Voluntary, Virtual and Overseas – An Article
In this article Juliet Carp (Speechly Bircham LLP) explores some of the legal consequences of allowing employees to work at home in other countries for personal reasons.
A few years ago a Danish lawyer asked me at a conference what I thought about “virtual” employees. She was referring to an employee who worked via her computer and had chosen to follow her husband to South America. As far as the employer was concerned it was “business as usual”. I replied that I thought the virtual employee was just like any other international assignee, that all the usual considerations applied and took another bite of my pastry. But, of course, I was wrong. The usual considerations do apply but there is so much more to think about.
Starting with the obvious, our virtual employee is an employee, she lives and works in the Host Country and provides services to her employer based in its Home Country. The proposal is superficially attractive. The employee wants to keep her job and the employer wants to keep her. Why not just say “yes”?
The employer should consider the usual issues associated with international mobility: social security contributions, income tax, payroll deductions, bank accounts, tax returns, registration requirements, immigration permission, corporation tax, employment laws and collective agreements, whether she should be employed by the Home Country employer or a Host Country entity instead etc, etc. In some ways the arrangement will be relatively straightforward: the virtual employee wants this so there is no need to tempt or reassure her with a complex expatriate remuneration and benefits package. She is also far less likely to negotiate hard over contract terms. The employer may be in a good position to offer its preferred package and say “take it or leave it”.
But the proposition will not be cost-neutral for the employer, even where the employee does not ask for more money and where there is no Host Country law or collective agreement requiring additional remuneration. Dealing with the issues raised above properly will entail expense, and, if the assignee wants to work in a country where other employees do not already work for the employer, this expense may be higher than for a more “typical” employer-initiated assignment to a familiar Host Country. A tendency to ignore these issues because the employee is “relaxed” and this is a “one off” arrangement is understandable but will not help the employer if things go wrong. If the rules are not properly checked and dealt with, the employer’s relationship with Host Country immigration, tax or social security authorities may be permanently tarnished and, in most cases, penalties for failure to comply apply to the employer as well as the employee.
As with any international assignment, the employer should never ignore the possibility that the arrangement could trigger a requirement to pay substantial employer’s social security, or other employee-related, contributions and to comply with onerous payroll / tax deduction obligations in the Host Country.
In addition to the usual international assignment issues, the employer should think about issues normally associated with homeworking in a domestic context. For example:
- Will the employee be able to carry out core duties, eg will there be difficulties with meeting clients, supervising colleagues or attending training?
- How will the quality of the employee’s work be monitored and how will the employee be managed (Will it be possible to have those difficult conversations without meeting face-to-face? Can her communications be monitored under both Home and Host Country rules)?
- How will working time be measured and controlled and her working environment be checked and monitored from a health and safety perspective?
- How will business security issues be dealt with, eg disposal of confidential paper waste or cleaning the employee’s hard drive on termination of employment? The choice of Host location could have an impact on business risk management too. For example, business continuity plans and security can become more important at locations where there is a higher risk of crime or national disaster. There may also be higher risks of governmental interference or unwanted disclosure risks in the Host Country.
- Can the employee’s home be accessed, practically and lawfully, to deal with these issues?
- Will the employer or employee provide equipment such as desk, chair, computer, paper supplies and pay telephone or other utility bills?
- Will Host Country planning restrictions allow the employee to carry out her work at home?
- Will any domestic arrangements impinge on the working environment?
- Will employers’ liability, professional indemnity, medical, life and other insurance arrangements still cover the employee if she is working away from the office and outside the Home Country?
- Will a trial period or fixed term contract be practical or appropriate?
- A request to work at home abroad is a “flexible working request” and all the discrimination issues that can arise when such a request is refused domestically can apply to a request for international flexibility too. This will rarely mean that the proposal must be accepted but process, decisions, communications and documentation should be considered carefully in the light of both Home and Host Country laws. (In the UK the employer may also need to comply with the various pieces of flexible working legislation relating to the “right to request flexible working arrangements” if the employee is a parent or carer.)
It would be difficult (if not impossible) for a UK employer to comply with all its duties as employer without dealing with these issues, and most likely this will be the case wherever employee or employer are based. For example, every EU country has laws on working time. In addition, many “ordinary” expatriate and home working issues become more acute where the employee is both working at home and abroad. For example:
- the question of travelling expenses becomes more significant (Will employee or employer bear them? Can the tax burden be reduced?)
- more than one jurisdiction’s employment and other rules may need to be complied with at the same time and the requirements may conflict (this may be particularly apparent where there is a commuter or peripatetic working arrangement and the employee actually works in more than one country)
- it may be easy to forget to check regulatory issues that are specific to the business (for example if a banker or lawyer lives in France, working in London for two days and at home in Paris for three days each week, will French or English rules apply to him, or both)
- special considerations that apply to “start up” arrangements are more likely to have a practical impact (eg If the employee is the first employee to work in a particular country would the proposed activities create a “permanent establishment” for corporation tax purposes? If so, it may be possible to change the employee’s duties or responsibilities, or create a self-employed consultancy or other arrangement, to reduce that risk.)
- extra care may need to be given to post termination restrictions that the business may later want to enforce in more than one country (and there may be a conflict between legal requirements in the Home and Host Countries)
- data will be travelling across borders – not just the employee’s and the family’s data but also third party, eg customer, data – and the employer may need to consider whether existing data protection agreements, consents and registrations are sufficient to enable this to be done lawfully
- if intellectual property is to be created there may be some ambiguity over which country’s laws will apply to those rights (which could be resolved by documenting the arrangements appropriately).
With a bit of imagination employers and employees can usually find a mutually acceptable solution following a domestic flexible working request. But before saying “yes” to an apparently sensible international homeworking arrangement, the employer may wish to ask itself whether it is “worth it?”. Before answering that question the employer may want to take account of the following:
- the value of the employee to the business and how long the arrangements are likely to last
- whether the arrangements could be made to work, ie how the arrangements would be managed practically and how any challenges could be dealt with (this is where frank discussion with the employee and line managers can really help)
- the real costs of saying “yes”, taking account of set up costs, ongoing administration and potential termination costs
- how the decision-making process and decisions should be communicated and documented. (As with any a-typical or expatriate employment arrangement the employment documents can help the employer reduce the risk of dispute, manage claims if they arise and demonstrate that it has complied with the plethora of applicable rules).
Of course, the employer could just take a punt and see what happens …and the ostrich approach may already have been inadvertently adopted by many organisations. The reality is that employees do not always tell their employers when they move abroad or start working away from home. Their normal working arrangements may be such that the change is not immediately apparent, particularly to those within the employer’s organisation who understand why the change of location might be significant for the business. Some organisations actively monitor telephone numbers or the currency of expense claims or require employees to provide the HR team with regular updates. For others ignorance may be (perhaps temporary) bliss.
The consequences of failing to tackle these issues could be severe for the employee as well as the employer. For example, the move abroad could affect personal tax, inheritance rights or the availability of health treatment.
It is in both employer’s and employee’s interests to keep track of where employees are working and to address the practical challenges that arise from “virtual” relocation abroad.
Solicitor and English and international employment law specialist at Speechly Bircham LLP
+44 (0)20 7427 6412