Quarantines, workplace closures and lockdowns due to the COVID-19 pandemic led to a massive experiment in telecommuting. The pandemic forced employers and employees to break through previous technological and cultural 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, as remote work became possible and mandatory for a large number of employees, a subclass of remote workers decided to take advantage of the situation and work remotely in another country. Many countries approached the issue informally or were lax about enforcing rules for these cross-border nomad employees, either due to focus on the pandemic or as a means to bring income into their countries. As countries have returned to more formal border controls and are legislating remote work arrangements within their countries, additional focus is being placed on cross-border remote workers by governments.
Employers who have not yet begun to audit the arrangements of this class of employees should turn their focus to potential compliance and duty of care issues with these informal arrangements. Compliance issues from international telecommuting requests often do not arise from the employer’s home country’s laws but rather from the host country’s legislation where the employee intends to work remotely, and employers will need to do their due diligence to understand potential liabilities.
This article will focus on the impact and allowances of cross-border remote working on employee benefits while briefly mentioning the additional issues that also require consideration.
Benefits and allowances
Unlike expatriates who were hired by an employer to work in a foreign country, cross-border remote workers were hired to work either remotely or on-site in the employer’s home country and, for personal reasons, decided to work in a different country with or without the agreement of their employer during the pandemic. As a result, their home country benefits are not likely to provide coverage or adequate coverage.
Cross-border telecommuters may not be provided with specialized international benefits packages intended to cover cross-border risks of injury, illness or death. Employees working remotely outside of their home countries are likely to have minimal, if any, health insurance. 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 or upfront costs before treatment will be offered.
Likewise, many employer-sponsored life and disability policies have home country residency requirements, often times 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. It is possible, in many cases, to inform the insurer and let them agree to assume the risk but be certain to get it in writing. Alternatively, an employer can take out specialized cross-border life and disability policies on behalf of these employees. Such policies are not inexpensive and may require full underwriting. As a result, both solutions create an ongoing administrative burden and expense.
Business travel accident (BTA) or business travel medical (BTM)
Employers relying on BTA or BTM policies to cover employees may run up against limits on the duration of the trip before cover ceases generally after six months to a year. Since the purpose of the trip is voluntary, it may not be covered at all unless the employer has purchased leisure travel cover for this risk.
Additionally, if a cross-border employee is sanctioned to work in a specific location, that could be considered their usual place of work, effectively voiding any coverage available under a BTA or BTM policy. Furthermore, BTA and BTM policies are not intended to cover regular doctor visits such as those for wellness or related to chronic conditions. Carriers are looking at implementing specialized cross-border telecommuter coverage, but this initiative is still in its infancy.
Host country legislation
Host country laws may require employers to enroll all employees, including international telecommuters, in local statutory plans such as retirement, workers’ compensation or medical plans. Some countries, such as Germany, the UAE or Australia, also require individuals living and working in their country to have a health insurance policy that meets minimum local requirements. A host country’s remote working legislation may also apply to cross-border telecommuters which would mandate employers to pay remote work-related expenses including electricity, internet, etc. as required under that local legislation. Some 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 examining an overseas telecommuting request, employers will want to review the host country’s rules to determine whether statutory benefits or allowances need to be provided to the employee in the host country.
Before accepting telecommuting requests, employers will need to consider additional issues. For each of the following items, employers should seek the advice of legal counsel located 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 be allowed to employ in-country staff. Since this requirement differs by country, employers will need to seek the advice of local legal counsel to ensure compliance with local laws. Please note, this can be an issue for employers in a country where the mere presence of an employee in a country could create a permanent establishment with unintended corporate tax consequences such as the subjection of global income to local corporate tax.
Payroll laws require employers to report and withhold payroll taxes on their employees’ wages including social security contributions, unemployment insurance, etc. 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. Employers will need to seek the advice of a local legal counsel to ensure compliance with local laws.
Social security contributions
Most countries require an employee working and residing in their country to pay local social security contributions. While it is 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. Should an employee fail to do so, there are possible tax liabilities and penalties for the employer. Employers may need to investigate this issue before accepting international telecommuters’ requests.
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. Any clause attempting to block the application of local employment protections will not be enforceable (exceptions apply to China, Vietnam, Malaysia, Indonesia and some Arab countries). Failure to comply with local employment law is usually subject to a fine (amount varies by country).
Employers will need to investigate this issue to ensure compliance with local laws.
International telecommuters who are not citizens of the host country where they are telecommuting should ensure they have legal immigration status.
Personal income tax
In most countries, personal income tax must be filed and paid in the host country if the employee telecommutes in another country for an entire tax year. For instance, in Australia, citizens of Commonwealth countries are subject to the Medicare Surcharge Levy of 1 to 3% of their income if they do not have local medical insurance. International remote workers might need to seek tax advice to avoid double taxation in both their home and host countries. Since the international telecommuter is not on an expatriate assignment, employers do not have any involvement, and this is solely the employee’s responsibility.
The issue that should concern employers is that in some countries, it is the employer’s duty to collect and remit local personal tax to the local tax authority.
Employers should ensure required safeguards are in place to guarantee data protection compliance with local laws.
Employers may want to use technology to facilitate the processing of domestic and international remote work requests. In addition, technology may help employers track and monitor their employees’ locations to ensure full compliance. Because of the compliance complexity of international remote work, many employers may decide to limit or prohibit such arrangements.
Employers may also want to decide whether they want to apply a global pay rate by differentiating salary based on the location where the employee intends to work. Differentiating salary depending on locations in an international remote context may be more challenging as salary structures are too different in countries.
When crafting an international remote work policy, employers will be required to work with a broad range of experts including human resources, tax, finance, legal and mobility.