Employee Flexibility in a Remote-First World
Prior to the global pandemic, the majority of employers were not supportive of remote work and the idea of being a digital nomad was a far-away dream for most workers. Now, the majority of workers are working from home, many of which do not ever want to go back to their old ways of working. Workers are looking to their employer for flexibility and guidance as they think about how to redesign their life in a post-COVID world. Companies are doing their best to support their employees’ requests to design their best remote life.
Many workers have chosen to temporarily or permanently relocate as COVID has made living in the urban metro cities more challenging and less appealing. Companies are also re-evaluating their talent strategy and considering hiring outside of the headquarter cities. This gives them broader access to great, diverse talent and serves as a way to attract and retain their employees.
Companies want to offer flexibility and broaden where they can hire talent, but there are realities both employees and employers must face when thinking about establishing policies for employment flexibility. The major issue that comes up and stops companies from taking this step is how they will pay remote workers and tackle taxes across state and country borders.
Companies are looking for ways to balance innovative ways of working with the administration and compliance risk surrounding employee moves. Employers want to offer flexibility, but it’s also their responsibility to cover payroll withholdings, filings, and various taxes (such as income, unemployment, and worker’s compensation) with respect to state or federal agencies.
As companies consider their short-term and long-term remote work policies, it has raised many questions:
What happens when an employee requests to move to a new state?
The main principle to understand is that workers pay taxes in the state where they live and work. So, if your company is based in San Francisco, but you employ a remote employee who lives in Dallas, you (as the employer) need to register with the relevant tax authorities and deposit taxes in Texas. You may also be required to register for worker’s compensation and sales tax nexus, in some cases.
Payroll companies can handle much of this for you — that’s why it’s a good idea to use one and make sure you have all of your bases covered. Employing contractors makes things a bit easier, but even if your company isn’t responsible for withholding taxes, there’s still some paperwork involved, for example issuing 1099 forms for your contractors. Depending on your compensation philosophy and how you are setting your compensation ranges across geographies, a move like this could trigger a compensation review since the cost of labor is typically less in Dallas than it is in San Francisco. You should establish policies so employees understand how an employee’s personal move could impact their pay.
What happens when an employee requests to move to a new country?
Hiring full-time workers in another country creates a whole new set of challenges.
When evaluating whether an employee will be allowed to relocate to a new country, a company should consider the costs, liabilities and visa requirements (work authorization) required by that local country to support the request.
Historically, companies would have to open a local entity or branch and comply with all local laws regarding employment—such as minimum pay, overtime, benefits (health insurance, paid leave, etc.). There are now flexible, and cost-effective alternative solutions for companies looking to hire abroad, such as using a third-party global employer of record, often referred to as an “EOR”, or hiring independent contractors.
Some companies that operate with global teams choose to hire their remote workers as contractors, especially if they have a higher risk tolerance and don’t have the money or resources to support a formal setup in each new country. That means the employees have to register as self-employed or freelancers in their home country and pay income tax and any other work-related taxes on their own. This is a low friction, low-cost way to allow worker flexibility but comes with some added risk of potential misclassification if the job duties they are performing could be proven to be those of a full-time employee.
Whether employing their global worker as an employee or contractor, there are likely impacts to their employment contract, compensation & benefits related to this move. If transitioning from employment to an independent contract, employment will need to be terminated in their old country and new paperwork drafted for their new relationship as an independent contractor. Similar to the state-to-state moves mentioned above, moving countries will likely impact compensation, depending on your compensation philosophy, and the benefits they are eligible for.
What happens when an employee requests to work temporarily from a new state or country?
One of the amazing perks of working for a remote friendly company is the flexibility to work in other places. The above guidance should not impact a worker’s ability to work from other cities and countries on a temporary basis, assuming they have the legal right to do so. Every company should consider what policy is right for them, but a general best practice is that employees should feel free to work from anywhere up to 30 days in a calendar year, provided that they are responsible for ensuring their stay complies with any local laws.
Some cities and countries who have suffered financially from a lack of tourism due to the pandemic have created programs to encourage remote workers to live and work abroad from their country. They are establishing “Digital Nomad Visas” to attract remote workers and remove the restrictions that previously existed to freely live and work from wherever they want.
For example, Estonia has launched a new digital nomad visa that will allow foreigners to live in their country for a year. The project is focused on freelancers and other self-employed foreigners who can work remotely while having the peace of mind that they can work there legally.
Another example is the country of Barbados where they have established a “Barbados Welcome Stamp”, which allows remote workers to live and work from their country for a year or more.
Some companies may choose to allow more remote work flexibility beyond the 30-day guideline to provide some much-needed relief to their employees having been stuck in their homes for many months due to the pandemic. No matter what your company policy is, you should encourage employees to work with their manager to ensure they are on the same page with regards to working hours expectations and time zone challenges.
Is supporting these moves worth it?
Don’t let the complexity of payroll and taxes stop you. Hiring in multiple states and countries can get complicated because of all the admin and legal considerations, but the competitive edge this provides to your talent strategy and the flexibility it brings to your employees outweighs these costs.
The best talent doesn’t all live in one place. Having the ability to hire and retain a globally remote team supports building a more diverse, inclusive workforce, and likely helps support your customers too.
Shelby consults with CEOs, People Leaders, and Venture Capital firms who believe people-first cultures empower successful companies.
She provides her clients with guidance in the areas of:
- Remote & distributed work expertise
- People leadership advisement
- People technology strategy
Learn more at shelbywolpaconsulting.com