Remote Worker – “necessity” or “choice”?

During the first wave of Covid-19 back in the spring of 2020, many employers found themselves dealing with the issue of “remote workers” in significant volumes, for the first time. When “working from home”, means working from home in another part of the city or the country then the issues are more likely to be focussed on IT effectiveness and maintaining team connectivity. However, if “home” is in another country, then a whole new set of considerations need to be addressed.

Initially, employers may have experienced staff members being ‘trapped’ in certain jurisdictions as a result of both flight cancellations and travel restrictions, and other employees relocating or remaining at home, so that they could be closer to their family members and friends during a time of global uncertainty where one of the main questions on everyone’s mind was “What’s going to happen next?”.

With the use of technology, employees were able to quickly mobilise their workstations to continue providing services from home, whether this was in the same country as their employer or not.  

But, as time has gone on, travel restrictions have eased then tightened and will ease again. The question of employees staying away from the office and working from home is now becoming more of a long-term lifestyle choice than a knee-jerk reaction to a global crisis.  So, what might this mean for employers in situations where their workforce carries out activities on their behalf in a location where they may not have any corporate presence – can employees work anywhere globally without additional exposure or considerations for themselves and their employers?

What’s the problem?

When working from a location (home, office, or any other place of business) in a country which is different to where the employee’s legal employer is based, the employer must think through both the corporate and individual considerations such as:

  1. Immigration – does the employee have the right to work in the overseas country?
  2. Permanent establishment (PE) – might the employee create a corporate exposure (PE) for their employer in that location?
  3. Transfer pricing – if a corporate presence is created, then how should the employer allocate cost between the two locations?
  4. Employee’s residence – could the employee’s personal residence position also change?
  5. Income tax – will the employee become liable to income tax in the country where they are working?
  6. Social security – are employer and employee social security contributions being paid in the correct location?
  7. Payroll – could there be a payroll withholding requirement for the employer in the overseas location?
  8. Employment law – which countries labour laws need to be observed?
  9. Employment pension and benefits – how are pensions, medical and healthcare benefits impacted?

Short-term emergency measures

Thankfully, at the start of the pandemic, many governments and international organisations such as the OECD quickly responded to the corporate and individual residence and tax situation and provided a range of “relaxations” that provided some level of comfort to employers where, if certain conditions were met, no adverse corporate or individual tax implications would be triggered when their displaced workforce were trapped, or relocating for a short period of time during the initial COVID-19 wave.

But when does a temporary arrangement of working overseas, borne of necessity, turn into a more of permanent arrangement of choice?

During the summer, many of these temporarily dislocated employees have returned to their country of work. There are those however who have not. Reasons for this are varied. Some have found they can fulfil their duties remotely just as well as in the office and therefore have decided to become more permanently settled in the overseas location (especially where the employee is a foreign national and they have found themselves back within their home country). 

Others have not felt it safe enough to travel due to the ongoing pandemic. Each case is of course unique, but some of the key considerations that have yet to be fully addressed by many tax authorities are:

  • The degree to which any relaxations extended at the beginning of the outbreak will be extended or repeated to account for any subsequent waves (and associated restrictions on movement); and
  • Whether such relaxations will be applicable where employees have chosen rather than been required to work in a certain location, and
  • How to determine when an employee’s location is a matter of choice as opposed to a necessity.

The situation is constantly evolving, and governments are continually updating guidance to try to keep up with the developing work patterns. We don’t yet have the answers to these questions, but we will keep monitoring for new developments and will post future blogs on this site bringing further insights in the near future.