Remote Work – Why Location Matters
Since Covid-19, employers have established and/or expanded their remote working policy. However, the "work from anywhere" concept has been taken literally by a growing number of employees, who may now be working from a variety of locations, such as vacation homes, with relatives in other states, or at a temporary residence in another country.
It’s important to note that employers in the US withhold applicable state and local income taxes based primarily on where an employee performs services – meaning their physical location or sometimes, secondarily, where the employee lives. It is difficult for employers to remain aware of each state's specific rules and thresholds, but employers are accountable for compliance with all state withholding rules and may become liable for any taxes not withheld in accordance with state/local law.
And there are more reasons why employees should always inform their employers of a change in the physical location of where they are working, even if they are "working from anywhere".
There are four major issues that can affect employment when an employee moves to a different state or out of the country:
Foreign Labor Laws: Employment regulations are typically governed by the location where the employee works. The longer an employee works from a different country, the higher the chances that local laws will come into play. This can impact regulated vacation time, work hours, promotions, and termination processes.
Freedom of movement: European employees have freedom of movement and can work from anywhere, but when they move to a different country for an extended period, they enjoy the same rights as nationals of that country. This means that employees could claim additional benefits.
Income tax, unemployment, and social security: Many countries consider a person subject to their tax regulations after they've spent 183 days within their borders. The specific duration varies by country, but after this time, individuals are viewed as residents, subjecting them to local tax, unemployment, and social security systems. Employees that have not updated their locations may not be able to take advantage of appropriate benefits.
Health & safety: Employers have a responsibility to maintain the well-being and safety of their employees, regardless of whether they're working remotely or outside traditional office settings. While corporate health insurance and worker’s compensation typically covers in-country employees, prolonged stays abroad often fall outside this scope.
Visa: Tourist visas don't cover extended work periods, and business visas offer limited permissions. Occasional emails or calls might be acceptable, but long-term work in a country on a tourist visa is against the law. Working without the proper permissions poses risks for both the worker and the employer.
Security & data privacy: A remote employee might pose an increased threat regarding the safe transmission of data, especially if data crosses borders. Handling personal data remotely can present data protection concerns. Especially if the employee moves from a region with data protection regulations to a country outside of that region with no strict protections.
In summary, when a remote worker crosses state lines or international borders, it can be hazardous to employers in ways that aren't necessarily apparent. If not properly managed, these situations can create significant administrative and financial burdens.
Are you aware of where your remote employees are working? Have you researched the tax and labor laws from that location? Don’t wait until faced with severe financial penalties. Contact VBS today to assist with increased compliance requirements and evolving legislation for your “work from anywhere” population.