In many countries, employers have a legal obligation to provide a safe working environment for their employees. This is easier to control in their own premises, but it becomes more complex when employees are working remotely.
It is critical for companies with a global workforce to comply with labor laws and immigration requirements and continue to monitor these laws and adapt quickly to change.
The business must also have effective continuity and contingency plans if employees are unable to work in an emergency situation, as was evidenced in the early days of the pandemic. Considering employees working remotely or travelling extensively, businesses should have protocols in place to be able to locate their people at very short notice.
For businesses opening up their global workforce, allowing remote working and also acknowledging personal preferences – those that choose to work, or not to work from home, for instance – means that a bespoke approach could be a viable option.
Employers need to create solutions to address these different situations, so their workforce creates maximum value and they do not inadvertently exclude or discourage one talent pool in favor of another.
Challenges around taxation
Taxation across borders is complex and the rules differ – often significantly – from one jurisdiction to the next. In many countries, the taxation of employment income is the biggest share of revenues generated by governments.
As the workforce becomes more mobile or globally spread, so the challenge to ensure that tax liabilities are met becomes more complex.
The employer must pay the correct withholding tax in the right place. Employers are typically subject to taxes based on where their employees perform their work, while employees are often subject to tax where they reside. This could create tax obligations in two or more different places and payroll withholding obligations in the country where the employee resides.
Similarly, pension, healthcare and employee benefits often follow different treatments in different jurisdictions.
Tax treaties are designed to arbitrate where the rules conflict – but not all tax treaties are the same and are interpreted differently by different country tax authorities. The interpretation and application of the tax regulations requires expert knowledge and can cause timing issues with recovering payments.
For business travelers or employees who spend time in multiple countries, it is important to identify how many days an employee spends in each location, which may need to be reported through one or more international payroll each cycle.
Businesses may need to recover withholding for an employee if it was not due because of their tax situation – this can be very difficult in some countries. Consideration must also be given to social security contributions to ensure that payments are made, there is appropriate cover, and employees are aware of their coverage in the right location.
Most of these taxation issues are the employer’s responsibility and will create an additional burden for the payroll function.
Other tax implications exist, such as additional tax declarations and payments that may be required from the employee. Businesses may also have an obligation to assist with tax bills or provide loans to deal with double taxation of an employee while they apply for a tax refund.
Additionally, if employees are performing revenue-generating or value-creating activities, this may subject company profits to corporate taxation in a different country. Businesses also need to be cautious around employees creating issues around permanent establishment.