How employers can remain compliant in a work-from-anywhere world

The pandemic pushed many firms into remote and hybrid work environments. This caused HR to adjust quickly and to rush into the realities of remote working. As of Fall 2021, remote work is an expectation for many workers, not a luxury. Accepting this new dynamic means hiring teams also need to broaden their talent pools to a global scale. 

For many firms that transitioned all staff to remote, there is no “headquarters.” There’s still a corporate address for legal and tax purposes, but when everyone’s virtual, there’s not a central location. This dramatic shift increased the potential labor pools for employers, giving them access to workers from Jacksonville to Jakarta. With the global workforce opportunity comes challenges, including the compliance and tax regulations with workers operating in various countries.

Posted worker compliance

Managing EU-located workers requires firms to comply with the Posted Worker Directive. First adopted in 1996, the rulings have undergone multiple updates, with the latest being the Posted Workers Amendment Directive 2018 which became official rules in the summer of 2020. These rulings add responsibilities to companies to manage the movement and duration of traveling worker assignments and require firms to submit documents to the proper local agencies. There are compliance risks with the directive, which often occur when busy HR teams miss deadlines, forget documentation, or lose track of someone within a large global mobile workforce. The directive covers millions of workers, with a study noting 2.8 million such workers in the EU in 2017, which represented 83 percent growth since 2010. The directive’s intent is to afford protection to workers coming from an EU country who are then assigned by their employer to another EU country. The fines for non-compliance are steep, with fees ranging up to 10,000 Euros per worker for Austria or Finland occurrences. 

Posted worker compliance is just a part of the litany of rules corporations must manage when operating in other countries. For example, when a firm opens a local branch, they need to follow the local rules for minimum pay, benefits, and other details. This requires a considerable amount of work and puts strain on HR teams to manage multi-country aggressive expansions. 

Managing tax and legal complications

In addition to compliance issues, there’s also a host of tax considerations for global workforces. For operators employing U.S. citizens in the U.S., they withhold and pay taxes by the state where the worker is working, even if there’s no office within that state. For a remote worker, if they move from Vermont to Nebraska, then the employer must consider Nebraska’s withholding and tax rules and register with the Nebraska tax state agency. The U.S. labor regulations cover much more than taxes, so employers must also navigate minimum wage requirements, payday scheduling mandates, paycheck delivery within state law requirements, state disability withholding, overtime calculations, and various other actions and processes. 

UK workers can move throughout the country without tax adjustments, except if they relocate to Scotland. When they move abroad, there’s multiple regulations governing how the employer calculates and deducts income taxes. Depending on the length of stay, and the regulations in the new host country, the employer might inadvertently develop a permanent entity in a country due to the employee’s prolong presence. This can trigger additional withholding and payments such as Social Security contributions, dependent on the country involved.

Moving into new markets forces companies to consider setting up a legal “local entity” within a foreign country. This move comes with risks and costs. For example, establishing a local entity entails fees averaging $15,000 or more, and capital requirements of upwards of a half million dollars. There’s also various licensing fees and the complexities that come with managing these payments and documentation. Firms should seek counsel to determine when they need a local entity, or if they can operate just a “branch office.” Various determinant factors include if the business will build or assemble items in the new location, sell to in-country clients, or work with local suppliers. And the number of workers involved in that market can also determine what type of legal entity is warranted.

For example, many firms use Global Professional Employer Organizations, or a PEO to handle all the tax, payroll considerations and entity set up instead of handling in-house.  A PEO removes the upfront capital expenses and establishes a “co-employer” model where the PEO is the employer for taxes and compliance. The PEO firm hires and manages the staff and can provide them with access to dental and health insurance. Offering benefits enables smaller firms to attract talent that might otherwise go to large firms with established entities in a country. The decision to engage with a PEO or create an entity depends on multiple factors, including the number of employees. At some point, with dozens of employees it’s often simpler to create a local entity. And employers should consider how certain they are about an expansion. If they’re “testing the waters” then a PEO structure makes sense. If they enter a market with a 20-year solid plan, then they might want the positive PR buzz that comes from a full company-owned office, facility, or factory opening.

Leveraging automated technology

Hybrid and remote work environments add complexity to HR teams to manage benefits, salaries, and various tax and risk issues. They’re receiving an influx of requests for employees to change their physical location while still working and are hiring from global pools. Managing remote offices, local entities, and corresponding with PEOs puts pressure on HR teams. To reduce these pressures, HR needs technology tools that can streamline documentation and have automated features which can manage country-specific situations. Automated country-specific rules also removes the HR team from making “judgement calls” that might put the company in non-compliance.

Firms need technology solutions to centralize and streamline the complexities of managing a globally distributed and mobile workforce. Manually collecting application information takes time and requires pay slips, contracts from HR, and data from other disconnected sources. Not only is this extremely time-consuming, it also introduces risk factors such as missed deadlines and manual error. Firms that attempt to manage these workers without formalized rules and processes put themselves at compliance risk, and HR wastes time it could spend on workforce development or other initiatives.  An automated technology platform makes it easier for HR to register workers, pay them equitably, remain in compliance, and manage their firm’s brand reputation.

Scott Turner is product marketing director with Equus Software.