As an employer, you’ve made the (smart) decision to offer flexibility in where your employees work. After all, remote workers report being 32% more satisfied with their careers—and when they’re happy, they’re more productive. They also contribute to employee retention.
But what if, as part of your flexible work policy, employees want to work really remote. As in, from another country.
It’s possible, but there are some important HR and payroll considerations to be aware of and plan for, because with digital nomads, the regular rules may not apply.
For example, if you’re in the United States, your company operates within predefined jurisdictions at the state and federal levels, making it simple to determine what entities you are obligated to pay taxes to. Similar structures are used in other countries. But what if your company is in one country and your employees are in another? Where and how to pay taxes can become, well, taxing.
Let’s dive into three areas to pay close attention to when allowing employees to work remotely from another country.
1. Visa requirements
Typically, when workers enter another country, they are required to obtain work visas sponsored by their employer. But this system was designed for employees immigrating to a country for the purpose of obtaining work.
The age of the digital nomad is a different story.
In most cases, these employees are working for a company based in their home country while enjoying the freedom to travel. Although work is an activity they will perform, their purpose in the country is recreational—and therefore commonly tied to a tourist visa.
There are some countries that allow workers to remain in their countries on tourist visas while simultaneously performing job duties for a foreign employer. For example, Antigua and Barbuda in the Caribbean have even created a special Nomad Digital Residence Program that caters to these types of employees with a special visa designation. But this isn’t common around the world, so if your employees are looking to visit multiple countries, it’s prudent to understand visa requirements in each locale they plan to visit to make sure sponsorship isn’t part of the deal.
2. Taxes
When a company begins conducting business in another country, they become subject to permanent establishment laws. This means they are liable to pay corporate taxes in that country. Because of the permanent establishment risk, many HR departments are wary of allowing employees to work in other countries.
But whether working remotely or at the office, if the activities of an employee remain strictly within the scope of conducting business in the home market, there is little risk that a single employee’s travel itinerary will force a company to have a corporate tax liability in another country.
However, some employee activity could put the company at risk, such as:
- Performing work for domestic subsidiaries or local employers
- Employing, soliciting or contracting workers from the local labor force
- Providing services or selling goods to the local market
So, for example, if you had an employee who works in sales and is encouraged to network with the locals. Or if a creative director who is accustomed to working with freelancers solicits help from local talent.
One solution is to get ahead of this trend and develop a Digital Nomad
Policy for your business. It should outline which work activities are acceptable across borders—and which aren’t. Additionally, it’s a good idea to get on the same page with employees on things like:
- Itineraries
- Limits for how long they can stay in a country
- Destinations forbidden because of their complex or risky tax rules
And what about payroll for remote workers? Workers who travel abroad are still subject to taxes from their home office. That is, unless a company already has operations in the intended country of travel and can offer a local contract and work visa. And it’s the burden of the employer to withhold these taxes through payroll deductions.
3. Worker classification
Considering the complexity of the tax situation, employers and remote employees alike might be tempted to convert the digital nomad to an independent contractor status. But that’s not always a great option.
For one, employees might want or need to keep their benefits (to cover the next root canal or, you know, save for retirement). Additionally, many employers may want to retain full-time employees to uphold their culture and maintain stability.
But perhaps the most important reason to think carefully about converting your traveling employees to contractors is the risk it carries for employee misclassification, especially if they’ll be working in countries where you may not be well-versed in the labor laws.
There are some general activities to keep in mind that can help you gauge whether your employee-turned-contractor is putting you at risk of noncompliance, such as:
- Getting paid for time worked rather than per project
- Using company tools or resources to complete a job
- Providing services only to your company and for an extended period
- Having day-to-day work managed by someone from your company
If one or more of these is applicable, chances are good that the local government may view your worker as an employee rather than a contractor.
The bottom line on employees working from another country
For many companies, there’s still a lot to learn about letting employees work remotely from another country. But the practice is here to stay, so it’s time to start understanding the HR implications. Working from anywhere will become even more commonplace as more employees ask for it, and as more companies realize the competitive advantage flexible work policies provide.
There are many situations where employees can travel freely using tourist visas while performing remote work—so long as the employee does not interact with the local workforce (let’s just hammer that one home once more).
But global companies that have operations in the country of travel should consult local laws based on individual circumstances. The same goes for employees who intend to stay in-country beyond a traditional 90-day tourist visa.
Looking to support digital nomads on your team? Learn how our employer of record services can help facilitate a flexible work policy in over 165 countries—compliantly—so you can offer employees the world without having to worry about HR and payroll compliance risks.
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