As the pandemic recedes in many places, some employers have announced plans to extend their work-from-home policies indefinitely.
Google, Microsoft, Amazon, Twitter and Facebook are among the growing list of major corporations to embrace the shift and acknowledge the benefits of remote work.
Not only is there evidence that employees prefer the flexibility of working from home, but there are also significant benefits for employers. According to a Global Workplace Analytics survey, businesses can save roughly $11,000 a year for each employee who works remotely just half of the time. The same study found that remote work programs created during the pandemic are collectively saving employers in the U.S. more than $30 billion a day. For the most part, these savings come from a reduction in real estate and energy costs.
In a recent statement, Facebook CEO Mark Zuckerberg said that half of the company’s employees could be working from home within the next five to 10 years. He also said the company will adjust salaries for those employees who decide to move to a different location, a decisive action that represents yet another opportunity to cut back costs and realize the strategic advantages of engaging a remote workforce. According to Zuckerberg, Facebook plans to “aggressively ramp up” the hiring of remote workers, which will help the company diversify its workforce and save even more money by seeking out talent that lives outside traditional tech hubs such as Silicon Valley and Boston, both of which have high costs of living and local salaries to match.
While the rise of remote work presents businesses with a significant opportunity to reduce costs, there are still several important decisions that need to be made before making the transition indefinitely. The remainder of this post will outline some of the most important considerations for businesses looking to make the long-term shift to a remote-work model.
Setting salaries for remote employees
When calculating salaries for remote workers there are a number of factors to consider, including: the type of work being conducted, where the company is based, where the employee is located, market trends and more. Location is typically a key element in this equation because the cost-of-living, tax requirements and employment laws may vary from place to place, both within the U.S. and internationally.
In addition to properly determining the salary ranges for remote workers, employers should establish a system that will allow them to accurately track and maintain records of their virtual employees’ locations. This will help them avoid possible noncompliance with local tax, HR, immigration and other regulations.
Triggering a corporate tax presence
Even a single employee working remotely in another country, state or municipality can be enough to trigger a taxable presence, or a permanent establishment (PE), in that jurisdiction. Activities that trigger a permanent establishment can range from sending employees abroad on business trips, to hiring contractors in another country, to signing sales contracts, to establishing a remote office and more. If a PE is triggered, there will likely be a requirement to report and pay corporate income taxes to authorities in that location. Failure to understand and follow permanent establishment laws in all jurisdictions of operation can lead to double taxation, financial penalties, reputational damage and more.
While hiring long-term workers as independent contractors can be an effective solution for scaling back costs, many governments are increasingly questioning the fair treatment of contractors versus employees and adjusting and enforcing employment laws accordingly. Local authorities typically look beyond the contractor agreement and use their own employment tests to determine a worker’s classification. If a contractor is deemed to be an employee, the company could be liable for back taxes, noncompliance penalties, backdated employee benefits and more.
Businesses that employ remote workers abroad should familiarize themselves with the country-specific procedures related to sponsoring a visa or other immigration documentation requirements. Two of the most common immigration violations include entering a country on the wrong visa and staying longer than a visa permits. This is often more of a concern for remote workers because their travel isn’t as closely monitored as that of their office-based counterparts. Employers that don’t comply with these types of requirements can face fines, reputational damage and, in extreme cases, criminal prosecution.
Payroll, worker compensation and benefits
The location of a company’s employees plays an important role in determining where the company will be subject to income tax reporting and other payment obligations, such as payroll taxes, wage withholding and unemployment insurance. It’s also important to remember that every jurisdiction has its own set of laws governing things like workers’ compensation coverage, overtime requirements, family leave, vacation time and medical accommodations. Businesses should invest in designing and setting up a proper payroll process for their remote workers to avoid related compliance, compensation and payroll management issues.
Data protection considerations
Employing a remote workforce comes with increased use of personal devices, insecure Wi-Fi connections, risky file-sharing practices and other actions that pose a potential threat to your company’s sensitive data. It also puts you at risk of failing to comply with data protection laws, which could lead to significant fines and reputational damage.
Unfortunately, extending data and information security protection to home offices presents a host of IT-related challenges, especially as online attacks on personal and corporate data continue to rise. Remote work poses other problems as well, such as: how an employer can compliantly monitor employee activities at home without breaching their privacy rights; how to ensure physical documents are properly stored and destroyed; how to continue working if the company’s VPN goes down; and more. These and related risks only increase when a business operates across borders and multiple data protection laws could apply.
Employers need to establish robust processes to protect corporate and employee data and ensure compliance with local data protection laws in every jurisdiction of operation. They should also provide data protection training to all employees and implement related policies and procedures to help them maintain good information security habits.
- Saul Howerton, Vice President, Advisory | Saul.Howerton[at]vistra.com
Compliments of Vistra – a member of the EACCNY.