The following is a transcription of a webcast, “The Next Step: Practical Solutions for Work Anywhere Mobility Tax Issues,” recorded in June 2020. This webcast showcased some of GTN’s industry experts: Chris Hall, Managing Director for GTN’s Atlantic region; David Livitt, National Practice Leader for GTN’s Business Traveler Services; and Brett Sipes, Managing Director for GTN’s Pacific region. This panel discussed practical solutions to mobility tax issues that may occur when implementing a remote worker or work anywhere policy.
This transcription has been edited for clarity.
Table of Contents:
- Understanding the differences in remote worker structures
- Best practices for developing work anywhere mobility tax policies
- Stakeholders you should involve in crafting work anywhere policies
- Recommendations for cross-country mobility tax policies
- Tracking solutions for your work anywhere employees
Chris Hall, Managing Director for GTN’s Atlantic region: We've heard a lot of chatter in the marketplace in the last couple months around working remotely, working from anywhere, permanent moves, to [even] people not going back into the office.
We've heard a lot noise about that, but we haven't really heard much about the practical solutions to moving towards and executing on that kind of policy. A lot of people have been highlighting the compliance and the risk challenges that [it presents].
What we're going to try to do is move beyond that and start thinking about--what are the steps to putting in controls, processes, and policies that will allow an entity or an employer achieve what it's trying to do on a more permanent basis.
Understanding the differences in remote worker structures
What on earth is a remote worker policy, Brett? We've got “remote workers;” we've got “work from anywhere;” [and] I've heard about “virtual assignments.” What are you seeing in the marketplace, and how do you think this will shape up in the next few months?
Brett Sipes, Managing Director for GTN’s Pacific region: There's a lot of confusion in the marketplace and there are a lot of terms that have been thrown out there. I’d like to set the stage for what it is and define a few key terms before we get into this.
Clearly, remote working is where you're working from home and you're not in a traditional office setting. There are a few different terms for that. First, you have the traditional “telecommuting.” That's what a large portion of the population is doing right now, where they live near their office, they'd previously gone to the office, but now they're just simply working from home. That's sort of that telecommuting aspect. If you're living and working in the same tax jurisdiction, there may not be a lot of issues related to that, but there certainly can be.
The next term I've heard thrown out there is this concept of a “virtual assignment,” though I think sometimes that has been used too broadly. A true virtual assignment is where the employee stays where they're at, but then, be it due to COVID-19 or whatever the case may be, their job moves but they don't move with their job. So maybe you have somebody that's in the US and they need to fill a role in Canada, and they decide to stay in the US and do that job remotely.
In those situations, that's certainly an interesting perspective that we'll have to look at as the world moves forward, but we won't touch on that too much in today's session because there isn't much [to talk about] from a mobility perspective. Certainly, there's some transfer pricing and other issues, but from a mobility perspective, it's pretty straightforward because the employee stays where they're at.
The last thing is really where we're going to dive into more today, and that is this concept of “work anywhere,” where the job stays in the same location, but the employee decides to move or live somewhere else, realizing that, “okay, if I don't need to be in the office five days a week, why do I need to live in a high-cost area or an urban center? Maybe I want to live somewhere else.”
What does “work anywhere” mean? I think this is really what we want to start to uncover [because] different companies have different interpretations of it. “Work anywhere” to one company might mean, “We will allow you to work anywhere but only if there are no tax issues associated with that.” Other companies might be going a step further and saying, “We will allow you to work anywhere as long as we know what those tax issues are, and we have the structure and means to address those issues.”
And then at the end of that extreme would be, “We will allow you, as your employer, to work anywhere where you, as an employee, are legally allowed to work.” If you go to that degree, it can certainly lead to a whole assortment of tax issues and corporate PE issues that you might want to consider. So those are a couple of high-level things we want to unpack with regard to the “work anywhere” concept.
Chris Hall: Brett, you're based over there on the West Coast. Are you seeing a lot of interest in that “work from anywhere” kind of concept in California?
Brett Sipes: Yeah, absolutely. Certainly, there are a lot of jobs in California that are suitable for that. [Such as companies that] are in the IT industry or knowledge-based industry, where the job really works well for it, and then you also have, of course, a high cost of living. Those two factors are definitely driving that. Plus, the general concept, [has] historically [been]—especially out here in California—[one] of really trying to accommodate the employees and have great perks. This is certainly seen as a perk by the employees and a cost savings by the company as well, in some cases.
Chris Hall: How about you, David? You're based on the East Coast, but you do work all over the country. What are you seeing, and how are clients and companies defining anywhere—which I think is probably the first step of any policy decision, right?
David Livitt, National Practice Leader for GTN’s Business Traveler Services: Absolutely. I think it's been a fascinating few months—really, a sort of proof of concept that in many cases, businesses have always had this sort of inkling that some of their employee population probably do work from anywhere. But because of the pandemic, it was almost a proof of concept that employees have had to do that throughout a variety of industries and geographically as well. It's taken on an importance within the business.
Traditionally, it may have been perhaps one or two departments that this was a question that had been raised to them. The HR department, maybe mobility. But now it seems to be driven very much from the top, and also at the bottom. People are becoming comfortable working from anywhere, [not just] working from home, so businesses are realizing that maybe it's working. Productivity is going up—there are lots of articles out there to suggest the same. I'm getting a lot more questions from a variety of departments and functions within the business, whether that's payroll, corporate tax, HR, mobility, [or the] C-suite. People are asking these questions about, “We know we want to do something; it's appealing for certain types of workers within our business. How do we do it?” And I think that's the big question.
One other thing I'd say, and we've been discussing this between the three of us, is that sense of, is this something temporary or is it permanent? Are there any variations within that? Certainly, some of these arrangements might be a bit more flexible than just being based in one location. Going back to Brett's definitions, I'm hearing even from friends in the town I live in that their employers are saying, “Come back to the office for two days a week (which is in a different state), but you'll be expected to work from home for the other three days a week.” That creates huge issues around some of the functions within the business and we'll speak more on those.
Best practices for developing work anywhere mobility tax policies
Chris Hall: I think one of those points you made is very interesting about, “How long is this going to last?” Brett, you've been authoring a series of blogs for us. In one of those, your first question was, “Is this a permanent shift or is this a temporary shift?” As people go down that route, why is that an important place to start in terms of how you then determine what you need to do next for processes, policies, etc.?
Brett Sipes: So, there are two parts of that. First, broadly, from a philosophical perspective, you really need to look at your own company and understand, “Is this truly a temporary reaction to the COVID-19 crisis? Once things calm down, will we go back to business as normal?” If that's the case, you don't necessarily want to completely redo all of your policies, processes, and procedures around something that might be temporary, especially given the fact that there is a fair amount of tax relief out there across states and other countries for COVID-related issues. So that's certainly one issue to understand.
Now, a lot of companies are kind of seeing that Pandora's box has sort of been opened. So, they're realizing, “We don't necessarily need to have everybody in the office all the time, so we might want to extend this permanently.” Then the second part of answering that question is, from a practical perspective, how you go about executing all the tasks related to payroll and the tax issues? It's really critical to understand, “Is this person going to be away from their primary place of employment for, say, 6-12 months? Is this more of a temporary thing?”
If it's temporary, let's say you have somebody from my state of California who's going away for a few months, you're going to still leave them subject to California wage reporting and California unemployment insurance. There might be some additional tax filing obligations in their new place where they're living temporarily, but you would still keep a lot of that structure in place.
However, if this is a permanent move and that person said, “Nope, I'm out of California indefinitely; I'm going to move permanently,” then you would shut off all the California withholding and unemployment insurance. The answer that you get is [then] very different. You can't just say, “Well, this person's gone for 6-12 months…” and leave it kind of open-ended. You really need to close the loop on that in order to address the tax issues.
Chris Hall: It's interesting—I was talking to one of our clients the other day, and they were suggesting in that permanent situation, they're then going to also look at the individual's wages. [For employees who say] “Oh, it seems like a great idea; I'm going to go and live in a cheaper part of the country,” but then some companies will, of course, adjust the wages accordingly to the local market rate.
David, what are you seeing in terms of the permanent versus the temporary nature of this?
David Livitt: I think, because it's getting a lot of press, there's a lot of energy behind the concept; a lot of companies are exploring it. I was on another webinar a couple of weeks back, and it was very much aimed at smaller and medium-sized businesses. One of the things they were debating—unfortunately, not from a tax perspective, which I know is a huge disappointment to the three of us—but clearly from an HR perspective, it was literally, “Where do we start, how do we make this happen?” Because, even for small and medium-sized businesses, this is something they may want to offer. But [based on] the infrastructure within the business, they're not agile enough perhaps—not all of them are agile enough to cope with that.
For example, [from the standpoint of] data privacy and IT infrastructure, if someone's working from home, how are you ensuring that the data is safe? Equally, if their Wi-Fi goes down, what happens then? There are all these other aspects to think about. On top of that, you're adding in the HR issues like performance and retention. Does everybody want to work away from an office? That might be an issue as well.
There are a whole range of issues, and I think that was very much driving the [question of], “Is this just a temporary process to go through? Is it something [we should make] part of a business continuity plan for the future so that we are agile enough to be able to pivot with any other future potential pandemics? Or is this actually something that we want to offer going forward?” Because it might be, to certain populations within the workforce, a really attractive and more productive way of working.
I think it's probably somewhere in the middle, in all honesty. People are still trying to grapple with the overall issue to determine what's best for their business.
Stakeholders you should involve in crafting work anywhere policies
Chris Hall: One of the practical things that you've highlighted, and we obviously come at it from the risk and the compliance reporting side of things, but I think anybody who's looking to do this as an employer is going to have to realize up front it's a multifunctional effort. Because I don't think there's a single department—I don't think it's mobility, I don't think it's payroll—that is going to have to deal with all of the knock-on issues. It is literally changing the entire nature of the entire business. And I think as well, you're probably going to see some different industries, different regions going in different directions. As we were talking earlier, David, you can't build a car remotely, you can't build ships remotely. You have to have different answers for those kinds of industries.
It will be interesting to see which industries go in which directions because there will be differences there. And again, when people are writing policy, they need to be aware [that although], “Twitter or whoever else has done it, we're not in the same business and therefore, we can't accommodate everything.” And that's going to be a necessary approach people need to take.
Recommendations for cross-country mobility tax policies
Chris Hall: Here in the US, we talk a lot about state-to-state issues with people being displaced across state borders. We obviously have commuters from Mexico and Canada, and people cross those borders every day, at least in regular times. Certainly, particularly within Europe, if you are looking at a global remote work policy, you have the ability and quite high likelihood of people working in different countries. What kind of peculiar challenges does that bring? And again, from a practical sense, what are recommendations and steps that you would look to provide to how you deal with that?
David Livitt: Yeah, that's a good question. I think obviously the close proximity of the number of borders means a number [of Europeans] do live close to a border of another country and can freely travel between the two borders. Now, how does that manifest itself from tracking a process, by which you as a company would assess your risk predominantly around social taxes—which is probably the main one.
Drawing on what we would do, what I would do in the business traveler space, and what advice I would give to companies... [I would] give a quick overview so they can understand who's impacted within the business—and that means which departments, and which functions within the business—who is actually going to be impacted by this.
For example, if you have someone crossing a border who isn't a commuter necessarily or someone who is actually working in a different country, how do you know where they are? Unless you have some process or policy in place for them to indicate where they're going to be working from, how are you going to start that assessment? [You have to get] different departments together to begin with: payroll, corporate tax, HR, risk, regulatory, as well as others, and pinpointing why this is relevant to each of those functions. That helps form what the overall process will look like.
Then there's a bit around the “current state.” Some companies already do this. We do it; we work remotely. We've been doing this for 20 years. It's not something which is insurmountable, but equally, what do you already do as that audit [of your current state]. Technology plays a big part in that, in actually assessing where people are [currently] employed, their current home countries, their current home addresses. You can quickly get answers from that.
It's then a case of working out what this means in certain scenarios. How do you want to define “working from anywhere?” Do you want to define it as literally “anywhere,” which is quite a huge task for a business to get their arms around? Or do you want to constrain or confine or define what that looks like, which is the policy piece?
Then you move on to the practical process piece. “If we have employees working in these locations, and these are the locations we expect them to be working in, within reason, what does that look like from a tax, payroll, social security, equity, retirement benefits [perspective]?” Additionally, there are other things to consider as well as part of the compensation package—unemployment insurance, workers' comp, and other employee benefits. What do those look like from the location the employee is in versus their employing entity?
Lastly, what does that look like from the “future state?” So, you've done your audit, you've got your assessment of where everyone is, you have analyzed this from [the perspective of] “what do we need to do and what does that look like?” Now there's [the question of] what can you do with it? Maybe the employee is employed by the wrong entity. Maybe there's a global employment company entity that needs to be looked at. Maybe there are other structures around compensation. All these other possibilities which may be more attractive and easier to manage for the business.
That is a lot of questions rather than solutions but starting with a current audit of where your employees are and where they want to be, is really important.
Chris Hall: It's interesting, actually, because we worked on a client last year where we did a remote work policy. I said to that client last week, “We're going to have to rip that up.” And they're like, “No, no, no, it's still in place.” What they were saying was, “if you are working from home, it's the expectation that you would be working from home in the same country that you were previously employed. If you now want to go and work somewhere else—in Spain, let's say, because that's where you've got a holiday home—you can't do that under our remote work policy.”
It will be interesting to see how that develops over time with the employee pressure that may come, “well, why can't I work anywhere?” There are very practical answers to this. You need to put those restrictions in place about what they can do. If you truly say “anywhere,” you're going to have to change the entire function and mechanism of your payroll processes, probably the size of your consulting budget, and the size of your corporate tax team.
How about you, Brett? What are you seeing over on the West Coast? Particularly where you are, there's a lot of cross-border commuting already, but do you see significant change there?
Brett Sipes: Yeah, definitely. We're seeing a lot of people that have this idea that I can work from anywhere and a lot of times, that might even be in another country. Just to kind of unpack a little bit of what you were saying there, David, with the practicalities of that: so if you have somebody who is working for a US entity but they want to live in Finland, then at some point, if that's going to be a permanent situation, does it make sense for them to be on the US payroll anymore? Does it make sense for them to contribute to the US 401(k) plan, the US medical benefits? It might be a situation where you want to see, can we put them on the Finnish payroll, even though they're not perhaps working for the Finnish entity there. From a payroll perspective and an individual tax perspective, it might actually be much more efficient and effective to do that.
Now again, as you were saying, Chris, that's a whole new world for a company to really understand. Because historically, if someone was a US employee, you put them on US payroll, and they're done. So to have these employees in other countries—where the company either does or doesn't have an entity—and to actually switch that person's payroll to that location simply based on their personal preference is going to be quite a challenge for companies to take on and figure out how to actually go about doing that.
Chris Hall: When you're thinking about the actual practicalities of this, in your typical business you have locations where you're doing business, you have clients where you're doing business, and the business is usually directing who's going where and why. If you flip that around and your entire employee population can [suddenly] choose where you are at risk, in effect, the concept of that is quite staggering when you put it into [terms of], “OK, how do we operationalize this? How far are we willing to go? Is it carte blanche or is it within reason? Because our processes can react to that.”
David Livitt: As we were discussing with the client example you had earlier, that was really important. It was to be flexible enough for it to work, yet for it to define the parameters of the policy. Otherwise you're getting into such unique individual employee scenarios—to some extent, you might need to do that anyway. If you have 10,000 employees, and let's say 20% of that workforce wants to potentially work anywhere, that's an awful lot of individual scenarios to start considering. So, getting that policy in place to define what the business actually means by “work anywhere” is vital. And it's not just that population, it's also business travel, commuters, etc.
Chris Hall: Brett, I believe [we’ve released] a checklist that you've put together to help guide companies through the initial stages of trying to put those parameters in place. Do you want to just chat about that for a second?
Brett Sipes: We're seeing a lot where, as we've discussed, the C-suite or others in the company are saying, “Hey, this “work anywhere” is a great idea.” But then, as we discussed, how do you actually get there and what do you do to make it happen?
We've prepared a checklist of about 20 questions to really walk you through, step-by-step, all the different things we're talking about today to help companies understand these issues. “Where do we want to make an effort? What is our compliance risk? How far do we want to go to accommodate the employees?” [The checklist will] walk you through that.
Once you go through [the checklist] with your company—preferably with a multi- or a cross-functional team—you can start to understand how those issues will impact the company. That can help you learn enough to know where you should start with a policy, because if you don't ask those questions first and if you just try to blindly go in and create a policy without first understanding all the implications, you're definitely going to miss some things.
Really, the intent of this checklist is to make you aware of the things that you may not be aware of so you can address all the different things that you need to for a work anywhere policy.
Tracking solutions for your work anywhere employees
Chris Hall: Excellent. Now, I'll pose this to you, Brett—and David, I know you'll want to comment on this—one of the biggest challenges you mentioned already is, how is a company supposed to know where its people are? How do you know whether your CEO is in their home in California or their ski house in Colorado? And I guess the flip side of that is how much, as an employer, do you need to know?
Brett Sipes: I think a lot of it really comes down to the policy, making sure that you have a policy in place so that whoever is trying to track where your employees are isn't seen as a bad person or somebody who is “stalking” people. You definitely want to have a policy so people understand, “OK, this is why it's important to the company.” That's what I'm seeing so far. I guess, David, I'll turn it over to you on the actual tracking side.
David Livitt: You've hit the nail on the head there. With business travel, you tend to get someone who's booking a trip, so you have the travel booking and their expenses. With commuters it’s a little bit harder as they're between two locations. But again, it's finding a way to track that information. Potentially, if [an employee has their] laptop they can easily work from anywhere. How would [you as the employer] know?
That's going to be the hardest group to track. And the way of practically getting around that is, again, to go back to the policy and the process and say, “we're encouraging people to do this, or certain functions in the business to do this. But there is a process to follow.” With the client we spoke about earlier, it was literally to notify someone that it is happening—partly from the risk of tax and payroll—if it's a prolonged period. If it's a week or two weeks, that's probably not too much to worry about. But Brett, as we've been talking about, it could be three months, six months, nine months, indefinitely. Then what does that look like? It's time to notify the company if that changes.
Given the current [climate]—the pandemic, natural disasters, and political unrest—knowing where your staff are is really important. Just [based on] the queries we've gotten, understanding where your staff are at any given time is just as vital to a company’s reputational risk as much as it is employee safety and welfare. So tracking is important.
Chris Hall: What would you see as being a practical solution to trying to track those employees?
David Livitt: It goes back to [the question of] how active do you want the employee to be in that process? So, if you’re an employer, are you going to be looking at, for example, VPN logins? Or, if it's a work mobile phone, where the mobile phone is actually pinging from? There are ways, as an employer, to track that. You may also look and say, on the flip side, [I want] a technology whereby the employee is asked to log in and record, “I will be in this other location between these dates.”
Now, again, that's not stopping the employee from working anywhere, it's purely alerting the business to the fact that the employee is now on a beach in Brazil, or they’ve just moved to a different state, or whatever it's going to be. That may then trigger other processes around approval or assessment of that risk. That's all in the background; that's not to stop the employee from working. But again, what I'm seeing here at the moment is that it has to be more of a proactive employee-focus rather than an employer-requirement assessment.
Chris Hall: Is this a real thing? Is anyone going to actually do this? Is it like one of those things where you go and have a look over the cliff and you're like "no." Is anyone actually going to take the jump over and go for this? It is going to be so difficult to implement. What are your thoughts, guys?
Brett Sipes: I think it's definitely a real thing. Technology has brought us far enough along where it's absolutely possible. There's enough proof of concept here that it's proven that it's worked. Again, it's not going to be pervasive where it's going to be every industry, every job. Certainly, there are spots where it's going to be more prevalent. But those areas where it is going to be prevalent are substantial enough that there is going to be a lot of work for a lot of organizations to take the time and really think through this.
If I could just add one question that I heard as we were preparing for this webcast: “Are the tax laws set up and do they accommodate this work from anywhere concept?” The short answer to that is, frankly, no, they're not. A lot of our tax laws are written based on 20th century or earlier concepts where you would work in a factory or an industry, and it made sense to tax based on [where you were]. Nowadays, you can work anywhere you have a laptop, and a lot of the tax laws haven't caught up to that. And even if they do, they're likely not going to do that in a consistent manner. You're going to have different states, different countries, taxing things differently.
So, as we look out ahead of that, I would certainly not [recommend] waiting for the tax laws to sort themselves out; that's not going to happen. Maybe it'll get easier, but no guarantees on that. It's definitely a real thing that companies are going to have to address and take on.
David Livitt: I agree with Brett on everything he said there. I think it's here to stay—there's no doubt about that. Business continuity planning is something that is shown to work. Companies were thrown an absolute curveball, and a majority hopefully have survived and shown that they are able to have a dispersed workforce working remotely and still weather the storm.
I think what will happen next is that where that's been a success, other companies will be looking at those models and thinking, “How can we replicate that?” Again, without shamelessly trying to plug our checklist again, that is a great place to start. Actually getting into the nitty-gritty of what you want to do, and having multifunctional teams as Brett mentioned, is vital. You need to have this as part of your workforce strategy.