Quarantines, workplace closures and lockdowns due to the COVID-19 pandemic led to a massive experiment in telecommuting. The pandemic forced organizations to work through technological and cultural challenges that previously were obstacles to remote working, at least for the jobs and industries that do not always require workers to be on-site.
During the height of the pandemic, when remote work became possible and even mandatory for many employees, a subclass of remote workers decided to take advantage of the situation and work remotely in another country. Initially, countries approached the issue informally or were lax about enforcing rules for these cross-border nomad employees. Later, many saw it as a way to bring income into their countries. Now that remote work has become business as usual, and we have returned to a world of more formal border controls, governments are legislating remote work arrangements within their countries and are increasingly focused on cross-border remote workers.
Employers who have not yet developed formal policies for this class of employees should undertake an audit of any existing arrangements with a focus on compliance and duty of care. Compliance issues from international telecommuting most often arise from the legislation of the host country where the employee intends to work remotely, and employers will need to do their due diligence to understand potential risks.
This article focuses on the impact of cross-border remote working on employee benefits and additional considerations, such as host country legislation, payroll, social security, and employment protections.
Duty of care
Some Human Resources departments are only now finding out that leadership or mid-level managers have authorized international remote work for any number of employees, consequently there was no review of the health and benefits implications. An employer in this situation should immediately check their benefit policy details to understand any underwriting assumptions, limits or exclusions related to the geographic location of covered employees. Employees themselves are unlikely to be aware of these and may not even raise the question until they experience an accident or illness. Some employers have taken the position that the obligation to secure appropriate coverage lies with employees who request to telecommute internationally for their own purposes. But whether an employer (supervisor or manager) has given explicit or tacit approval for an employee to work internationally, they have general duty of care and even a legal duty in some countries for risks associated with that working arrangement. Employee benefit and insurance solutions are available in the market, some offered at the employer level, and some offered at the individual level, but before employers roll out a global remote work benefit, it is crucial to have clear eligibility guidelines, governance, and appropriate coverage options to protect employees and limit liability.
Benefit programs for international teleworkers
Unlike expatriates who are covered under special benefit plans as part of their assignment, international teleworkers are often left on their home country benefits, which are unlikely to provide appropriate coverage in their host country.
They may not have a right to access local national health systems, and their home country public or private health insurance may not cover them internationally. If coverage does exist, it is likely on a reimbursement basis only and may require an employee—or a benevolent employer—to pay significant out-of-pocket upfront costs before treatment will be offered.
Likewise, many employer-sponsored life and disability policies require residency in the country in which they were issued, most often a minimum of six months of the year. Failure to observe these requirements can result in claims not being paid by an insurer who did not knowingly take on the risk of an employee living and working in another country. Some insurers may be willing to assume the risk of a limited number of remote international workers, but they will likely require details on the individuals, countries, and lengths of residency on an annual basis. Employers should be sure to have such agreements from the insurer in writing. Alternatively, an employer can take out specialized cross-border life and disability policies on behalf of these employees. Such policies tend to be more expensive and may require full underwriting but may be the only way to secure coverage. Both solutions present their own administration and cost considerations.
Host country legislation
Host country laws may require employers to enroll all employees, including international telecommuters, in local statutory plans that provide retirement, workers’ compensation, medical and risk benefits. Some countries (e.g., Germany, the UAE or Australia) also require individuals living and working in their country to have a private health insurance policy that meets minimum local requirements. A host country’s legislation that mandates employers to pay remote work-related expenses (electricity, internet, etc.) may also apply to cross-border telecommuters. Countries, such as Mexico and Costa Rica, require all employers to register their remote employees, including cross-border telecommuters, with a state authority (separate from immigration requirements).
When developing an overseas telecommuting policy and evaluating employee requests, employers will need to determine whether statutory benefits or allowances need to be provided to the employee in any given host country.
Business travel coverage
Employers relying on business travel accident (BTA) or business travel medical (BTM) policies to cover international remote workers need to be aware of policy terms and conditions.
- Covered travel is generally limited to six months (sometimes a year), at which point coverage ceases because the individual is no longer considered to be traveling, and the host location is deemed to be their new home location under the policy.
- Since remote teleworking trips are voluntary in nature rather than for a business need, they may not be covered at all unless the employer has purchased leisure travel cover.
- In cases where an employee has been sanctioned to work in a specific international location, that country could be deemed their usual place of work under policy terms, effectively voiding coverage available under a travel policy while they are in that country.
Furthermore, medical coverage provided by BTA and BTM policies is limited to urgent care and does not cover regular doctor visits or routine care for prevention or chronic conditions. As international remote work becomes more commonplace, travel insurers are looking at developing specialized cross-border telecommuter plans, but this initiative is still in its infancy.
Considerations beyond employee benefits
Cross-border telecommuting raises issues beyond securing appropriate employee benefits coverage. For each of the following items, employers should seek the advice of legal counsel competent in the international telecommuter’s host country to ensure compliance with local legislation.
Most countries require a foreign company to have a business registration through a local corporate branch or a subsidiary to employ in-country staff. An Employer of Record (EoR) arrangement could be used in some situations, but it would incur additional cost, is not legal in all jurisdictions, and does not eliminate permanent establishment risk. EoR arrangements make the most sense when hiring individuals as international remote workers rather than to manage the compliance risk of employees teleworking internationally for personal reasons. Employers should be aware that having employees in a country or even a single employee engaged in certain activities could constitute a fixed place of business or a dependent agent, thereby creating a permanent establishment with unintended corporate tax consequences.
Payroll laws may require employers to report and withhold payroll taxes on their employees’ wages, including social security, unemployment insurance, or other statutory contributions. The application of payroll laws in many countries is based on where the employee’s services are performed rather than the location of the employer.
Social security contributions
Most countries require an employee working and residing in their country to pay local social security contributions. While it may be possible to utilize a social security totalization agreement (if one exists between the home and host countries) to seek an exemption, these are not automatically granted and must be applied for. They also require active coverage in one of the reciprocal jurisdictions. Should an employee fail to properly manage social security obligations, there could be tax liabilities and penalties for the employer.
Local employment protections
In most countries worldwide, some overriding mandatory employment provisions will apply to all employees located in-country, regardless of the parties’ choice to submit the employment contract to the legislation of another country. Mandatory local employment protections include working hours, leave policies, health and safety laws, termination laws, etc. With few exceptions, any clause attempting to block the application of local employment protections will not be enforceable. Failure to comply with local employment law is usually subject to a fine (amounts vary by country).
International telecommuters who are not citizens of the host country where they are telecommuting should ensure they have legal immigration status. Performing regular work in a country while present on a tourist visa (or tourist visa waiver program) is almost always illegal. Although many countries such as Portugal, Spain, Italy, Croatia, Greece, Brazil, Costa Rica, among others, have adopted a Digital Nomad Visa. This visa offers international telecommuters the right to stay and work remotely for a foreign based employer for a period of 12 months or more. Countries that have adopted this type of visa usually don’t require international teleworkers to pay taxes or social security benefits, but costs and requirements vary from one country to another.
Personal income tax
In most countries, personal income tax must be filed and paid in the jurisdiction where an employee is resident six months or more, but that threshold can be as low as 30 days in some host countries when work is being performed. Personal income tax can also be affected by other factors. For instance, Australian citizens are subject to a Medicare Surcharge Levy of 1% to 1.5% of their income if they do not maintain local Australian medical insurance while working abroad. International remote workers should seek tax advice to avoid unintended tax consequences, including double taxation in both their home and host countries. Since international telecommuters are not on a formal expatriate assignment, employers are unlikely to have done proper due diligence on personal income tax considerations. Of even more concern for an employer are countries where it is an employer’s duty to collect and remit personal income tax to the local tax authority.
Employers should ensure safeguards are in place to guarantee compliance with local data protection laws, particularly where a teleworker may be storing or processing personally identifiable information.
Employers have a duty of care toward their employees whether they work onsite or remotely, and that duty takes on new complexity when an employee is working abroad. Tools and resources exist to facilitate productive and compliant international teleworking: cross-border benefit plans, short-term travel insurance, EoR arrangements, travel tracking technology, and a growing number of advisory firms with dedicated expertise.
When crafting an international remote work policy, employers would be wise to engage a broad range of internal stakeholders, including human resources, tax, finance, legal, and mobility. Considering the inherent compliance complexities, clear guidelines and approval processes are critical. Some employers will limit international teleworking arrangements to prescribed locations and circumstances where they have done the necessary due diligence. Others will likely prohibit international teleworking but for the most exceptional circumstances.
Employers who proactively address this increasingly prevalent practice will reap the greatest reward while minimizing risk for their people and their organization.