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The Tax Considerations of Allowing Team Members to Work Overseas

 

Sean Piggott of Icon Accounting joins Vantage to take a look at the considerations for employers when their staff choose to work remotely outside Ireland.

Over the past year and a half, many of us have become accustomed to the advantages of the ‘remote work’ model like skipping the traffic while working from home; others have gone further, opting to work remotely from a foreign country for a variety of reasons, none more popular than improved climate.

As covered in a recent Vantage Resources blog, multinationals like Facebook have already said that employees of its Irish operation are allowed to work from other countries. For organisations that haven’t decided on a policy, it is worthwhile considering the impact that this decision can have, both in terms of operating effectively and equally importantly, remaining tax compliant.

Most countries have their own tax rules, which makes it increasingly important that every organisation has full visibility of where their employees are physically carrying out their work. Furthermore, the employer needs to have a comprehensive understanding of the tax rules surrounding each employee working overseas or in a different tax jurisdiction.

 

To provide as much context as possible, we have prepared a checklist that will help you in completing an audit on your remote employees. Once you know where they are working, you can then use it to ensure compliance.

Local employment laws and visas

Firstly, check on the local employment laws and the requirement for visas if any. Many countries will not require either the employer or the employee to register for taxes, depending on the length of stay. In contrast, other countries will require the employee and the employer to pay taxes from the first day of work carried out in that country.

If you reach out to a local tax advisor in the relevant country, they will advise on the potential liability there, if any. This will take account of the individual circumstances including but not limited to the length of stay and country of residence. This could mean the employee will need to register for local taxes and pay an additional percentage of tax in the country they are operating from. Moreover, the company may also need to register for the relevant employment taxes in that country.

There is also a minor risk that employees may be subject to mandatory local employment laws that the employer is not legally familiar with. This may lead to an ongoing surplus expense for the business as additional levies and reporting requirements increase.

Time zones

The impact that working from a different time zone has on an overall organisation is often overlooked in the ‘remote-working’ conversation between employer and employee. This decision may not just have an impact on one team member’s productivity, but may have an adverse effect on the remaining team members who collaborate or contribute with their work. Will it affect clients and the level of service they currently receive?

Many studies have shown that working remotely often leads to increased productivity, but this may be one person working more efficiently at the expense of other team members.

Company culture

Even though many studies show remote working can increase employee engagement, it is yet to be seen whether such policies will have long-term impacts on the company culture that has been integral to the organisation’s success to date.

It is much harder for employees to build rapport online, not to mention the loss of organic collaboration between staff and socialising outside of working hours. There are new ways for employers to build rapport and company culture within employees that are working remotely, but this also comes at an increased cost to the organisation.

 

Healthcare, pension and benefits package

Another aspect of the employment that should also receive careful consideration is the benefits package, healthcare and pension. If the employee wants to continue to work remotely, will this have an impact on the remuneration associated with the role? Does the employer’s preferred healthcare provider cover that country? Can the pension contributions be made through a payroll provider, or will the company need to identify new partners that offer a similar service?


There have also been many examples from New York, London and Dublin, where companies adjust the remuneration package they offer depending on where the employee is working from, and the cost of living in that specific area. For example, a multinational company may offer a higher salary to an employee living in New York than to someone carrying out the same role in Texas.

 

Potential security risks

Another trend in the last year and a half is the growing number of phishing, scamming and cyber attacks that are ongoing throughout the world. Scammers are fully aware that as staff from large organisations work remotely, they are very unlikely to be protected by the same level of cybersecurity that they are accustomed to while working in the office.

When employees use their own equipment, particularly in a non-secure environment such as at home, they are far more vulnerable to cyberattacks, potentially compromising data security. Adding additional layers of security through training, processes and software is essential to any organisation offering remote working, whether short-term or long-term.

Once you have determined the current location of each employee and their length of stay, it is vitally important that you discuss their plans and the organisations’ plans with them. Having the remote working policy updated and available to all employees is essential.

If the organisation plans to offer remote working as an option going forward, it needs to consider the impact that this decision will have on interviewing, onboarding, training and development, equipment, and even team morale.

 

The contracting option

In cases where an employee does not want to return to the traditional workplace after time spent working remotely, and if the added cost of employing this individual remotely becomes problematic, it may be worthwhile for both parties to consider engaging in a contractor/independent professional fashion rather than terminating the employment or losing the talent.
 

Offering a ‘contract for services’ rather than a ‘contract of employment’ can allow the organisation to retain their best talent whilst distancing themselves from any local tax rules or regulations that employing the person would have triggered.

It would be unfair and unprofessional to make a general recommendation without considering individual scenarios or circumstances, but one recommendation remains consistent regardless of the size of your organisation: you must ensure that you are auditing your employees that are working remotely so you that you truly know where they are working from.

Separate to this, you should also ensure the remote working policy is visible for all employees to see from the day they join the company and is agreed upon using appropriate contractual documentation. This will help to minimise if not entirely prevent future liabilities.

If you have any questions on how contracting as an independent professional may benefit your organisation or your employee, please don’t hesitate to contact Icon Accounting on 01-8077106 or info@iconaccounting.ie or vantage@vantage.ie.

 

 

 

 

 

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