By Nicole SahinDecember 2020
Reading Time: 8 minutes
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Global remote work has arrived. The sudden work-from-home experiment due to 2020’s global pandemic had us working from our closets, our kitchens, and every spare corner of the house. Our team members relocated to all corners of the world – their parent’s house in the state next door, their favorite Airbnb in the rolling hills of Vermont, or heck, maybe they are logging into the team Zoom call from Cancun.
Until now, companies may have turned a blind eye – after all, we’re living through a pandemic. We’ve never faced anything like this in modern times.
But now, HR and compliance teams are looking ahead at 2021, and reality is setting in. Global remote work is here to stay, and we may be in the midst of one of the greatest human migrations of all time.
While adopting a remote-first mindset affects every aspect of an organization, it affects no role more profoundly than the HR professional. From a compliance, logistical, and operational perspective, what needs to change when everyone is everywhere?
Location, location, location
Whose responsibility is it to figure out how to employ someone who has relocated? Legally, the responsibility falls on the employer to make sure that you’re paying people according to the laws of the location in which they live.
It was probably okay to turn a blind eye in 2020, but governments everywhere know that tax dollars based on where you have employees is a primary revenue area for them. If you don’t know where your employees are, you’ll be expected to know – or you might just start getting tax assessments.
This might mean figuring out where your employees are logging in via VPN or IP address. Ultimately, it’s your responsibility as an employer to follow the law and you will need accurate location data on your employees to do so.
Though not the case in every state, country, and jurisdiction, the generally accepted rule of thumb is that if someone exceeds 180 days in a location, they live there and are legally required to pay taxes there. In some places this is 90 days or shorter.
Some states have laws around split residency – for example, employees who live in New Hampshire but work in a Boston office each day are taxed in Boston while having residency in their home state. This is generally no longer required when they work from home.
When you have team members who want to move to other jurisdictions, here are the questions you need to ask and answer before you proceed with implementing a global remote work policy:
Question #1: Does the employee have the legal right to live and work in that location?
If you have an American citizen from Boston who moved to Montana, the answer is yes.
If you have an Indian native who moved back home to be with their family, they probably have the legal right to work there by citizenship.
If you have an American employee who moved to Paris and does not have EU citizenship or the legal right to work there, you will face hurdles. We’ll revisit that later. In all cases, checking first for the legal right to work is critical.
Question #2: What’s the impact on the business?
Assuming the employee has the legal right to work in that location, the next step is figuring out how to pay them. You will need to make sure they are on a locally compliant employment contract, pay local benefits and taxes, and abide by local employment laws.
This is an example of where Globalization Partners can help. Our global Employer of Record (EOR) business model is to put your employee on our already-existing, locally compliant payroll. The employee legally works for us, providing services to you. It’s legally our employee, but they effectively work for you as they always have.
When considering your options in moving to a global remote work environment, this is an ideal solution for employees moving back to their home country or moving back to a state or country where you don’t have a registration. It makes it easy to retain them if they have the legal right to work there. We ensure all rights of employment are protected for both the employer and employee.
Your other option might sound simple – just register as an employer and put someone on your payroll in that state or country, right? Be careful to evaluate the implications. If you do this, you might inadvertently open up more complexity than intended.
For example, in some situations, if you have an employee locally, this translates to a corporate taxable presence in that country or state. This will mean the company now has to file a tax return in that location. For locations outside HQ country, this also can trigger the need to incorporate a company in the employee’s home country, open a local bank account, or do an annual audit.
If you already have a payroll registration in that location, this may be a non-issue, but if you’re just beginning to explore a new location where you don’t already have employees, determine whether you’re ready to take on the legal, tax, financial, and regulatory responsibilities that come with registering any type of employment entity. Is it worth it for just a handful, or maybe even just one employee?
If not, and you want a simple solution to make global remote work possible, use Globalization Partners. We lift the legal, tax and HR burdens from your shoulders to ours and solve this for you.
Question #3: What does it cost to let this employee keep their job, remote working from their new jurisdiction?
You will want to run the numbers. A U.S.-based employee typically costs an employer about 20-25 percent in social security and benefits on top of their payroll, if paid directly by HQ. It’s not much different state-to-state, but you might run up a significant corporate tax liability if you were to register a new payroll in a new state or country.
If the same employee took the same salary and moved to France, the social security and employer taxes on top of the same salary would increase to about 50 percent. In addition, the company would incur the cost of either setting up and running a local payroll and paying taxes in France, or the cost of using an Employer of Record like Globalization Partners.
However, employees in France are generally paid significantly less than their U.S. counterparts, partly because many costs of living are paid by the state via higher employer taxes. Each location is different, and so will present a different cost scenario.
If you need to compare costs, we are happy to help.
Question #4: The big one – should the company let the relocating employee keep their San Francisco salary, or re-assess for local compensation benchmarking?
This really depends on your business and the philosophy. If you have great talent moving to a lower-cost region, you might let them keep their same salary. What are the benefits of this?
- Job retention: you probably will keep this employee for a long time. Once a person with a San Francisco salary moves to Colorado (or India) they are going to have a hard time finding an employer to pay them that same salary once they have moved there.
- Build around them: you now have a loyal employee in a new and likely lower-cost area of the world. Perhaps they will build a team around them of people who can learn from the great talent you trained back at headquarters, pre-pandemic. It could be win-win for everyone.
The middle ground might be to let the employee keep most of their same salary, but discount it for the additional costs the company will incur to use an Employer of Record or set up an entity and pay taxes in that country. The company will also incur travel costs every time they travel to HQ, which some companies might consider (or you can just write this off, depending on the nature of the job).
Overall, assuming that even with those costs deducted, the employee will have higher than local benchmark salary, a win-win solution is likely to be negotiated. And who doesn’t like a win-win approach?
Alternately, you can take the Facebook approach, which is to re-benchmark the employees’ compensation for the local jurisdiction. Either way, it’s possible to quickly reach a fair and reasonable solution, and the route you take depends on your business’ philosophy, and your long term outlook on global remote work.
Question #5: What if an employee doesn’t have the legal right to work where they wish to relocate?
This is where things get tricky and nuanced, and really requires a bit of legwork on a case-by-case basis. If the employee doesn’t have the legal right to work wherever they are, and they’re working, you’re legally responsible for compliance with local tax, finance, and HR laws where they are located.
You can’t sign away this liability or have the employee sign a waiver. It really is “all you.” It’s also your responsibility to properly categorize them as an employee if they genuinely are; you can’t pay them as a contractor if they’re really an employee, or otherwise bypass your obligations.
The options vary significantly by country and range from them sponsoring their own visas to departing your company as an employee and incorporating an entity that you contract with.
For example, if the employee has moved to Japan and they want to incorporate a company in Japan, and you pay that entity directly, you may be avoiding direct responsibility. You’re no longer paying an individual, but rather, are paying a company, and that company can structure an agreement for services with you.
This type of relationship would typically be governed under corporate law in that country rather than employment law.
There are potential benefits to this type of arrangement, but you’re also likely to lose some control since you will no longer have a typical employer/employee relationship.
Questions about who owns your intellectual property, whether they have the legal right to work for other companies (including your competitors), and whether they focus full-time on your company will all come into play. There are also various obligations related to paying companies overseas. If you choose this route, it’s important to make sure the contract is structured properly and to consider your own protections. Make sure a competent advisor is involved so it’s done right.
What should you do if someone doesn’t have the legal right to work in a location, but insists on doing so anyway?
In my opinion as a CEO with expertise in this area, there are probably too many hurdles to overcome and too much liability to keep them on board. I would prefer to accept their resignation and part ways in most cases. There are a few reasons for this, and they all have to do with liability and risk, which falls on the employer rather than the employee:
- There are additional corporate taxes in the jurisdiction you will owe in the country where the employee works.
- Your employee is entitled to job protection, and local benefits, and if you’re not compliant with the law, they are missing out on this.
- Paying people illegally is never a smart way to run a business. Your intellectual property as the employer is unprotected when you’re not compliant with the law, and anything can go wrong, from an on-the-job injury to other HR issues. These issues are the same as in the U.S., but multiplied by complexities when you’re paying people under the table in different countries.
Find a compliant solution to power your company into the era of global remote work
Companies everywhere are facing the same challenges and asking the same questions. 2021 is the year to find a solution that can take your company into the new era of global remote work.
Beyond simply solving the immediate challenge of ensuring compliance for your existing workforce, wherever they may be located, talent relocation options and employee mobility capabilities could be a top employer benefit offering in the future.
Set your company apart. You can give your talented team the opportunity to work anywhere, and Globalization Partners can help.