International Remote Work: Top Challenges for Global Mobility Teams in 2024

Globalmobility teams need to be involved in the internal business discussions about the potential implementation of these methods of working across international borders.

This article was originally published in Issue 1 2024 of Mobility magazine.

When we think of the top-five challenges facing global mobility teams for 2024 and beyond, international remote working—where an employee wishes to work from a different country than their original employing location either for a limited time or on a more permanent basis—is at the top of the list.

Background

International remote work arrangements are widely thought to have arisen in response to the COVID-19 global pandemic, where international remote working was an enforced reaction to support employees and maintain business continuity in exceptional circumstances. However, although the pandemic did lead to a significant increase in interest in these arrangements, they are not new and have been considered as potential alternatives to physically relocating employees for as long as technology has been available to enable employees to, in theory, work from anywhere with a good internet connection.

The difference we have seen over the last three or four years has been a shift in employee expectations about what is possible or desired from a workplace flexibility perspective. Even when pandemic restrictions had lifted, the employee mindset had changed, and the traditional way of working in a fixed location was no longer considered to be the only option.

Why Is International Remote Work Offered by Companies?

There is a key theme as to what drives companies to consider international remote work requests: the attraction and retention of key talent.

The vast increase in the number of people working from home during the COVID-19 pandemic led to employees requesting to work from locations other than their current “home” country. While companies may not be willing to permit this arrangement on a long-term basis, flexibility in choice of work location has been used effectively as a benefit to offer employees, especially within certain industry sectors, or relating to specific types of roles or among a younger staff cohort, where it is often most feasible. There is a danger that not offering this option can adversely impact an organization’s talent attraction and retention strategy.

What Can Global Mobility Teams Do?

Global mobility teams need to be involved in the internal business discussions about the potential implementation of these methods of working across international borders. From a compensation and benefits perspective, policies need to align with other practices in your suite of mobility solutions.

Challenges

There are a number of challenges associated with a rise in employee requests for work location flexibility but also ways that international remote working can be managed to provide a benefit to employees and mitigate compliance risks to the business.

Compliance issues will remain the first hurdle to overcome for employers to be able to manage a successful international remote work arrangement, with the right to work in the chosen host country the first non-negotiable element. Employees should be encouraged to take ownership for their own immigration needs, and a lack of options to legally work in the host country would mean a denial of the request for flexibility. 

Assuming that there is a legal right to work, there are additional compliance and regulatory challenges that need to be addressed before the arrangement can be approved. 

Income Tax Liabilities

Ensuring that the employee is compliant with income tax liabilities is relatively straightforward when managing a long-term assignment. However, in the case of international remote work, there will more often be a challenge associated with the fact that the employee’s source of income may be from services performed for a company in one location, while the employee is resident in another. This may be complicated further by the question of where the company responsible for paying the employee is based. This will likely give rise to concerns that the employee’s income tax liability may increase significantly during an assignment.

Many employers may take the stance that if the employee wishes to work from a different country, any consequences in terms of additional tax liability should be their own responsibility. In principle, this would be a fair assessment. However, in the interests of retaining key employees, a responsible HR function will seek to make the employee aware of the potential implications of choosing to work elsewhere from a tax liability perspective. This allows employees to make an informed decision rather than pursuing a desire to work elsewhere and then deciding to leave the company and work for a local employer in their new location of residence after discovering their tax liability has increased significantly.

Corporate Tax Liability and Permanent Establishment

Corporate tax liability is an important consideration when it comes to international remote work arrangements. Companies can’t simply excuse themselves of any responsibility for additional taxes associated with this type of arrangement, as there is the issue of corporate tax liability and the risk associated with a permanent establishment through remote working. Countries classify the concept of a permanent establishment differently, but the general concept means if a company is based in Country A but also has operations in Country B, it may be liable to pay taxes on income derived from Country A’s operations in Country B and/or vice versa owing to the company’s ownership structure. The risk in the context of international remote working is that some jurisdictions may treat an employee’s presence in their country as sufficient to create a permanent establishment, which means that not only is the employee liable to pay taxes on their income in that location, but the company may also be liable to pay corporate taxes on the same income in that location, creating potentially an even greater cost to the company.

A way of mitigating this risk is to limit the amount of time that people can spend performing work internationally or impose a restriction on the types of duties performed. In countries where the company does not have an entity, the option of using an “employer of record” has emerged as a possible solution. However, there are also limitations with this arrangement. These include the need to limit the roles and tasks that the employee can perform (for example, the employee can’t generally act as a representative of their employer or sign agreements on behalf of their employing entity).

Which Employment Legislation Will Apply?

An additional concern is which labor laws will apply to the employee while working remotely. In the case of long-term assignments, this tends to be straightforward in that the employee and employer must act in compliance with the labor laws of the country to which the employee is assigned.

Any company seeking to utilize international remote working will need to consult employment law specialists in the locations where they expect their workers to be based and where the employer is based in order to determine which employment laws will apply to the employee.

Data Security

An area often overlooked but of significant importance is data protection and security. An employee working remotely may be based in one country but accessing data such as employee records, confidential financial information, or other sensitive information on a computer network or servers in another country. There may be legislation or contracts between companies and their clients that prevent this from happening. For example, common inclusions in commercial contracts are clauses prohibiting one party from transferring data in relation to their commercial relationship to its operations and employees based in other countries. Furthermore, legislation needs to be considered. For example, the European Union’s General Data Protection Regulation (GDPR) provides rules on personal information and what companies need to do to keep it secure including when accessing it.

Many countries have legislation regarding the storage of personal data and will levy penalties, including fines, in the event of a breach, with the EU’s presently the most severe. This means that companies will need to take measures to ensure that when their staff are accessing their networks from other countries, they are doing so securely.

Salaries for International Remote Workers

For international remote working, the situation may be simpler in cases where an employee requests to leave the country where they were hired and work remotely from overseas. Once the legal considerations discussed above have been made, companies may be happy to take a hands-off approach and simply maintain the current salary, letting employees manage the tax and cost consequences of living overseas. However, if companies do want to take a more active approach, they need to not only consider if they are prepared to meet any costs in addition to the current salary but also what the fundamental amount they are prepared to pay for the role is, and how that is determined.

These considerations are also necessary for cases where companies may be directly hiring employees from overseas but with no expectation of them relocating to the location where the role is to be performed, a kind of “international remote hiring.” If a company finds that the skills and expertise they need are not available in the country they need them, nor within the organization, they may elect to recruit external talent from any part of the globe and, if the job can be done remotely, have no need to relocate those employees away from their current location.

For these more complex cases, companies may firstly want to make an assessment of the tax and social security situation and, as employees are unlikely to be able to make an accurate assessment themselves, provide the employee with some guidance. While some employees may be willing to take a reduction in net income in order to live overseas in a favored location, the question of whether the company is willing to pay for any additional employer costs, such as payroll taxes or social security contributions, remains.

Another consequence of employees choosing to work overseas is that their salary is likely to be paid in a different currency to the one they need for day-to-day living. In addition to the administrative issues associated with this, companies need to decide if they will make any considerations for exchange rate fluctuations.

Ultimately, companies may be forced to consider how they determine the market rate salary for a job that can be done from anywhere. And if employees are free to work from anywhere, and they can work from multiple countries, this becomes an almost impossible task to determine the market rate salary.

So, although international remote working is mostly driven by employee choice, and companies are unlikely to provide much assistance in the vast majority of cases, a fully hands-off approach might not be suitable. Some may at least consider it part of their duty of care, or part of internal approval processes, to provide an assessment of the impact to the employee so they are fully informed about their decision. As part of this, a net-to-net comparison can be run to provide an assessment of how much better or worse off an employee is likely to be. This kind of calculation enables companies to assess either on a net level only, or by factoring in relative buying power and housing costs to find the salary they would need to provide to protect their employee’s net salary when they are working overseas. This kind of calculation can therefore demonstrate the value of the salary to the employee and make sure that there are no surprises in store.

Advantages

When considering international flexible working, the benefits to the company are harder to quantify. Mainly they function as an employee attraction and retention tool, with many employees wanting flexibility in their physical work location. In an increasingly competitive global job market, attracting and retaining the right talent is an increasingly difficult prospect; allowing more flexibility is one way to ensure employee satisfaction.

Policies Are Key

The challenge now is for companies to formulate flexible and reasonable policies and integrate these into their current suite of policies. Crucially, processes should be put in place for deciding what type of assignment is appropriate in different circumstances to avoid excessive discussion and exceptions. Given the potential volume of requests for international flexible working that companies may have to deal with (the majority likely not on a permanent basis but for one or two weeks here and there), we would also recommend a transparent decision-making process in which the majority of decisions can be made quickly and cost-effectively. 

Helen Mildred is the head of consultancy at ECA International.