Why do employers need to be aware of the implications of working from home abroad?

The rise in working from home, throughout and since the COVID-19 pandemic, has already sparked a large shift in how the majority of employers manage their employees. With the challenge of resource and recruitment, working from home is now seen as an essential benefit for many people looking for jobs. Ian Macmillan at Hudson McKenzie says “there has actually been a role reversal. Employers have had to become more agile, and in most cases, even more accommodating to the new dynamics we are facing. Candidates, at this time, feel they are able to influence and control the negotiation, their expectations have changed, and businesses have had to become more empathetic to these new needs.”

Now, as we’re learning of many employees working from home in a different country to their employer, Arnaud Ruff at Ruff & Associés says there’s even greater considerations worldwide. “Global mobility is a real issue that has to be considered both for employers managing employees, and for us as advisers. We’re now seeing international working that has much wider tax implications than people are aware of.”

Many employers and their employees are unaware of the implications of international working from home. Lucie Bennett at Forsters says “there’s a common misconception that you can just move abroad, get settled and then worry about everything else later. Before Brexit, restrictions on work and travel within the EU weren’t often a big consideration for many UK citizens and people just aren't used to thinking about it, but they now need to.”

What do employees need to consider for international working from home?

The three main considerations are tax, social security, and payroll. Paul Baker at Buzzacott shared that “the UK tax law hasn't really changed that much compared to what they were like before COVID-19. From an international working from home perspective, it's trying to fit a new way of working into old tax laws, both in the UK and wherever the employee is working.” Therefore, its key for employers to seek professional advice to ensure they’re compliant.

In some scenarios, employers find out that their employees have worked from home abroad after the event. Dawn Downing at Buzzacott says one main challenge is “many employers haven’t included policies around this in employment contracts. Employers need to keep better track of their employees to prevent hearing about it after it’s already happened, as the impact can be detrimental.”

Another challenge highlighted by Dawn is that “some employers have offered international working from home to their employees, perhaps without understanding the implications first, and are now in a situation where their employees are happy with that arrangement and they’re at risk of losing staff if they make changes.” Tony Baldassarro at LSS Relocation agreed that “employees now have an expectation, but they often find that their dream suddenly becomes a nightmare when they discover the outcomes.”

As well as employees, Maud Mestre at Ruff & Associés says that the self-employed need to also consider the implications because “where they’re registered and where the activity is taking place is key. There’s confusion around the characterisation of a permanent establishment, which can lead to increased tax exposure in both the home and host countries.”

Although many associate working from home with less travel, especially with the introduction of international video calls replacing in-person meetings, another challenge highlighted by Rahul Batra at Hudson McKenzie is that “the increased freedom of staff working around the globe can give them a sense of entitlement to work wherever they want. This can actually instead lead to an increase in travel, which fights against the employer’s ESG efforts.”

What happens if employers don’t comply?

Failure to comply with the tax, social security and payroll legislation can lead to investigations and penalties in both countries. Rectifying these issues comes at a significant cost. Paul Baker at Buzzacott finds that “the repercussions can be detrimental for many businesses. Not taking advice beforehand, and failure to action anything in the years after the event, makes it difficult to unwind and rectify when identified.”

Although the significant rise in working from home abroad is fairly recent, don’t expect any leniency from the tax authorities. Paul adds that “the tax systems aren’t currently designed for people that are globally mobile, particularly without it being on a more formalised arrangement such as a secondment program. However, we do expect the tax authorities to look into employers and employees tax affairs, investigate retrospectively and penalise accordingly.”

What should you do?

1. Check if there are any current cases of working from home abroad among your employees and seek professional advice on how to rectify issues and comply, in both countries.
2. Review your employment contracts to ensure any policies around working from home abroad are included and in line with what you want to offer your employees. 
3. Plan ahead for any future working from home abroad cases to ensure you’re compliant from the start and avoid any issues piling up overtime.

For professional tax, social security or payroll advice tailored to your unique circumstances, please fill out the form below and one of our global mobility experts will be in touch to discuss your requirements and how we can help.