Irina Dzhambazova is the editor of this publication and leads many of the marketing efforts behind Boundless. Previously she crafted stories at SaaStock and Dublin Globe and travelled the world capturing case studies of companies using the Kanban Method. Throughout this experience, she was almost always “the remote worker” and knows a thing or two about the potential and challenges of this way of working.
When the Covid19 pandemic hit us, most knowledge workers became suddenly remote. Whether they liked it or not, they had to stay home and set up some sort of a functioning space where they could do as much uninterrupted work as humanly possible, given the circumstances.
I was no different. I swapped my 15-minute cycle to the office, with a 15-second walk to the living room where I set up a work desk for myself. This was not my first remote stint, so I had a headstart. After the first few days of working in my pyjamas, I started dressing up for work, took a break for lunch every day, went for walks in the nearby park, and didn’t nibble on work stuff in the evening.
However, working from my apartment in Dublin, isn’t technically working from home for me, as my actual home is 2,000 kilometres away. Just as for many others who reside here, this country is my adopted home. As much as we love our adopted homes (I certainly do) there may be a natural inclination to repatriate home in times such as a global pandemic. What’s more, having worked remotely for months at this point, people have proved that they can deliver from a distance.
What that distance is, as well as the exact location, doesn’t matter as far as the day to day delivery of work goes. However, when it comes to employment and payroll, the exact location makes all the difference in the world.
As an employer, what are you to do if an employee asks you to move back to their home country? Should you do the right thing and allow them to move back, and if you do, how do you deal with this from an operational perspective? Let’s find out below.
Implications of employees working in another country short term
Throughout the period of the covid crisis, I have never seriously considered moving back to Bulgaria (among many reasons, one being that I feel much safer in Ireland in how it’s handling the pandemic). However, I do plan to spend most of August there and, during some of that time, I will also work. This sort of trip is considered short term and does not affect my Irish employment and payroll. My presence and working from another country while on a relatively brief visit doesn’t trigger a requirement for a local corporate entity to employ me, or to process my payroll.
Since the start of the pandemic, most EU members, as well as many OECD countries, have relaxed a lot of residency rules around short term repatriation (up to around six months). Be sure to check the specific regulations in the country, however, as some countries are quite strict even for shorter periods. Some examples include Canada, Argentina, Jordan and India.
Before your employees leave their usual country of residence, or while they are home, create a simple one-page document that explains their circumstances and what the expected duration of stay in their home country is. Signed by both you and the employee, this document will come handy in the case of future auditing. Set reviews every three months to see where things stand for their return.
Implications of employees working in another country long term
When we talk about longer moves, potentially permanent ones, or in cases of new hires that were meant to relocate but have instead decided to remain in their home countries, there are far greater implications for the employer. In that case, the employment will need to be adapted completely. Some of the things that may be affected include:
- employment contract
- employment rights
- social security
- employee taxes
- employer taxes
- corporate taxes
As we have written previously in this publication, when it comes to employment, it’s about where the employee resides, not where the company is based. International employment is notoriously hard and complicated because it requires full understanding and compliance with local regulations in a country that the company may not have any existing knowledge about. And, on the payroll side, even just figuring out what registrations with local authorities are required, and doing monthly payroll and tax filing can be a nightmare in a new country. Yet, there is no way around it.
Employment regulations and laws are fragmented, even in seemingly united unions (such as US States, Canadian provinces or EU member countries, to name a few). While there is some easing of rules due to the Covid19 pandemic, they do not apply for long term stays. Below are the options you have for working with them, some better than others.
Options for employing internationally
- HQ country employment payroll
While the person may be in a different jurisdiction, they “appear” in the books of the HQ. They receive their payroll and pay taxes in the country where the company is located. This is a solution that you can apply for short term stays.
Our advice: This may appear as an attractive solution; however, it generally isn’t legal in the long term. Past the six months mark (or whatever the specific regulation is when it comes to repatriation due to Covid19) we strongly advise against this option. Employers are legally obliged to provide employees with the rights of the country/state that they live in, and their pay must be processed for tax purposes through the tax system of the government of the country that they’re tax resident in. Availing of this option past the legal mark can get a company in serious trouble with local authorities.
- Independent contractor agreements
Probably the most common way to work with people in different jurisdictions, this involves signing people up to fixed term or ongoing service agreements. This means that they are registered as either freelancers, sole traders or limited liability company owners, who file an invoice once a month.
Our advice: While contracting sounds an easy and quick solution, and seems like it will solve all admin challenges with employees that move country, it is, unfortunately, a hack. We strongly advise against working with remote workers based on independent contractor agreements. In the current climate, it’s even further complicated, as employees would have to deal with registering corporate entities or sole trader operations in suboptimal circumstances – many public institutions are not operating as usual. As the recent case against Uber and Lyft by the State of Massachusetts further signals, governments are taking a serious note and action against potential employee misclassifications. While the focus in the media is often on gig economy workers, these rulings also have broader application.
- A DIY corporate entity and employer setup
The company goes the route of becoming a local employer. In doing so it handles the entire set up process. This requires:
- working with in-country accountants for entity registration, as well as registration with local tax authorities. While EU companies employing within the EU may not need to register a new entity, a registration with the tax authorities is always required
- getting to grips with local employment legislation and understanding the terms and rights that the employees in that country are entitled to
- finding local payroll processors to handle monthly payroll & tax filings
- using translation services to produce dual-language employment agreements
- opening a local bank account in some countries
- upfront capital investment in some countries
- allocating internal resources and expertise to manage these external relationships, and to deal with all of the regular admin around monthly payroll, annual filings, and ongoing HR compliance. When it comes to running international payroll, there are a lot of things to keep in mind and steps to fulfil.
Our advice: Think carefully before doing this as it is both expensive and time-consuming. This route can take anywhere between ten weeks and 18 months per country, and would often cost about €10,000 for the initial setup. Most importantly, even after the setup, you still have to take care of all of the ongoing overhead that comes with regular filings. Public service institutions have been affected by the pandemic and many are not operating to their usual capacity, which may further delay you.
- A DIY setup involving intermediaries
A company still goes the local employment route, but instead of doing everything itself, it relies on suppliers to help with many of the above tasks. These intermediaries provide connections to local service providers and guide a company through the process. There’s a lot of work that intermediaries can’t do on behalf of the company such as rounding up documentation that you’ll need to provide to local partners and the local authorities, and there will be decisions that your team will need to make, to guide the intermediary on how you want to manage your operation in this new country.
Our advice: While not as time-consuming as a full DIY setup, working with intermediaries to do your own infrastructure, still ends up being a lengthy and complicated process. You can very quickly find yourself in a mess trying to stay on top of everything, and you’ll be adding a lot of communication overhead to your plate. Even the same type of service providers in different countries may have vastly different ways of working, and may have different processes and deadlines, e.g. payroll processes vary greatly between many countries. As mentioned in the above point, there is also the added current challenge of public services being disrupted by the pandemic.
- A PEO (Professional Employer Organisation) operating an EoR (Employer of Record) model
A model (and legal status on an employment agreement) that takes care of the employment and legal relationship with an employee. The model is applied through a third party PEO (such as Boundless), which employs people on behalf of the company. The Employer of Record takes care of all employment matters such as:
- Producing the employment agreement
- Processing payroll
- Filing employer payroll taxes
- Filing employee taxes
- Offering various statutory benefits
- Processing payments to employees, local tax authorities, and benefits providers
- Assisting in HR compliance
- Advising on local employment regulations and practices
Our Advice: This is the route to choose to ensure that you can quickly and easily, legally and compliantly employ someone in a different country without headaches or overheads on the side of the company. That is because all the complexity that comes with international employment is taken care of for you. Fees of EORs vary dramatically and have historically been steep for the pockets of SMBs. Boundless aims to change that and provides a much more affordable solution.
As a PEO, we fully own all the entities that serve as EORs and are ready to employ workers on behalf of your company. All you have to do is register on our easy to use platform and input basic employee data. The whole process takes a few minutes, and you can start paying your employee from the following pay period.
Five more things to keep in mind about international employment
After you have settled on a solution for how you are going to employ your employees, there are a few more things to keep in mind about international employment.
The same gross salary will yield different net pay
This is the most fundamental thing to understand about international payroll. Due to all the varying taxes, tax bands, allowances, contributions and tax credits that apply to both the employee and the employer, the same gross salary number for an individual will produce different net values depending on the country.
Here is an example. Róisín has decided to move back home to her native Ireland from the UK. Her annual gross salary in the UK is £50,000 (€60,039). After tax, Róisín, who is single, doesn’t have children or a mortgage, takes home £37,536 (€45,072). However, if she moved to Ireland on the same gross salary, her net pay will be €41,957(£34,933.5) or €3,115 (£2,602) less. She knows that Ireland is as expensive as the UK and wouldn’t like to receive less just because she has decided to move back home because of Covid-19. For her to receive the same net pay, her employer would have to increase her gross salary to €66,087 (£55,024.50). Keep in mind that this is a reasonably straightforward example without much difference in taxation. The differences can be very substantial in other cases, when benefits, income tax bands, tax credits, and allowances are added on. We have put together some great examples of those differences here.
Take the time to make the gross to net (looking at capping the company cost at its current level), and net to gross (looking at keeping the employee at the same level of take-home pay), calculations for each employee. Then sit down with the employee and take them through the numbers. If the country they are moving to has a different currency, it may also mean that the take-home pay could slightly differ from month to month due to currency fluctuations. If doing these calculations seems challenging, Boundless is happy to help as we have developed our own calculators. Just drop us a line.
Visa and residence requirements
While most people will be moving back to their home countries, some may be moving to the home countries of their spouses, or other countries they have always wanted to live in. Over the last few months, we have all probably secretly (or not) entertained the idea of moving to places such as New Zealand, South Korea or Vietnam, which all appear to have a really good grasp on the pandemic. Whatever the case or reason, it’s important to understand whether your employee is legally allowed to work in that country and whether they need a visa or other immigration considerations.
Personal income tax implications
According to EU regulation, people generally pay social security where they work, but pay all their income tax where they have lived for the majority of the year.
Hers is an example. Marco moves to Italy from Ireland in May, wanting to be around his parents. Up until May including, he pays income tax in Ireland, which for his salary is 20%. After he moves to Italy, from June, he starts paying income tax in Italy, which is 33%. Since by the end of the year he spent over 183 days in Italy, he owes all his yearly income tax in Italy. Because Italy and Ireland have a double taxation treaty , what he owes to the Italian government is the difference between what he was paying in Ireland and what he would have paid had he been in Italy on the whole income of the year (Irish + Italian) – the income tax paid in Ireland. (See example on graph).
Whether your employees are moving to another country for a little bit or for an extended period, one thing you will want to have is a clear policy of how you approach these circumstances. Since the pandemic will not be disappearing any time soon, it is important to document all procedures and make them easily accessible to everyone. In it, you will want to include the possible timeframes (short vs long), country/region combinations, any differences that might apply to different nationalities, visa holders, etc. Give as many variations as possible so everyone feels included and be specific about your approach in each case.
Be very clear (and document that as well) about your limitations as well. Each person’s circumstances will be different; some employees will be under a work visa, different nationalities will have different rights in different regions. It’s important to be honest and realistic in the expectations you set with your employees. Depending on your company’s internal resources, it might be impossible to have the exact knowledge needed to support them appropriately in a transition of this level. It’s best to make sure they know they should seek tailored tax and immigration advice from a professional in order to avoid potential bad surprises with the local tax office.
One thing you will need to keep in mind on behalf of your employees is the fact that if their payroll is still in the country of residence, they may be denied access to the health care system in their home country. Even though they hold citizenship there, since they have been paying social security in a separate country, they may not be covered. For EU citizens, one solution for this is the European Health Insurance Card (EHIC) which allows them to receive healthcare in another EU or European Economic Area (EEA) country. Since these are only valid for up to three months, it is important to understand their plans and transition them to local employment and payroll if they intend to stay longer.
With heightened awareness of the severity of what is going on, and a natural need to be closer to family and established community, many foreign workers have started asking to move back to their home countries. Alongside that, certain countries are closing their borders for immigrants in an attempt to stop the spread of the virus, so even those still willing to relocate may no longer be able to do so.
For short term arrangements, you should be mostly fine but, in the long run, you will have to set a clear path forward as your employees won’t simply be able to remain long term in another country without it having a consequence for both employment and payroll. You can get a sense of local employment, legal, compliance, payroll and tax obligations in our library of comprehensive country guides.
As mentioned above, the cleanest, most affordable, and effective way to solve challenges with newly international employment is to work with a Professional Employer Organisation such as Boundless. We can currently legally employ your workers in Ireland, Portugal, the UK, Denmark, Australia, New Zealand, Estonia, Germany, The Netherlands and Singapore, with many more being added all the time. Get started here.
The making available of information to you on this site by Boundless shall not create a legal, confidential or other relationship between you and Boundless and does not constitute the provision of legal, tax, commercial or other professional advice by Boundless. You acknowledge and agree that any information on this site has not been prepared with your specific circumstances in mind, may not be suitable for use in your business, and does not constitute advice intended for reliance. You assume all risk and liability that may result from any such reliance on the information and you should seek independent advice from a lawyer or tax professional in the relevant jurisdiction(s) before doing so.