When huge numbers of people were forced into remote working following the onset of the COVID-19 pandemic in early 2020, many expected it to last for just a few weeks. Over a year later, it now looks like for many remote working is here to stay, at least for the foreseeable future.
More Countries Regulate Remote Working
We have been seeing a trend of more and more countries regulating remote working, even outside the context of the global pandemic. As a result, employers not only had to implement remote working policies on the fly in response to the pandemic, but also had to keep track of local regulations that either went into effect during the pandemic or are on the horizon. Common legal obligations include those relating to health and safety (e.g. requirements to provide home working equipment or undertake risk assessments) and contributions towards utility expenses increased by home working, which have been introduced in jurisdictions including Mexico and Spain.
Some countries, such as Russia, have increasingly regulated working time rules in the home environment, whilst in others, including Spain, Serbia, and Romania, employers must introduce contractual amendments to legally implement home working. Finally, home working policies, which include obligations such as confidentiality/data privacy, have become increasingly common (e.g. they are strongly recommended in Germany and Norway).
It Matters Where Your Employees Are: Cross-Border Considerations
In addition to remote working in-country, many employers are fielding requests from employees to relocate to a different country and continue working remotely. Or, worse yet, employees are just relocating to a new country without notifying their employers.
Employers that are managing such requests from employees seeking to start, or continue, working remotely from another country, or discover that their employees have done so without their knowledge, should fully understand the potential risks and issues that are likely to arise before agreeing to such arrangements or allowing them to continue. These include:
- Permanent establishment risk: if an employee is working in a jurisdiction in which their employer does not have local operations, the employee's presence could constitute a local taxable presence/permanent establishment, thus triggering local corporate taxation obligations. Employers must consider the duration of the arrangement, the employee's seniority and the nature of their role (e.g. sales activities and contracting on behalf of the employer are riskier than non-sales activities). Moreover, in some jurisdictions, such as in Singapore, if a company is deemed to be engaged 'in business' locally, it may be required to set up a corporate presence.
- Corporate/regulatory requirements: for employees in regulated sectors, such as financial services, an employer must consider whether it needs to obtain any regulatory approvals or formally notify a regulator in order to enable the employee to lawfully perform his/her/their duties overseas.
- Right to work documentation: employees must have the legal right to live and work in the other jurisdiction. For example, UK employers should assess the legal basis for any employees continuing to work in EU member states post-Brexit. Generally, employers and employees risk fines or even expulsion from the other jurisdiction if the employee lacks the correct right to work documentation (e.g. business and tourist visas are unlikely suitable for long term working overseas).
- Income tax and social security/insurance: employers should continue withholding income tax and social contributions in the employee's original country of employment. However, there may be obligations to make remittances in the new jurisdiction as well, and this may require the employer to register in the new jurisdiction or engage a third party to assist with the remittances. Double taxation treaties can prevent an employee located in another country from being subject to local taxation, but not forever and not in all jurisdictions. Similar social security/insurance treaties may also apply.
- Labor law application: even when an employment contract states the law it is governed by, an employee working in a different country may be covered by the local employment laws, including those on working time, leave, minimum salaries, and termination of employment. This means an employee may have greater entitlements or protections simply by working remotely from a new country.
- Data protection: employers must consider what obligations may be triggered as a result of data transfers between their jurisdiction and the one an employee relocates to. For example, the EU's GDPR places onerous restrictions on transfers to non-EEA jurisdictions, in which case an employer may have to apply additional safeguards to avoid incurring penalties as a result of data being transferred to an employee outside of the EEA.
Many of the above-mentioned risks associated with cross-border remote working are fact specific, with the level of associated risk dependent on the time an employee spends abroad and whether/why an employee actively chooses to relocate, amongst other factors. If an employer's response to a request to work remotely abroad is anything other than a straight "No", employment, tax, and immigration advice should be sought on each specific request
Clearly, if their employees are working at home or away, employers must remain mindful of the different pitfalls and obstacles that line the road towards any remote-working-paradise. So, at 10pm you don't need to know where your employees are but you should know what country they are in.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.