Before 2020, only a small sector of digital nomads and freelancers enjoyed a “work from anywhere” lifestyle. Many of us could only dream of packing up and relocating—to a tropical locale, the remote backwoods or even just a city with a lower cost of living.
Boy, how the tables have turned. Many people now expect the freedom to
choose where they live and work.
We’re at a point where companies are starting to see the implications of
inflexible, on-location mandates. There are plenty of jobs available— yet
many employers are having trouble filling them. Service industries with frequent in-person contact
and physical jobs like warehousing and production are steadily becoming harder
to fill because of safety concerns among employees, as well as their desire
for freedom in where (and when) they work.
For jobs that can be done remotely, you’ll have much better luck attracting
the best talent if you’re willing to hire remote employees in a work from
anywhere arrangement.
But do you know how to run payroll for a remote workforce? Take stock of both
the best practices and the risks, then find a permanent solution.
What to consider when paying remote workers
Since remote workers are now a reality, what does this mean for payroll,
especially when these arrangements cross borders? Global teams may already be
familiar with operating in their home and host countries, but can their remote
workers truly work anywhere—including yet more countries?
Possibly, but it gets complicated. Payroll should build a strategy-based
policy around these common challenges:
- Taxes
- Withholdings
- Currencies
- Pay frequency
When your company is in one location, and your employees travel to that
location to perform work, figuring out what entities to pay taxes to is
relatively straightforward. However, when your employees disperse around the
globe to work remotely, payroll becomes a lot less clear.
Does your company have to pay taxes for operating in each of these new
locations?
The rise of remote work has many ears burning with this hot-button debate. At
a minimum, your employee may need to pay state or local taxes based on their
location (not yours), which means your company will have to withhold those
taxes.
Best practices for paying remote employees
If you want to embrace remote working for eligible team members, there are a
few ways you can ensure success—namely, choosing the right employment status
for workers (especially international workers) and outsourcing payroll.
Full-time vs. independent contractor—choose the right employment status
Hiring remote employees as contractors seems like an easy solution. It moves
the tax liability from the company to the individual, and in some situations,
it can work. However, this trick is a big red flag for tax fraud, so you need
to make sure international contractors really are contractors —and don’t fit any definition of an employee by local regulators.
Tax authorities may want to look at how you control your contractors’
schedule, provide training and evaluate their performance to determine their
legal employment status. If your tax authority doesn’t agree with your
classification, expect to pay big fines and back taxes when it comes time to
file.
Keep in mind too, the contractors themselves often initiate a dispute about
their employment status so they can receive back pay from their employer.
Consider outsourcing payroll
One way to simplify paying your remote full-time employees and 1099
contractors is to outsource international payroll .
Paying remote employees around the world can be an administrative burden,
especially for young companies. You’ll need ongoing support to navigate
multiple time zones, languages, currencies and regulations.
An experienced outsourcing partner can help you stay on top of payroll processing around the
world while upholding compliance with foreign governments. Many fast-
growing companies rely on the expertise of a global employer of record, like GEO, to
support HR and payroll for remote employees that reside in foreign countries.
This partnership not only facilitates compliant payroll for remote workers, it
also allows any size company to fully support “work from anywhere” without the
complexity or expense of traditional global expansion.
Potential risks in payroll for remote workers
Even if you can hammer out the logistics of allowing employees to work
remotely, there are still some unique risks to manage. The bottom line comes
down to deciding where to make your compromise. Are you willing to invest more
in addressing regulatory compliance needs to support remote work?
Timekeeping and payroll fraud
Most employees reward you for letting them work remotely. You’ll probably benefit from happier employees and increased productivity.
But a big risk for some employers is limited control over how employees track
and report hours worked. These employers may find it difficult to ensure
everyone is staying on task if they can’t physically see them in the office.
A few ways to protect your company from timekeeping and payroll fraud
include:
- Limit remote working opportunities to established employees.
- Employ the use of software to track remote workers’ productivity.
- Add a remote working addendum of conduct guidelines to your employee handbook.
- Ask management to routinely check in with remote employees.
- Offer flexible hours for remote workers to discourage time theft.
- Have employees sign a timekeeping fraud policy that clearly defines fraudulent activities and consequences.
Changes in tax structure and compliance
Allowing employees to work from any location means your company will likely
have to pay taxes to new governments.
Make sure you are clear about how different governments define tax liability
and that you are taking a proactive approach to meet any potential
obligations. Tax obligations may be limited only to the employee who is
working in the jurisdiction—or it may extend to the employer who is
potentially conducting business in that jurisdiction (that could get big,
fast).
It’s time for a sound remote payroll solution
There is no way around it—the remote work trend is here to stay. People are
more empowered to demand flexibility in both when and where
they work. And this means attracting and retaining top talent will depend on
the business’s ability to accommodate this flexibility.
We are past the point where payroll departments are patching things along
until the staff returns to the office. It’s time to make a plan that addresses
the legal structure of paying remote employees in whatever country they choose
to work—whether that’s Canada, Cameroon or Cambodia.
Learn more about different service options for international payroll, so you can establish a successful strategy for running payroll for remote workers around the world.
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