Tax and hybrid work: HR's legal obligations when hiring globally

Following the pandemic, some companies are allowing their entire global employee base to work from anywhere, while others are restricting it to limited cases. Either way, remote working is here to stay – driven by employee demand, the battle for top talent and skills shortages.

But implementing remote working contracts can be a complex process, involving many stakeholder groups both within and outside of an organisation.

Tax and legal compliance are the biggest challenges that firms face, according to a KPMG International survey, with administering health and safety care, data protection and IT security lagging not far behind.

The lack of legal standards and the uncertainty about the future development of tax and legal landscapes represent a significant barrier to remote working, according to the KPMG research.

“Consequently, the decision to implement cross-border remote working is currently still dependent on company-specific risk considerations on the one hand and business and talent needs on the other,” say the survey authors.

Shane McNally, Director at Exfin International providing tax and financial advice, says there is no one-size fits all approach to implementing remote working but the length of stay in an overseas country will have an influence on tax status.

“Employees working on a short-term assignment overseas will typically have little or no impact on a business from a tax point of view. There are, however, significant tax implications associated with employees working longer in another country, perhaps giving rise to a ‘permanent establishment’ status and therefore exposing the employer to taxation in that country,” explains McNally.

Residency status

Visa rules differ markedly from country to country, but it will often be the case that individuals staying for more than six months will be considered resident for tax purposes in that country.

That doesn't mean that they will have broken Australian tax residency, necessarily, says McNally.

“If there is a double tax agreement in place between the country where they are working and Australia – that will determine taxing rights. But if there is no agreement in place, there is potential for an individual to be taxed twice on income earned.”

An employer should certainly check on the veracity of an employee’s claim that they have a right to work in the country where they are based and include that warrant in any employment contract. The Australian government service Vevo assists employers checking on visa conditions.

If an employee is working as a contractor, however, the relationship is ordinarily more at arm’s-length. But there may be other obligations on the company to ensure that the contractor is registered for tax, health and safety purposes, workers compensation and similar.

Health and care considerations

From a broad legal perspective, the business should investigate whether there is proper health insurance cover available, including repatriation, and that the employees are working within the same health and safety constraints that would apply if they were a local employee, says McNally.

This is not often problematic in developed countries but more care needs to be taken when assignments are based in developing countries, where personal security may be more volatile.

Are they physically safe? What about their mental wellbeing: do they have the right support networks?

If an employee is going to work within another organisation, HR needs to understand what that remote team or community is trying to achieve and how values align between the secondee and the secondment placement organisation.

Emergency response

Questions about what happens when things go wrong – when an employee has an employment law dispute or is sexually harassed, for example, can keep any HR director awake at night.

McNally agrees this is complex and the answers will be very situational, requiring individual legal advice.

“The employee concerned may have the ability to seek redress under legislation both in the country of residence where the offense/activity occurred, and/or they may rely on there being a breach of the Australian employment contract which allows them to seek redress back in Australia.

“As an HR professional, you would certainly be on the telephone to the lawyers very quickly to discuss jurisdiction and potential courses of action if you had a sexual harassment case in New York involving staff with a secondment contract of employment signed in Melbourne,” says McNally.

In any remote working contract, setting the ground rules early on will help limit misunderstandings and disputes. Questions that need to be addressed include:

How long is the secondment? Is it full-time or part-time? How will it happen and how is it going to be managed? Usually, the employee continues to be paid by the employer, but who is responsible for overtime, bonuses, expenses, travel and leave arrangements? What are the budgetary or HR implications? Does the employee’s other work need to be covered while they are on secondment. If so, how?

As the saying goes, failing to prepare, is preparing to fail.