“The tectonic shift brought about by COVID-19 transformed the noun ‘labor’ into a verb. No matter where we are, we go from one area to another to do something. Joe Brady, the Americas CEO The Immediately Group
There are more possibilities than ever before, and companies are under enormous pressure from both present and potential employees to offer more flexible working arrangements. Working from home (WFH) has shown to be far more practical than most anticipated, despite the chaotic initial effects of the abrupt change to remote work brought on by the COVID-19 epidemic. In order to attract and keep personnel, businesses—and entire industries—that had not previously thought about adopting such policies are now considering making them permanent.
Working from anyplace is the logical next step now that we’ve essentially conquered the cultural and technological barriers to working from home (WFA). This degree of adaptability and freedom used to be dismissed as impossible. However, in light of the Great Resignation and the loosening of international boundaries, many employers—as well as employees—will certainly be debating whether to provide employees the ability to work from anywhere in 2022.
The biggest obstacles to working remotely are tax and legal concerns. The following are significant risks: data security issues, immigration issues, local employment rules, and tax compliance (for both employers and employees). Although initially these hazards might appear overwhelming, they can be controlled. Major corporations already have WFA policies, like Spotify and Revolut. These regulations may not give workers complete independence. Instead, they might be created to provide employees some flexibility while applying deliberate restraints to reduce risks.
From “Work From Home” to “Work From Anywhere,” I alluded to the growing pressure that workers are putting on employers to let them hire workers who can work remotely but increasingly from any location. What exactly is the difference, you might wonder?
WFH is a term used to describe full-time workers whose employers permit them to work remotely, typically from the convenience of their homes. WFH regulations often apply to employees who reside in a single nation and have the option of working partially or entirely from “home.”
The WFA has various rules. They give employees the option to work remotely while traveling abroad for a brief period of time, usually longer than seven days but less than 365. In many nations, durations in this range are regarded as being in the gray area of the law. These visits are longer than typical business trips, but not long enough to necessitate a change in domicile permanently.
WFA Policies: What Are the Benefits for Employers?
Allowing workers to work remotely can help firms recruit and retain top talent, boost employee satisfaction and productivity, and cut down on the need for and cost of office space, according to both hard data and compelling anecdotal evidence. Access to the world’s talent pool is another advantage for employers who offer WFA as a permanent option. Software startup GitLab calculates that having a totally remote business offers a net advantage of $18,000 per employee per year.
Before the epidemic, reputable academic studies claimed that permitting remote work may boost worker productivity. According to a 2013 study performed by Nicholas Bloom, a professor of economics at Stanford University, switching from typical office employment to working from home increased employee productivity by 13%. Allowing workers to switch from WFH to WFA resulted in an additional 4.4% rise in output, according to a later observational research by professors from Harvard University and Northeastern University.
An increasing body of research indicates that many employees could even be ready to accept a pay reduction in exchange for the permanent choice to work remotely. While the amount varies depending on the source, most respondents say they’d take a 5% to 10% pay cut in order to make remote working a permanent option.
What Negative Effects Do WFA Policies Have?
Adopting a WFA policy has drawbacks, chief among them the compliance nightmare that WFA can produce. We’ll examine this primarily from the viewpoint of the employer, who is typically more exposed to risk. Employees who work remotely for a prolonged period of time in a nation other than their country of permanent tax residence, however, also run into some hazards.
The main threat employers confront in WFA circumstances is the potential for “permanent establishment” to occur (PE). PE refers to a company’s considerable and ongoing operations in a foreign nation that result in tax obligations there. Although different nations and their tax treaties may apply slightly different standards to define PE, the majority follow the instructions provided in Article 5 of the OECD’s Model Tax Convention.
An enterprise may be subject to PE in two ways: by operating a fixed place of business (either physically or virtually) in a nation or by paying a dependent agent in that nation (usually someone with the power to sign contracts on behalf of the company). Although the term varies by place and circumstance, senior executives and salespeople are common instances of dependent agents. For these reasons, when designing your WFA policy, it is crucial to take into account the nature of the job done in a country as well as the amount of time and regularity that it is done.
How can your company’s WFA policy be created and enhanced in a way that maximizes the advantages and minimizes the biggest risks? utilizing a ROI framework.
A Framework for ROI for WFA Policies
Companies frequently attempt to estimate (or, after the fact, evaluate) the return on a strategic business choice relative to its cost, in a manner similar to how investors calculate the return on an investment. When creating a WFA policy or weighing different possibilities for a policy, a ROI framework can be a useful tool. Since it would be hard to place specific numerical amounts on the costs or benefits involved, the inputs will surely be imprecise. This theoretical framework, however, can assist you in understanding how different components of your policy might be changed to maximize your ROI, either by increasing benefits or lowering expenses.
On the other hand, allowing someone in a high-risk position like sales to spend more than half the year in a nation where there is a strong chance of developing a permanent establishment that might cost the organization millions of dollars might be an intolerable risk. Building a business case to allow them to work from anyplace in that situation would be challenging.
(In the figure above, Gallup provided the projected cost of replacing an employee, and Goodhire, Owl Labs, and Vidyard did some polls regarding employee preferences.)
Take into account four important questions when you create and contrast various WFA rules. You can optimize your insurance by maximizing the benefits and limiting the risks by using the answers to directly affect the ROI of a certain policy option.
1. Is WFA a practical choice for your business?
Not all jobs can be successfully completed remotely. Although it can seem evident, it isn’t always as cut and dry as you might imagine. WFA might make things more difficult if personnel are spread across various time zones. Over the course of the epidemic, many business leaders who had previously believed that their organizations couldn’t operate remotely or asynchronously learned that they could.
Additionally, there may be departments (finance, legal, and HR) that can function more independently in some industries, such as those that have set schedules and a physical presence, like automobile plants. Ask yourself whether asynchronous remote work would be feasible for your business and how likely it would be to have a negative impact on productivity before you seriously consider adopting a WFA policy. Consider this in terms of both the business as a whole and specific divisions and functions.
2. How many WFA days should you permit each year?
There should be two considerations when determining how many days per year you let staff work remotely.
First, as said in Question 1, think about whether prolonged remote work will have a detrimental influence on productivity. For instance, a lot of positions in the technology industry, including those in software development, are comparatively independent and frequently carried out remotely. It is difficult to imagine how WFA for any length of time could cause issues. However, a month or two away from the office every now and then may be manageable in other industries or professions that require a high level of teamwork, but longer time periods might not be the best option.
Consider external regulations next. Numerous immigration and visa regulations are based on set timeframes (e.g., 30, 90, or 183 days). For instance, on a standard tourist visa, Americans can typically stay in a country for up to 90 days. Working remotely for a US-based company from another country—work that doesn’t require interaction with the local market—is unlikely to offer a significant risk of inciting PE during this time range.
3. Which nations are you going to include or leave out?
You have three options on how to handle this query: a list of nations that have been pre-approved, a list of nations that are prohibited, or a combination of the two. (Most businesses prohibit at least a few nations due to geopolitical or security concerns.)
Consider whether dangers are particularly pertinent to each region as you choose which nations to cover in your policy. You should also take the general level of risk into account. Some of the most strict restrictions in this field are found, for instance, in the US and the UK: Even short-term visits of less than 30 days may result in tax complications.