International Remote Work in the Age of Digital Nomads
As the world has dramatically changed since the onset of the COVID-19, a global trend for remote work has accelerated rapidly. Developments on this front have also been impacted by changes in many countries’ immigration trends. As a consequence, employees aren’t the only ones interested in remote work. Employers are also seeking to have employees work remotely when their immigration status becomes either jeopardized or changes dramatically. In particular, in the U.S., the loss of temporary visas and work permits has led to the utilization of employees working remotely in other countries after returning home in the absence of a visa renewal.
Unfortunately, the law has not kept up with the times and, as a result, employees working from home in another country can create significant challenges for employers and sometimes make the arrangements impractical. Conceptually, one must understand that an employee’s citizenship, employer citizenship and location of payroll are not necessarily determinative of how one must approach an international remote work arrangement. As a general concept, the law of the jurisdiction where the employee is working will apply to the employment relationship. This will impact the application of the law in a number of areas including employment terms, compensation and benefits tax, immigration and workplace safety.
Since the law of the jurisdiction where the employee is actually working will usually apply, employers with employees working in another country must carefully consider the requirements for employment relationships in that jurisdiction. The U.S. is one of the only countries around the world, for example, recognizes the concept of “employment at will.” Employment relationships are contractual and the required agreement between the employer and the employee must include many terms that are dictated by local rules and legislation. These rules include terms related to notice periods for termination, vacation and holidays, working conditions, and working hours, among many other standards. U.S. employers often overlook these requirements, which could lead to meaningful compliance issues with respect to an international employee.
Participation in U.S. benefit plans may create additional issues for an employer. Some plans do not allow international employees to participate. In addition, some “tax free” benefits under U.S. law may, in fact, be taxable in the jurisdiction where the employee is working. Care should be taken to review the impact of international remote work against the provisions of applicable employee welfare and retirement plans.
Also of significance are the tax consequences of having an employee in international jurisdictions. Even when an employee is working for a U.S. employer, the location of the employee dictates local tax rules since the services are being provided in that jurisdiction. Additionally, contributions for social security and other obligations may be necessary on top of the withholding of applicable taxes.
Another more critical analysis that must be undertaken is to determine whether having an employee working in a foreign jurisdiction would create a permanent tax establishment for the employer. If the employer is established in the jurisdiction where the employee is working, it may also have certain income tax reporting obligations as well as the financial obligations to pay taxes on income sourced to the work in that country. Employers should be sure to consult with an accountant knowledgeable in the applicable jurisdictions.
Immigration rules may also be of concern. While many international remote work situations involve a citizen of another country returning to family in that jurisdiction, there are many examples where employees choose to relocate out of a desire for a change of surroundings or just the adventure of living abroad. In all cases, employers must ensure that the employee has the right visa to work in the country in question. Most tourist visas do not permit work, even work for U.S.-based employers.
When employees work from home, their home becomes their office and therefore, in many cases, the employer’s office too. In some jurisdictions, employers may be obligated to ensure that the place of work is safe, properly equipped and insured.
The trend for remote work, including working internationally, has accelerated faster than the pace of developing law. Pressure from employees to have flexibility in choosing a desired location from where to work is increasing, and employers should make sure they review the various issues highlighted here as well as considering other implications for the new relationship. Fisher Phillips is always here to help and employers needing clarification on the above or any other international employment issues can contact William Wright at wwright@fisherphillips.com or 610.230.2137.
