Flexibility is increasingly recognized as a coveted perk among workers, with two-thirds saying that they would be prepared to take a pay cut for greater work flexibility.
Enhanced flexibility at work not only benefits workers but also offers tangible advantages to hiring companies, including enhanced productivity, improved talent acquisition, and higher retention rates.
However, the rise in flexibility, particularly through work from anywhere (WFA) schemes, introduces a heightened risk of non-compliance, a challenge often overlooked in discussions.
Despite the rapid adoption of WFA programs by leading companies like Airbnb, Pinterest, and many others, the conversation around risk and compliance has been notably absent, yet it remains a critical component for the successful implementation of such programs.
So, how do you allow flexibility compliantly?
Below, we explore how companies can strike the right balance between flexibility and compliance so that they can enjoy the benefits of WFA schemes without compromising regulatory adherence.
Compliance considerations with WFA schemes
When implementing a WFA scheme, it’s crucial to consider four main compliance aspects:
- Visa and immigration laws, specifically their provisions for work or remote work in the intended country
- Potential personal tax implications for the worker
- Potential corporate tax and social security obligations for the company
- Permanent establishment
Let’s dig into each of these considerations below…
Visa and Immigration laws
Certain countries, like Canada, permit foreign workers to do productive work remotely while on a visitor visa. However, some nations require workers to hold work permits or nomad visas for such activities.
Generally, countries establish specific criteria defining lawful activities and the scope of work-related activities permissible within their borders under different visa categories.
Personal tax implications for workers
A worker’s tax obligations primarily hinge on their tax residency status, which is determined through a variety of factors such as the physical location where the work is performed, their center of household, and sometimes also their visa status.
Being a tax resident means that the individual is recognized as a resident for taxation purposes and is required to fulfill tax obligations in that jurisdiction. The specifics of tax liabilities can vary significantly across different countries, with some applying taxes from the very first day of arrival, whereas others may establish a threshold of up to 183 days.
Example: in the UK, an individual who spends over 183 days in a tax year and has their only home in the UK for at least 91 consecutive days—30 of which are within the tax year—is likely to be considered a resident under the automatic UK tests.
However, the determination of tax residency transcends mere physical presence; it also takes into account the individual’s center of vital interests. A person might still be deemed a tax resident of their home country if they meet certain conditions, such as maintaining family connections, owning property, having a permanent home at their disposal, and engaging in significant economic activities there.
Additionally, the nature of an individual’s work and the type of visa they hold can affect their residency status. Some visas may automatically bestow tax residency upon the holder in the host country.
FYI: US citizens are subject to a global tax obligation, regardless of their place of residence. However, they can utilize foreign tax credits or bona fide tax status.
Countries like France, Singapore, and Brazil have instituted an exit tax for individuals who choose to renounce or move their tax residency in favor of moving abroad permanently.
Corporate tax implications for companies
Tax and social security obligations can vary significantly between individuals and corporations, influenced by various factors, including the size of the business, its industry, and its market presence.
For instance, an individual living and working in the UK might find that their business activities trigger a corporate tax liability before any personal tax obligations arise. This scenario could unfold if local tax authorities determine that the company has established a permanent establishment (PE) in the country. In such cases, the income attributed to the PE would be subject to the country’s corporate income tax regulations.
Learn how to write a winning global mobility strategy. Get a free guide.
Who is responsible for ensuring WFA compliance?
In WFA schemes, the responsibility for compliance is a shared duty between the hiring company and the worker. It is crucial for both parties to comply with local and international laws and regulations to avoid legal complications.
Given that companies face the most significant reputational and financial risks if local authorities uncover issues such as permanent establishment or tax evasion, it is imperative they take a proactive approach. Companies can safeguard themselves against potential legal issues by implementing appropriate policies and practices.
Worker classification also plays a role in responsibility
The classification of workers also plays a vital role in determining responsibility. Independent contractors who are self-employed bear the responsibility for their own tax obligations, including income and self-employment taxes. They also enjoy greater flexibility in their work arrangements, such as choosing their work location, schedule, and methodology. Consequently, companies assume less responsibility and risk for contractors under WFA schemes. However, the contracting model does not apply to all roles.
Adopting the contractor model for business relationships can simplify compliance administration for both the company and the contractor. Contractors are tasked with managing their tax obligations across all relevant jurisdictions and have the autonomy to organize their work schedule, allowing for travel and flexibility. This arrangement can benefit both the company and the contractor by minimizing compliance burdens and enhancing work-life balance.
See also: How to Balance Flexibility and Stability in Global Workforce Planning
Compliance best practices
It’s important to note that any WFA arrangements must be compliant and aligned with the company’s long-term plans while affording workers flexibility. Most companies embracing WFA schemes create policies that allow their workers to work from abroad anywhere between 30 to 90 days per tax year for short-term engagements. However, some companies are more flexible for certain locations if they have a legal entity in that jurisdiction.
In addition, things can get more complex when workers make requests beyond your policy’s terms. How open you are to these requests is up to you. Still, it’s a good idea to show some level of understanding and discretion on a case-by-case basis to support talent with
relocation requests.
Let’s look at some exceptional scenarios:
Scenario 1: An employee wants to work from abroad for more than 45 business days
If an employee wants to work from abroad for more than 45 business days (70 calendar days) and is eligible for work authorization in their destination country, your company could hire them in that country, update their work contract, and resume tax and social contributions there.
See also: 8 Steps to Handle Employee Relocation Requests for Enterprises
Scenario 2: The worker wants to embrace a nomadic lifestyle
If a worker wants to live a nomadic lifestyle, the best route is to do a comprehensive assessment of working models. You can continue to hire them from their home location and allow work from abroad via a digital nomad visa, or you could consider a contractor engagement if their roles allow for it. Digital nomad visas do not normally support local employment and are meant for workers to be employed in their long-term home locations.
See also: How Digital Nomads Can Contribute To Enterprise Growth
Free resource: Free Digital Nomad Policy Template
Creating a WFA policy
A WFA policy is essential for companies looking to embrace a WFA scheme. It helps to establish clear expectations and guidelines for both the worker and the company to avoid any compliance risk and ensure the scheme receives a good uptake.
Your WFA policy should include:
- The definition of work from anywhere/work from abroad
- Who the policy applies to
- Rules around remote working abroad
- The policy’s impact on compensation and benefits
- Remote work best practices
- Equipment best practices
- Country risk matrix appropriate for your organization
We recommend combining your WFA and remote working policies since the two must co-exist.
💡 Get your free WFA policy template in our Guide to Work From Anywhere Schemes.
Getting compliance support
Not all companies have the resources to manage a WFA strategy or feel comfortable absorbing the associated risks of non-compliance. That’s where Deel Immigration comes in.
Deel’s in-house immigration experts become an extension of your team, assessing visa eligibility, providing visa sponsorship, and handling the entire visa process from start to finish, enabling your workforce to operate from 30+ countries—and counting.
Deel is the only provider that combines immigration, HR, and payroll in one system so you can get a clear view of your entire organization. Explore our immigration services here.
Get more expert insights at the Running Remote Work Conference
On Wednesday, 24 April, 11:30 a.m. - 12:30 p.m. GMT +, Masha Sutherlin, Deel’s Director of Mobility and Corporate Legal, will join a panel discussion on balancing work culture, global mobility, and legal responsibility.
Masha and Co will delve into navigating the complexities of what it means to provide work flexibility at scale, addressing topics like tracking employee locations, considering and handling political ramifications, and balancing legal responsibilities while fostering an empowered company culture.
We’ll share all the highlights from the discussion on the Deel blog soon after the event. Keep your eyes peeled.
