Work Anywhere: Mobility Tax Considerations for Remote Workers - Part 1

    

Work Anywhere Remote Worker

The COVID-19 pandemic has inadvertently resulted in a surge of “work-from-home” employees, and for many companies, it has proved to be a positive addition to their workplace culture. Because of this positive feedback and overall ease of having employees working from home, companies are allowing more of their employees to work remotely on a regular basis. According to a March 2020 article by Forbes, remote work increased 159% between 2002 and 2017 due to various benefits. The fact that COVID-19 has forced more companies to allow their employees to work remotely will likely mean this already growing trend will continue and even accelerate in the future. This migration to having more remote workers is likely to be just one of many significant changes as a result of COVID-19 and although working from home is not a new concept, having such an increase in remote workers will create new issues for companies to consider.

The issues surrounding a company’s remote worker policy will impact many departments including corporate tax, legal, payroll, human resources, benefits, finance, accounting, stock administration, and others, but one department that is well suited to address the challenges of a remote worker policy is a company’s global mobility department. Originally, global mobility departments were created to assist with long-term international assignments, but over the years, the role of the global mobility department has expanded to assist with short-term assignments, permanent transfers, and more recently, business travelers and commuters.

The “new mobility” – the work anywhere employee

A company’s global mobility department is uniquely positioned to address many of the challenges that arise from a company implementing a large-scale work-from-home or “work anywhere” policy. As a result of COVID-19, it is conceivable that, for many global mobility departments, the “traditional” mobile employees consisting of business travelers, assignees, commuters, and transferees may decrease and instead be replaced by an even larger group of “remote workers.” Thus, remote workers are poised to be the “new mobile employees” who will likely need to be managed by a company’s global mobility department, resulting in an even greater role for the global mobility team in a post-COVID-19 world.

We have put together a list of mobility tax issues a company should consider as they build their remote worker policy. In Part 1 of an initial three-part series, we discuss three mobility tax considerations including temporary vs. permanent remote workers, domestic vs. international remote workers, and considerations for employees who travel while working remotely.

For purposes of defining a “remote worker,” we are assuming the employee will live and work in a jurisdiction that is different than where their company is located. For employees that live and work in the same jurisdiction where their company is located, there are likely to be little to no mobility tax issues simply due to working from home rather than commuting to the office that is in the same jurisdiction.

Will employees be working remotely on a temporary or permanent basis?

One of the biggest initial considerations for a company allowing employees to work remotely is to determine if it will be on a temporary or permanent basis. For a temporary remote worker policy, the expectation is that things will return to somewhat “normal” conditions and most people will return to working onsite at a company office within six months to one year. For a permanent remote worker policy, the company will allow an individual to move to an entirely different location from where their company is located and there is no expectation of having the employee in the office on a regular basis.

There are many advantages and disadvantages of either approach that go beyond mobility tax issues; however, the key point is that there can be differences in tax treatment between temporary and permanent remote worker scenarios and it is important that your company have a process to identify these scenarios so company risks and compliance requirements can be considered.

It is important to understand that even a temporary remote worker can create tax reporting and withholding requirements for their company. For example, although some states may show leniency with tax reporting and withholding for workers who are working from home because of COVID-19 related restrictions, New Jersey, for example, has indicated that wage income would continue to be sourced “in accordance with the employer’s jurisdiction,” as opposed to their physical location. This interpretation could lead to double taxation if the employee’s remote work location bases taxation on where the employee is physically working.

Will remote employees be working domestically or internationally?

The next area to consider for a remote worker policy, and one that is as equally important, is whether or not a company will allow their remote workers to move to another state/province within that same country, or if they will allow their remote workers to work in an entirely different country than where their company job is located.

Allowing employees to work in another state/province within the same country can certainly result in additional payroll reporting and withholding obligations for the company. However, allowing employees to work in an entirely different country than where their job is located can result in exponentially more issues for the company than a domestic only policy. For example, unlike a domestic scenario, there may also be a need to consider cross-border legal issues (e.g., employment and immigration law).

Given the complexities and potential cost of supporting international remote workers, many companies may choose not to allow these types of scenarios unless they already have an entity in the location to support the compliance and other company requirements. Some of the questions that need to be considered before supporting an international remote worker policy include:

  • Does the company have the in-house expertise to handle the tax, immigration, payroll, employment law, and other complexities that may result from allowing remote workers in a given location? If not, what outside vendors will be needed to support these types of work arrangements?
  • Will incentive and benefit plans offered in the employee’s “normal” work location be appropriate in their new work location (e.g., will new medical plans be required, would the provision of equity income create unforeseen tax issues or compliance complexities for the employee and/or company)?
  • Would having a remote worker create a taxable corporate presence for the company? Does the company's process need to include the corporate tax team’s review and advance approval?
  • What benefits will be provided, if any, to individuals wanting to work on a remote basis from another country? What type of tax support should be provided?
  • How will your organization track and monitor the location of your global workforce?

Is temporary movement allowed?

If a company decides to allow a “permanent” remote worker policy, they should not assume all remote workers will stay in their new remote place of employment. As employees recognize the freedom associated with not having to go into an office on a regular basis, it is likely that many other mobile employee scenarios will emerge such as snowbirds who like to live in cooler climates in the summer and warmer climates in the winter, or itinerants who like to travel around on an indefinite basis.

For this type of "work anywhere" employee, companies will need to consider what sort of policies and processes need to be in place to appropriately manage this activity. If a company will accommodate this activity, there will be a significant increase in the need for processes and policies to allow for compliance with all regulatory laws.

In Parts 2 and 3 of our series, we will review the tax withholding considerations for a remote worker policy, travel costs related to remote workers, and look into the future of long-term assignments. If you have any questions about how to implement a remote worker policy or other issues you should consider, please schedule a call with our team to discuss your specific situation.

Mobility tax specialists

Author Brett Sipes

 
Brett is Managing Director for GTN’s Pacific region and has over 20 years of experience in providing mobility tax services. He joined GTN in 2006 and is responsible for managing all aspects of the Pacific region along with providing tax compliance and consulting to Pacific region clients. His straightforward and detail-oriented approach to answering complicated tax questions provides mobility program managers with cost-savings and simplified approaches to managing their mobility programs. bsipes@gtn.com | +1.619.758.4083
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