely reasonable for companies to establish an assessment and prior approval process for employees to be permitted to travel to, and work from, different locations. Organizations need to make sure their policies cover and specify whether employees will work remotely from a permanent fixed location, or from multiple locations during the course of employment. Members of the tax, legal, Compliance and HR teams are likely to be required to consider requests of this nature from employees, and may even deny permission to work from a different location if doing so has legal and/or tax implications for the company. For instance, companies could mandate that employees only work from locations where the company has a corporate entity. Companies should also take into account economic and trade sanctions that could potentially apply to them.
Taxation can be tricky too, particularly when workers are based in a different country from where the company is headquartered.
Global companies are having to quickly cope with rapidly changing rules and regulations.
CÉcile Georges, VP & Head of Global Compliance at ADP
Although many countries are party to Double Tax Avoidance Agreements, which allow employees to be taxed in their country of residence and avoid paying dual taxes, the paperwork involved in filing taxes overseas can be complex. It is always helpful to have a dedicated legal and tax consultant in case of distributed teams.
For instance, in many U.S. states, employers may be required to withhold tax from a nonresident employee’s wages beginning with the first day the nonresident employee travels to the state for business purposes. In the U.K., tax liability kicks in from day 60. And across Europe and Asia, income tax withholding requirements vary even more widely.
This is another reason why requiring employees to disclose their work location and receive approval before working from a different location is so important.
Most countries — including India, Canada, Australia, New Zealand, Japan, South Korea and European Union nations — follow residence-based taxation, meaning only resident individuals need to pay tax on income earned in a different country. But two countries — the U.S. and Eritrea — have citizenship-based taxation, meaning their citizens need to file income taxes back home, regardless of where they work and live.
An employee working remotely from a different country could inadvertently create a tax obligation for their organization if they constitute what is known as a “permanent establishment” in the country where they are operating. The rules defining what constitutes a permanent establishment vary from country to country.
Clarity and transparency around where remote employees work from, and where they are traveling to, is crucial for organizations to maintain international compliance. Employee benefits are another issue: What happens if an employee works far away from the employer’s established health care network? Employers also need to be cognizant of applicable international and local laws around pension, benefits, and social security.
If a person who normally works in Pennsylvania begins working from their vacation home in New Jersey, they may learn that New Jersey State disability law covers maternity and apply for benefits. The employer, unaware that the employee has been working from New Jersey, could then be notified by state labor and taxation departments and be fined and/or audited.
Vacations, work hours and overtime
Remote or hybrid work also comes with a tricky caveat; tracking the actual hours employees work can be challenging.
While working outside rigidly set hours can be liberating for employees, helping increase productivity and motivation, not knowing how many hours employees are working can also lead to companies falling afoul of local employment laws — particularly with a globally distributed workforce where different laws may apply to different employees.
There’s a risk that working from home can make workers more prone to log on earlier, stay later, take fewer breaks and effectively be “always on.” ADPRI’s People at Work 2022 study found that people working from home on average do an extra 8.7 hours of work over their expected paid hours per week, in contrast to the 6.5 hours averaged by those physically present in the workplace.
Different countries also have different mandates around annual vacation time, overtime and work hours, and companies need to be aware of these differences. In Spain, for example, an employee cannot exceed 80 hours of overtime a year.
In recent years, the French government passed a law that included the “right to disconnect” — the employee’s right to not answer calls or read emails outside of regular hours. In a judgment in 2018, a French court found that an employee was entitled to extra pay if they were asked to be available outside of regular working hours.
It’s vital to get independent advice on particular circumstances flagged by your employees to consider the potential legal, payroll and tax implications.
“We are monitoring the legal landscape, not just for us as a company, but also to support our clients,” Georges says. “Companies have to look after their employees, and make sure they’re doing this in a compliant way.”
Despite the mobility and benefits that remote work brings, we still do not live in a truly global, borderless world. “Work from anywhere” in the absolute sense remains an unfulfilled dream — at least for now.
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