International remote working remains high on employer agendas
The international remote working arrangements that have largely arisen as a consequence of COVID-19 remain high on the agenda for employers as they consider their risk exposure and approach to future requests. Here we summarise the latest thoughts in this area: -
Initial response to the pandemic
Historically, international remote working arrangements have been widely frowned upon by employers, wary of the potential additional compliance costs and other immigration and employment law risks.
However, the COVID-19 pandemic caused a shift in working behaviour and global mobility, which has ultimately been seen across all sectors of the global economy. Sudden border closures and quarantine requirements led to a displacement of workers across the globe on a scale never seen before, and employers were left to determine the location of their employees.
In March 2020 it seemed that this would be a temporary consequence of the pandemic that would be short-lived enough that the resulting compliance risks would be minimal. With a vast network of Double Taxation Agreements reducing the risk of double taxation, and certain European countries quickly introducing concessions for income tax and social security purposes, the early indications were that there would be no significant challenge from short lived international remote working arrangements.
One Year on
However, almost a year on, many employees continue to work remotely, either through choice, health and wellbeing reasons or due to sustained border closures.
The treaty protection that was available in a lot of circumstances, where individuals had moved to another country for a period of less than 183 days in a specified 365 day period, has now long since expired and treaty tax residence positions may have shifted for individuals. This will invariably trigger an overseas tax liability for international remote workers. Employers are therefore now working to determine the potential risks to their business created by long periods of international remote working arrangements and some are also now clarifying the individual implications for their employees.
What are the risks from international remote working?
- Income Tax and Social Security – will the proposed arrangements create an overseas income tax or social liability, or can these be mitigated through the numerous Double Taxation Treaties or social security agreements? Will employers agree to become liable to a potential costly overseas employer social security charge?
- Permanent Establishment – Is there a risk of a creation of an overseas permanent establishment and corporate tax exposure in a foreign jurisdiction?
- Payroll and compliance costs – Overseas corporate registrations and operation of a foreign payroll can be extremely costly and administratively burdensome. Some remote working arrangements may result in dual withholding so an employer may consider offering a loan to the employee to assist with cash flow issues.
- Corporate Criminal Offence (CCO) - UK businesses can be considered to commit a criminal offence if they have not taken reasonable steps to ensure that overseas tax liabilities are met. Are employers comfortable that a CCO is not being committed?
- Immigration – Do your employees have the right to work in the host country?
- Other issues
- Does the employee have overseas health insurance, and who would be responsible in the event of overseas costs?
- Is the employee performing restricted activities that have to be performed within the UK?
- Are professional qualifications recognised in the overseas jurisdiction?
- Can the employee continue to contribute in the UK based pension scheme and/or share scheme?
- Data protection – what are the data transfer rules in the overseas country?
It is clear that there are a number of considerations that must be taken into account by employers when determining the impact of international remote working on their business and where advice should be sought.
Early indications are that the pandemic has truly caused a permanent shift within global mobility and attitudes towards remote working. Many employers have suggested that domestic remote working is here to stay, whether through a hybrid model of office and home based work, or via permanent office closures creating 100% working from home arrangements.
The culture of an organisation may determine their approach to international remote working, with some organisations announcing that they are adopting a ‘work from anywhere’ model, but other making clear that they have rejected working from home as being the ‘new normal’ and expect a return to full time office working as soon as that becomes feasible. Employees who have found themselves working from home for the previous year have fast become empowered and found a greater voice to dictate their preferred working patterns. Employers are quickly quantifying the benefits of a more permanent remote working approach, with potential cost reductions and productivity increases among other benefits and weighing that up against the potential risks stated above.
Recent roundtable events to discuss international remote working have made clear the numerous considerations that are in play when decisions are taken as to whether to allow such requests. The discussions identified talent retention and attraction as a key incentive to permit requests. Staff wellbeing and maximising productivity were common other considerations. Separately, whereas both employers and employees may have traditionally suffered from geographical immobility in hiring or finding a job, remote working offers the ability to increase diversity, whether from hiring outside the major cities within the UK or from overseas. A management consulting firm may find that the best candidate for the job is based in Dubai, and may be comfortable in offering a contract should travel to the UK be limited. However, companies need to carefully consider other factors such as whether remuneration will be adjusted for location and whether the employee will be insured for injury overseas.
Whatever the stance of a business towards international remote working, it is advisable that employers formalise a robust internal policy to guide them with their approach to sanctioning continuing or approving future international remote working requests. This will help ensure that the business can be pro-active in reviewing their business priorities and checking on the implications of any potential decisions to ensure that unintended compliance consequences are avoided.
Please speak to your usual BDO contact should you need assistance in this area.