A lasting legacy of the coronavirus pandemic is a marked rise in globally remote workers and digital nomads. For a host of reasons, often including their positive experience of globally remote working during lockdown, many more employees have decided that they want the flexibility to work wherever they like.
At the same time and given the benefits that this can bring employers too, organisations are grappling with how to respond. That said, some employers have simply refused to engage with the matter and are mandating that all employees work in the same county in which the employer is located. However, many more employers are exploring how they embrace or at least accommodate the new landscape, not least in order to attract and retain scarce talent.
For those employers looking to introduce a globally remote working policy or who are simply trying to deal with existing globally remote workers, one of the major challenges is employer compliance. Put simply, how does an organisation in one country employ an individual based in another country whilst at the same time remaining compliant in both counties concerned?
In this article, global mobility and international employment tax expert Lee McIntyre-Hamilton explores some of the key compliance considerations for UK employers with globally remote workers and digital nomads overseas. It also sets out how employers can get to grips with their compliance obligations and how to manage these effectively.
What are globally remote workers and digital nomads?
Generally, “globally remote workers” (or “telecommuters” as they are sometimes known) are those employees who are employed by an organisation in one country but who reside and work in another country.
“Digital nomads” also fall under the umbrella of globally remote work. However, what sets them apart is that the term generally refers to individuals who move from country to country, working for a short time in each country from hotel rooms, the homes of relatives and friends overseas or other temporary accommodation. Often, and sometimes erroneously, digital nomads don’t consider themselves to be a resident of any country.
The terms “globally remote workers” and “digital nomads” are sometimes used interchangeably but the distinction we outline above is important when it comes to employer compliance.
Key employer considerations
Whether employees are globally remote workers or digital nomads and irrespective of where they are working in the world, there are some key employer compliance considerations. Not all of these considerations will apply in every case and some cases may be more onerous than others. However, they can’t be ignored unfortunately without risking significant future compliance issues and must be considered in each case.
Do your employees have the right to work overseas?
Employers should ensure that employees have the right to work in their chosen country. Where an individual is a national of the country in which they are working, this is often not an issue as there is normally an automatic right to work in such cases. However, for UK nationals working overseas, this is an important consideration. For digital nomads, the position can be particularly complex for employers since there may be multiple countries to consider over a short time period.
Obtaining the right to work in a country is not the same as simply having the right to live in the country. There have been many instances where employees are working illegally overseas on tourist visas. There is also sometimes the misconception that there are no visa issues where someone is working temporarily from a hotel room. Whilst there are certain concessions in some countries for temporary business visitors, working from a hotel room for a temporary period still requires consideration to determine whether any immigration-related actions are required. There can be severe consequences for both employers and employees of getting this wrong.
Does UK employment law still apply?
Once the right-to-work position is established, employment law will need to be considered and particularly for globally remote workers. Where an employee is working long term outside the UK in one country, then it is possible (and in many cases likely) that they will acquire rights overseas under the local laws of the country in which they are working. Therefore, any UK employment contract and employment practices should be reviewed and updated to make sure that they comply with the relevant non-UK rules where required (e.g. on minimum statutory holiday entitlement, entitlement to sick leave and restrictions on working hours).
There may well be other employment-related considerations. Some jurisdictions, such as France, have particularly complex employment laws and require the contract to be written in French. Therefore, a complete overhaul of the UK contract and working arrangements may be required in some cases.
Have your employees triggered a corporate presence overseas?
Employers are often surprised to learn that the activities of an employee in another country may unintentionally trigger a corporate presence in that country. That is, even where a UK employer is not registered overseas, an overseas tax authority may deem the employee to have created a corporate presence (or “permanent establishment”).
The creation of a permanent establishment can lead to the requirement for corporate tax returns, the payment of corporate tax on profits allocable to the permanent establishment, the filing of accounts, the operation of a payroll and a host of other non-UK corporate obligations. The rules on permanent establishment are complex and often subjective and will require careful review.
This issue is normally less of a compliance risk for digital nomads (as opposed to globally remote workers) since digital nomads would not tend to spend sufficient time in any one country to unintentionally trigger a corporate presence for their employer. However, this is not always the case and, again, each case should be reviewed.
Is payroll required?
Even where no corporate presence is created overseas, a non-UK payroll may still be required, together with other employer obligations. For example, if an employee is living and working indefinitely in an EU country, the UK employer will be required to register with the overseas tax authorities to operate employer and employee social security (rather than UK National Insurance).
This is an obligation under the UK’s Trade and Co-operation Agreement with the EU (prior to Brexit, the rules relevant to the UK were formerly enshrined in EU regulation). There have been numerous examples of UK employers falling foul of this obligation and receiving unexpected demands from tax authorities across the EU (sometimes running into hundreds of thousands of euros).
Furthermore, outside the EU and even where there is no permanent establishment created, some countries such as Canada and India have mandatory foreign employer registration requirements. In Canada, for example, foreign employers are normally required to register with the tax authorities and operate a payroll in Canada.
From a UK perspective, it is equally important to note that an employer cannot simply cease UK payroll when an employee leaves to work indefinitely in another country since, depending on the tax and NIC position, there may be ongoing UK payroll obligations, even for an employee residing outside the UK.
Once an employer has determined their compliance obligations, any additional host country obligations should be established. For example, some countries have mandatory employer insurance for employees (even where the employer is not present in that country) or mandatory employer pension obligations.
Health insurance for the employee should also be considered as they may not automatically be covered by the UK employer’s existing policy.
In addition, even where an employer has determined that there are no employer obligations overseas, the employee will normally be required to settle income tax in the overseas country. Sometimes employees do not realise this (erroneously believing that they will continue to be taxed in the UK on account of having a UK employment contract).
Therefore, employers may want to avoid future queries and issues by notifying such employees that they are likely to have a tax liability overseas and to clarify the fact that they will be responsible for settling this. That said, one common misapprehension is that employers can also simply pass on any non-UK employer obligations to the employee. Normally, this is not the case and where the employer has statutory obligations (e.g. registering for social security in an EU country), this cannot be passed to the employee.
What should employers do?
Employers may well conclude that the challenges and cost of a flexible globally remote working policy outweigh the benefits, particularly where the goal is to introduce a wholly flexible ‘work from anywhere’ policy. If employees get to choose where they work and there are no restrictions on duration or location, it is almost certainly going to lead to an ongoing array of employer compliance issues. Equally, aside from any compliance issues, having digital nomads moving constantly from country to country is likely to prove a huge administrative burden, particularly for companies who have many digital nomads.
However, at the other end of the spectrum, a well-thought-through globally remote working policy can work. It is never likely to be risk-free but certainly the degree of risk and employer compliance obligations can be minimised. Normally this will mean restricting the duration of globally remote working as, in many of the instances outlined above, employer compliance obligations are often (though not always) triggered by an employee’s continued presence in a territory (rather than, say, a one-month stay). It may also mean restricting the countries in which the employee can work, for example by avoiding countries such as Canada where there are mandatory foreign employer registration requirements.
Employers may also reduce the burden by agreeing that only certain roles are eligible for indefinite globally remote work in an overseas country. For example, there may be roles that demand particular skills or experience that are not readily available in the UK. From a compliance perspective, this would enable the employer to restrict any consideration of the issues outlined above to that one country (and any other country in which such an individual is hired) rather than multiple countries which would be the case where there was an ‘all employee’ globally remote working policy. As part of any compliance review in such cases, advice will be required in the UK and the overseas location, including the points mentioned above and also ensuring that the approach does not risk claims for discrimination, for example
When pursuing any option, it is important that employers consider:
- Developing a clearly defined policy and process for globally remote workers that is pre-reviewed by specialists in immigration, employment law and tax. This will help highlight any potential issues early on and/or any areas which may require further specialist advice from overseas advisors. It will also help set a clear framework for employees, reducing the risk that employees trigger non-UK compliance issues.
- Putting in place an agreement with each globally remote worker which sets out the parameters of globally remote work in each case and also the employee’s responsibilities (i.e. such as tracking their days overseas and reporting this back to HR or dealing with any personal tax matters arising from working remotely).
- Tracking employees so that the employer knows where they are at all times. This can help identify any potential risk areas and ensure that the employer maintains control over their globally remote workforce.
- Monitoring and reviewing the position periodically. Legislation and rules overseas change constantly and so it is important that the overall compliance position is re-visited regularly to ensure that the approach is still fit for purpose and/or to identify any new potential compliance issues.To conclude, it is clear that globally remote work is here to stay. Whilst the compliance obligations are very real, they are manageable with the right approach and advice. Over time, as organisations become familiar with the issue and how they should be managed, the process will no doubt become easier. Furthermore, it is likely that in future we will see greater co-ordination across countries with regard to the taxation of globally remote workers.In August 2022, it was announced that the EU and the OECD “are discussing possible changes to international tax rules for teleworkers, building on the recent cooperation seen between EU member states on the taxation of such workers in response to the COVID-19 pandemic”. The UK Office of Tax Simplification also launched a consultation in the same month on globally remote work and remote working generally. Over time, as tax systems globally catch up with the new employment landscape and employers become more experienced in this area, the management of globally remote workers should become less confusing and arduous. However, in the meantime, there are unfortunately no ‘silver bullets’ or solutions that can circumvent the need to consider the compliance obligations.
This article is for general information purposes only and does not constitute legal or professional advice. It should not be used as a substitute for legal advice relating to your particular circumstances. Please note that the law may have changed since the date of this article.