The Covid pandemic has resulted in changes to working patterns, bringing flexible and mobile working more to the fore. Working from home, or outside the office, has become common for many employees. This includes employees who opted to work from overseas locations, for at least some of the time, and are keen for this to continue. At Internago, we have many clients who are grappling with this particular issue, and we often get questions about it. In this blog we highlight some of the key considerations for employers (aside from the fundamental considerations relating to productivity, effectiveness, team working etc.) when evaluating employee requests to work from an overseas location.
There is no obligation to accept an international working place unless it forms part of the employment contract
The first thing to check is whether the employee has the right to work from another country. The working place is normally indicated in the employment contract. Unless there is a specific clause that gives the employee the right to work from other locations, the office is the default working place. Employees have no universal right to demand to work in another country unless the employment contract specifically provides for it.
EU or non-EU-country?
If you are EU-based and an employee wants to relocate to another EU-country, rules and regulations are relatively harmonized. There is no need for residency or working permits. In addition, the employee would not need to pay income tax for the first six months in another EU country although they would continue to pay tax in their home/former country as before, unless they opt to change their tax residency at an earlier stage. During this period, the employee could also continue to be covered by the existing country’s social security scheme by applying for an A1-certificate. For stays longer than six months, the employee should be prepared to pay income tax in the new country. The precise tax position between any two countries in the EU is governed by their respective double taxation agreement, which would need to be evaluated carefully.
Investigate social security and tax implications
For cross-border cases involving at least one non-EU country, the tax and social security implications need to be considered with the utmost care. Some countries have bilateral agreements in place to facilitate the movement of labour, but many do not. Local rules and regulations apply. Hence, in most cases where an employee wishes to work from another country, both the tax and social security home base for the employee would need to change as well, to the new country. This has considerable tax implications for both the employee and the employer. We recommend that you consult a local tax expert to determine the precise tax implications for both parties prior to a decision being taken.
Don’t underestimate international administration
If you agree to let your employees work abroad, do not forget that this needs to be reflected in the employment agreement. The current employment contract will need to be changed, most likely into an employment contract aligned with the labour laws of the employee’s new country. Some companies initially hope to be able to use their standard employment contracts, with just a few adjustments. Often, this turns out to be wishful thinking. Furthermore, the employer will need to ensure that payroll and local tax/social security payments meet the requirements of the new country. This implies setting up local administration, and the company may well need to register (as a minimum) as a foreign employer. We strongly recommend that you work with a local lawyer or a professional partner to make sure everything is properly prepared and aligned with local regulatory and administrative requirements.
Go international, go Internago
At Internago we have extensive experience with cross-border employment and international payroll. There are different solutions depending on your specific situation. We are looking forward to talking to you about your requirements to find the optimal international set-up for your company, your employees and your payroll. Our web portal helps clients to take control, with a payroll overview of their international employees. Please visit us at www.internago.com to find out more.