Cross-border remote working - Employment law and tax considerations

The art of the possible for remote working arrangements is a permanent fixture of working life for many people today.

Three years on from the Pandemic and employees are stretching and testing the limits of remote working arrangements. Sunshine is beckoning and employees want to bring the laptop and work abroad for temporary periods of time. There was a certain tolerance during the Pandemic with many people trapped outside home locations due to border closures. Times have changed and the rules have tightened.

There are many risks and added complexity for businesses who permit their employees to work abroad, even on a temporary basis. These include potential exposure in terms of tax, legal, immigration and regulatory compliance.

Tax Concerns

Income tax for the employee

Working temporarily overseas may result in the employee being taxable in Ireland and the overseas country on the same income. If there is a double taxation treaty in place between Ireland and that country, double taxation may be avoided by confirming which country has final taxing rights over the income. In many cases this would be resolved by the employee having to submit a tax return in both countries.

Payroll tax position

Where a treaty is in place this should ensure the employee is not doubly taxed, but it may not eliminate real-time payroll withholding obligations for employers. This can lead to the employer being required to register with the foreign tax authorities and to set up a shadow payroll in that jurisdiction to pay over the payroll taxes due. This can be an administration burden for the employer and can create cash flow issues for the employee as payroll withholding taxes may be due in both jurisdictions.

The requirements will differ from country to country making it difficult for employers to keep on top of their obligations.

Social security

In general, social security is payable in the State in which the employee works. There are, however, exceptions to this rule. Where an employee from Ireland is posted aboard for a temporary period, it may be possible to retain the employee on the Irish social security system for that period if Ireland has a social security agreement with the host country and the appropriate application is made with the Department of Social Protection. Where approved, PRSI contributions will be payable in Ireland and social security will not be payable in the other State.

If there is no social security agreement between Ireland and the other country, the employee will be compulsorily retained on the Irish social security system for the first 52 weeks following the employee’s departure. Social security may also be due in the host location on the same income.

There are also rules for multi-state workers within the EU and the UK. If an employee regularly works in more than one country during the year, there are rules to help determine in which State the contributions are due. Generally, provided 25% of working time is in the State in which the employee is habitually resident, the employee should pay social security in that State.

Overseas employer social security rates can be significantly higher than the current rate of 11.05% in Ireland. If social security becomes payable in an overseas country this can give rise to a significant additional cost to the employer.

What are the legal pitfalls?

Right to work

Does an employee have the right to work in another country? For example, is a visa or work permit required for the employee to lawfully work in the country they will be working from. 'Working' is defined differently across the world, with many countries specifying their own national visa requirements. Restrictions on working abroad can also vary depending on the nature of work and the length of time it is planned that the arrangement will last.

What law applies

It may be tempting for employers to consider that the existing terms and conditions of employment will continue to apply as normal. This is particularly the case when employees have already worked for some time in Ireland before the employee moves to another country.

The general principle is that parties are free to agree the law that will apply to the employment contract. However, where that choice has not been set out in writing, the applicable law will be the employee’s usual place of work. Unfortunately, even where a contract expressly states that a particular law applies, this does not prevent an employee from acquiring rights under the 'mandatory' employment law provisions of the country in which they are working.

Employees who work remotely from outside Ireland will also not necessarily lose existing employment rights acquired under Irish law, particularly if this is on a temporary basis.

It is therefore incredibly important that both employers and employees are clear at the outset and document how long the cross-border remote working arrangement is intended to last, the extent to which existing terms and conditions will continue to apply and any changes to existing terms that will be required depending on the degree to which local employment law provisions differ.

Remote Working Policy

A Code of Practice to manage Remote and Flexible Working applications from employees is due to be released in late 2023. This new Code of Practice under the Work Life Balance legislation is expected to apply to remote working arrangements in Ireland only. While awaiting the publication of the Code of Practice, em- ployers should ensure that any overarching remote working policy addresses cross-border arrangements and any limitations on this. Rather than the Code of Practice, it will be the employer’s decision to grant remote working applications to work outside of Ireland. Employers should take local employment law advice to ensure that their Irish employment contract and policies are appropriate, relevant, and not contradicting the local laws in the country from which the employee will be remotely working.

Key areas where local employment law can deviate significantly from the Irish position includes: minimum salary rules, minimum statutory holiday entitlement, sick leave entitlement and restrictions on working hours. Factors such as whether the employing entity can or should remain the Irish entity can also be relevant. Employers should also consider how any future changes to terms and conditions in relation to cross-border remote workers can be implemented, including any obligations that may exist to engage in collective consultation with staff representative bodies in relation to certain matters.

Health & Safety

Employers owe a duty of care to employees who work remotely and will need to consider how these duties will continue to be met in a cross-border remote working situation. In these circumstances due consideration should again be given to local country regulations, existing contractual provisions and policies and any changes that will be required. Employers should ensure that they understand how they can remain compliant, including, for example, in relation to how and when risk assessments are to be carried out. Employers should also consider matters such as whether access to state healthcare exists or if relevant private healthcare will be provided. Employers should review entitlement to existing health insurance policies, as employees working remotely may not automatically be covered.

Data Privacy & Security

Cross-border remote working arrangements can also add complexity to data protection issues, including the cross-border transfer of personal information and potentially increased data privacy risks. Employers will have to ensure that they adhere to the requirements of the applicable data protection laws in relation to all relevant jurisdictions and that existing data privacy guidance and cybersecurity measures are robust enough. Employers will need to consider any additional training required for employees in such situations and should take local advice in relation to issues such as the extent to which they are permitted to monitor employees working from home in another jurisdiction.

Workforce Planning

Decisions to permit employees to work remotely, particularly from abroad, can also have implications for future workforce planning — for example it may be difficult for employers to justify termination on grounds of geographical redundancy or the closure of a particular workplace. In addition, affected employees may acquire new rights in relation to termination payments or more onerous consultation obligations may exist.

Conclusion

Given the complex tax, social security, immigration and employment law considerations, employers should seek bespoke professional advice before permitting employees to work remotely from abroad.

It is strongly recommended that employers introduce a remote working policy which clearly sets out the rules around remote working and which allows the firm to manage and mitigate all these risks.

At EY we have the breadth of expertise to assist employers in managing the risks of remote working and we have been working with employers in implementing remote working policies since the outset of the Pandemic.

Contacts

If you require further information, please call your regular contact in EY or contact any of the following:

Michael Rooney
Partner
T: + 353 1 221 2857 E: michael.rooney@ie.ey.com

Rachel Dillon
Partner
T: + 353 1 221 2554 E: rachel.dillon@ie.ey.com

Marie Caulfield
Partner
T: + 353 1 221 1416 E: marie.caulfield@ie.ey.com

Owen Coyle
Director
T: + 353 1 221 2970 E: owen.coyle@ie.ey.com

Colin Spence
Director
T: + 353 1 221 1240 E: colin.spence@ie.ey.com

Jennifer Sweeney
Director
T: + 353 1 479 4007 E: jennifer.sweeney1@ie.ey.com

Caoimhe Neary
Director
T: + 353 1 479 4007 E: caoimhe.neary@ie.ey.com

Waterford

Gillian Moore
Director
T: + 353 1 479 2216 E: gillian.m.moore@ie.ey.com

EY Law Ireland

Deirdre Malone
Partner and Head of Employment Law, EY Law Ireland
T: + 353 21 480 5729 E: deirdre.malone@ie.ey.com