6 Apr 2021
Why You Should Let Your Remote Employees Work from Abroad
While the full impact of the global Coronavirus pandemic remains uncertain, one thing is clear: remote work is here to stay. Some savvy leaders quickly recognized the benefits of remote work. Teams that are prioritizing business results over time spent in the office have seen increased productivity, been able to hire the best applicants regardless of location, and have enjoyed the cost-savings of swapping out physical workspaces for virtual ones. Many companies have already made a permanent switch to full or part-time remote work. But these businesses are now faced with a new question: in a post-pandemic world where travel is once again possible, should these “work-from-home” arrangements become “work-from-anywhere” policies?
The advantages of a work-from-anywhere policy
Despite travel restrictions, the number of US digital nomads increased by 50% in 2020. Remote workers are eager to take advantage of their recent professional flexibility. And this eagerness is a large part of the reason why employers would be wise to indulge their employees’ desire to work from abroad.
In 2019, MetLife conducted a study that showed a substantial increase in loyalty and employee retention for those who had the opportunity to work abroad on an international assignment.
Recent research from Harvard shows that work-from-anywhere policies boost individual productivity, shrink workspace costs, expand the talent pool, and reduce employee attrition. Because work-from-anywhere employees valued the ability to live in their preferred location, they worked longer and harder than other employees.
When given the choice, employees tend to relocate to countries and areas with a lower cost of living. As a result, employees enjoy what feels like a raise at no cost to the employer.
Companies that allow employees to work abroad can hand-pick the best talent from around the globe. For tech companies and businesses in emerging markets, this global hiring strategy can give teams a competitive edge while reducing recruitment costs.
Key considerations before letting employees work from abroad
While the advantages of a work-from-anywhere policy are compelling, leaders will need to consider if the switch is right for their businesses. First, you’ll need to make sure that you’ve built a strong foundation for remote work communication, data management, collaboration, and culture. Make sure your business has invested in the right software and technology to support a globally distributed team.
Next, consider the tax implications for US companies with overseas employees. Typically, you’ll still need to report and withhold payroll taxes for American employees living abroad. However, there is a notable exception. Some Americans living abroad can use special tax breaks to eliminate their US tax liability entirely. In this case, they can use Form 673 to request that their employer stop withholding payroll taxes.
Companies with overseas employees may also need to withhold foreign payroll taxes. In most countries, individuals establish tax residency after 183 days, so make sure to review the rules of the particular country and discuss how long your employee intends to stay in each location.
In some cases, having an employee present in a foreign company could trigger a business registration or tax filing requirement. Particularly if the employee will be generating revenue for the company in the foreign country (for instance, in a sales position), make sure to review the local laws.
Additionally, once an employee begins working abroad, local employment laws may apply. These regulations may increase the requirement for paid time off or limit your ability to end employment.
Living abroad may impact employees’ benefits as well. Typically, overseas employees can still participate in benefit plans, such as 401(k), pension, and stock option plans. However, the company’s health insurance may not cover employees abroad, so they may need to obtain local insurance or a travel insurance policy.
Once overseas, employees often find that filing their annual US tax returns is more complex and time-consuming. Companies can refer these employees to an accounting firm that specializes in ex-pat tax preparation—or provide these services as an added perk for employees living abroad.
Is letting employees work from overseas right for your business?
Allowing employees to work from anywhere in the world can help businesses build strong teams, cut costs, and drive growth. But before making this switch, leaders should consider the impact of such a policy on their taxes, employment terms, and HR practices. Work with your team to determine the right balance that will benefit your business and employees.
About the author
David McKeegan, MBA, EA is co-founder of Greenback Expat Tax Services, a company that specializes in preparing US tax returns for American ex-pats living all over the world. David can be reached at greenbacktaxservices.com.