As companies increasingly utilize remote workers, they are not just looking across the country for talent, but also throughout the world. Moreover, current employees who are now permitted to work "remotely" may be interpreting that phrase more broadly than their employers intended. Whether an employer just found out that its remote account executive has been working out of the South of France for the past year, or it is expanding its search for talent beyond the borders of the United States, there are a number of compliance issues to keep in mind when engaging workers who could span the globe.
What are the risks?
Employing workers who reside in other countries (whether permanently or temporarily) can mean that both countries' employment laws may be triggered, such as those relating to minimum wage, overtime, leave entitlement, mandatory holidays, and anti-discrimination protections—to name a few. Importantly, "at-will employment" simply does not exist in many countries. Many jurisdictions limit the permissible reasons for termination, require a minimum notice period prior to termination, or otherwise require that the employer follow a specific procedure prior to termination. Those countries may also require certain withholdings, such as those required for workers compensation, government health insurance, pension funds, or unemployment insurance in the United States.
Other laws may come into play as well. Local data privacy laws may apply to employees located in other countries. On the immigration side, work permit issues could arise where individuals working in other countries are not citizens of that country.
As with out-of-state workers, there are tax implications as well. Chiefly, the employer may be required to make certain wage-related tax withholdings, and, if the worker(s) engages in activities that could create a corporate presence in other countries, such presence could trigger additional corporate tax obligations, as well as a requirement to register with the appropriate agency in that country.
Finally, beware of incentive stock options with non-U.S. workers. For current employees moving to another country, incentive stock options do not always travel well, or, for workers already located outside the United States, countries may impose limitations on granting stock options. Employers should consider and comply with local securities laws. Significant tax obligations applicable to both the employee and the company may be triggered. And, importantly, if not handled properly, employers granting stock options to workers outside the United States could risk jeopardizing the tax-advantaged status of certain benefit or incentive plans. Similarly, income that might be tax-deferred under U.S. law if contributed to a 401k or 403b retirement plan may not be exempt from tax in another jurisdiction if it is earned there.
Employers determining how best to engage non-U.S. workers have a range of options. Instead of employing workers directly from the United States, which can be difficult and complicated, employers may choose to set up an entity or subsidiary to employ the non-U.S. workers. Another option is to utilize a third-party international employment organization with already-existing entities in the relevant countries to take care of payroll, tax, and benefit compliance.
Can't I just treat the worker as an independent contractor?
Not without risk. Similar to independent contractor misclassifications in the United States, other countries have laws pertaining to contractor misclassification as well. The actual risk of prosecution and laws surrounding employee versus contractor classification vary (many Canadian jurisdictions actually have a third, lesser-known category of worker known as a "dependent contractor"), but the potential consequences of misclassification are extensive. That said, where employers do attempt to engage non-U.S. workers as true contractors, there are a variety of means to structure that arrangement in such a manner as to reduce the risk of the pertinent governmental authority finding that a worker has been misclassified.
What if I don't want my employees working in other countries?
Set parameters in your policy or employment contract. Without setting parameters, employees can interpret remote work policies to allow them to work truly anywhere for however long they want. In employment contracts, employers should consider including language about where the employee will perform the work, and, if remote work is authorized, setting parameters about what that means (in terms of how long and where such remote work may occur). Similarly, employers with remote work policies for their employees may want to set similar guidelines. Typically, employers will already require their employees to advise them of a change of address. As it pertains to remote work policies, they can go further to say, for example, that employees are permitted to work somewhere other than their home state for up to two weeks, and for anything beyond that, they must obtain authorization from human resources. Of course, what works best for an employer will depend on its particular workplace and existing policies.
This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
