The pandemic has not only normalised the concept of working from home, but it has also created the possibility and, for some, the wish, to work from a different country. While taxation issues have been addressed in some jurisdictions through the introduction of digital nomad visas, offering appropriate employee benefits to those individuals remains complicated.
The concept of working from abroad has been tested during the pandemic when offices were shut. Some employees were stranded at a holiday home and worked from there or did intentionally choose to isolate at an overseas location of their choice. This has raised a few issues for employers:
Employment rights abroad: Employees could potentially benefit from the local employment rights and protections in addition to the rights they have in their original employment country.
Tax conflicts: Employees may acquire income tax residency in the country they are working from, and the employer may become liable for paying corporate tax in the country if the move is interpreted as creating a “permanent establishment” in the relevant jurisdiction.
Duty of care: Employers may struggle to meet their health and safety obligations towards the employee and may in addition need to meet the local requirements.
IT security and GDPR: The employee may represent a higher risk in relation to the secure transfer of data.
Employee benefit packages: existing benefits may no longer be fit for purposes for employees based overseas
While enabling staff to work from abroad may create a few challenges and additional administrative work for employers, offering this option is likely to help businesses to attract and retain the best talent, particularly in a tight labour market. Driving factors for looking to work from abroad include wellness and job satisfaction. For employers, offering location flexibility, and the ability to experience diverse cultures and settings across the globe, can improve employee retention rates and attract talented workers who may otherwise operate as freelancers.
Some companies are therefore reviewing and adapting their policies to accommodate such requests. The introduction of Digital Nomad Visas (opens a new window) by a host of countries (currently 44 but rising) make such an offer more viable for businesses.
Digital nomad visas are permits that allow an employee to work remotely, mostly by exempting them from tax liabilities in the host country. Typically, the beneficiaries will file their tax returns in the place of principal residence or usual abode.
Difference between tourist, work, and digital nomad visas:
Tourist visa – allows stays of up to 3 three months, cannot work locally
Work visa – must be hired locally, pay local tax, and contribute to state system
Digital nomad visa – designed for up to 12 months, cannot be employed locally (must be home country employment), no access to state benefits
The fact that beneficiaries of a digital nomad visa are usually exempt from local state benefits do create a few challenges from an employee benefits perspective as the offering that’s in place at the headquarters may no longer be suitable or applicable.
Impact on employee benefits programme
An employer may have a unique and extensive employee benefits programme, but the offering may only be applicable in the employees’ home country. The local private medical insurance provider for example is unlikely to honour the contract in another jurisdiction. Domestic insurers also usually have a reduced appetite for overseas risks and may be unable to pay claims. In addition, employees working overseas on a digital nomad visa are unlikely to meet local insurer eligibility criteria. Employees on digital nomad visas will therefore very likely face a gap in their employee benefits cover, not least because the access to local state care and benefits will be restricted or unavailable.
For businesses wanting to offer their staff the opportunity to work from abroad there is no wrong or right approach. Putting together an offering specifically for these individuals will likely require some research. It may involve a benefits audit at a local and global level to benchmark and provide insight on availability and cost. An increased demand for international/expat medical programmes may also drive supply which in turn may reduce costs. Similarly, rising demand for digital nomad visas may lead to clients designing cross-border, pan-European life and disability solutions which offer flexibility when trying to cover small populations across multiple locations. In any case, businesses will need to develop a global mobility strategy that clarifies which countries are included in the programme, under which conditions and the processes that need to be followed.
Lockton People Solutions help businesses of all sizes define their global benefits strategy and design their programmes to reflect their business needs. For more details on our products and services, please visit the Lockton People Solutions page (opens a new window). If you’d like to discuss your benefits and people strategy, get in touch:
Joseph Barnes – Vice President
T: +44 (0)7795 916826