“The tectonic shift caused by COVID-19 changed ‘work’ from a noun to a verb. From a place we went to a thing we do, irrespective of place.” —Joe Brady, CEO – Americas, The Instant Group
Companies today are facing tremendous pressure from current and prospective employees to provide more flexible working arrangements, and there are more options than ever before. While the abrupt shift to remote work caused by the COVID-19 pandemic was initially chaotic, working from home (WFH) has proved far more viable than most expected. Companies—and entire industries—that hadn’t previously considered adopting such policies are now looking at making them permanent in order to attract and retain employees.
Now that we’ve largely overcome the cultural and technological barriers to working from home, the next logical frontier is working from anywhere (WFA). This level of freedom and flexibility was once written off as a fantasy. But now, given the backdrop of the Great Resignation and the reopening of global borders, whether or not to provide employees with the option to work from anywhere will likely be top of mind for many employers—and employees—in 2022.
The main barriers to working from anywhere are legal and taxation issues. Key risks include tax compliance (for employees and employers), immigration concerns, local employment laws, and data security problems. While these risks may seem daunting initially, they can be managed. Major companies, like Spotify and Revolut, already have WFA policies. Such policies don’t necessarily grant employees absolute freedom. Rather, they can be designed to provide workers with some degree of flexibility, while imposing strategic limitations to minimize risks.
I’ve worked across EMEA, APAC, and the US, and have spent a significant amount of time as a globe-trotting remote worker myself. I’m a chartered accountant and have held senior roles for global multinationals, enabling me to travel to more than 150 locations. I’ve experienced firsthand the challenges of dealing with complex corporate tax, individual tax, and employment law issues across multiple jurisdictions.
My family and I have found working from anywhere to be life-changing. My 5-year-old daughter has already lived in four countries and traveled to more than 20. Being able to work from anywhere has allowed us to truly immerse ourselves in different cultures and pursue our passions in ways that we never could on short vacations. This new way of working inspired me to start my own company: I now advise corporations and individuals on how to make WFA a reality.
Because WFA is a new and evolving policy area that involves regulations from an enormous number of countries, there are still more questions than answers. That being said, employers are managing to move forward and make decisions despite some ambiguity. The simplest—and perhaps best—way to evaluate the risks and rewards of offering a WFA policy is through the lens of a comprehensive ROI framework. This type of analysis can help you make an informed decision as to whether adopting a WFA policy is the right choice for your organization and help you optimize a policy for your level of risk tolerance.
From “Work From Home” to “Work From Anywhere”
I mentioned the mounting pressure employers are facing from employees to let them work not just remotely, but increasingly from anywhere. You may ask: What exactly is the difference?
WFH refers to full-time employees whose companies allow them to work remotely, usually from the comfort of their homes. WFH policies typically apply to workers who stay within one country and can choose to work from “home” either some or all of the time.
WFA policies are different. They permit employees to work remotely abroad on a temporary basis, typically for more than seven days but fewer than 365. Durations within this range fall into a legal gray area in many countries. These stays are longer than standard business travel but fall short of requiring a permanent change in residency.
While WFA isn’t a new concept for some (myself included), it’s something that has often slipped through regulatory cracks. However, as a growing number of people join the WFA ranks, temporary residency is likely to come under increased regulatory scrutiny and stricter enforcement. This shifting landscape is all the more reason to develop a well-designed WFA policy that protects your company from legal and tax compliance risks.
WFA Policies: What Do Employers Stand to Gain?
Both hard data and strong anecdotal evidence indicate that allowing employees to work remotely can provide tangible benefits to employers, helping them attract and retain top talent, increasing employee satisfaction and productivity, and reducing the need for and the cost of office space. Employers that permanently provide the option of WFA reap the additional benefit of access to the global talent pool. Software company GitLab estimates the net benefit it receives from being a fully remote company at $18,000 per worker per year.
Even before the pandemic, academic research from leading universities suggested that allowing remote work could increase employee productivity. A 2013 study led by Stanford professor of economics Nicholas Bloom found that the transition from traditional office work to working from home led to a 13% increase in employee productivity. A subsequent observational study conducted by professors from Harvard University and Northeastern University found that allowing employees to move from WFH to WFA led to a further 4.4% productivity increase.
The message from employees is clear and consistent: Inflexible working arrangements are one of the primary reasons they cite for leaving their jobs. In a recent survey from GoodHire, 74% of respondents said they’d require some form of remote working arrangement to stay at their current jobs.
A growing body of evidence suggests that many workers would even be willing to take a pay cut for the option to work remotely on a permanent basis. While the amount varies by source, in general, most of those surveyed say they’d accept salary reductions of 5% to 10% to make remote working arrangements permanent.
What Are the Downsides of WFA Policies?
There are disincentives to adopting a WFA policy, chief among them the compliance nightmare that WFA can create. We’ll look at this primarily from the perspective of the employer, who generally faces greater risk exposure. However, employees who work remotely in a country other than their permanent tax residence for extended periods of time face certain risks as well.
The primary risk employers face in WFA scenarios is the possibility of triggering “permanent establishment” (PE). PE describes a business’s activities in a foreign country that are substantial and ongoing, enough to give rise to tax liability in that country. Different countries and their respective tax treaties may use slightly different criteria to define PE, but most rely on guidance from Article 5 of the OECD’s Model Tax Convention.
There are two principal ways that an enterprise may trigger PE: operating a fixed place of business (physical or virtual) in a country and/or compensating a dependent agent in that country (usually someone with the power to sign contracts on behalf of the company). Senior executives and salespeople are typical examples of dependent agents, though the designation varies by country and situation. For these reasons, both the nature of the work conducted in a country, as well as the length of time and degree of regularity with which that work takes place, are important factors to consider when developing your WFA policy.
Let’s say a senior director in your company—someone who is responsible for major strategic decisions and who has the authority to sign contracts on behalf of the company—wants to live in their summer home abroad for seven months each year. The nature of the work being conducted, combined with the significant length of time spent in a single country and the recurring nature of the visits, will likely trigger PE by failing both the “fixed place of business” and “dependent agent” tests.
If a foreign country deems your company to have a permanent establishment there, you risk incurring a considerably higher corporate tax bill. On the other hand, a junior software developer working from an Airbnb on a Caribbean island for one month per year is unlikely to trigger PE.
PE carries the most financial risk when allowing employees to WFA, but it’s not the only risk. I’ve outlined the other major risks in the following table.
How can you develop and optimize your company’s WFA policy in a way that maximizes the potential benefits while mitigating the most significant risks? With an ROI framework.
An ROI Framework for WFA Policies
In much the same way that investors calculate the return on an investment, companies often seek to estimate (or, after the fact, measure) the return on a strategic business decision relative to its cost. An ROI framework can be a helpful tool when developing a WFA policy or comparing policy options. The inputs will undoubtedly be imprecise, as it would be impossible to assign concrete numerical values to either the costs or benefits involved. Regardless, this theoretical framework can help you see how various aspects of your policy can be modified to maximize your ROI, either by increasing benefits or decreasing costs.
For our purposes, the “cost” side of the equation should take into account the additional administrative expenditures of implementing a WFA policy as well as the “cost” of each of the primary risks listed in the following graphic. You can estimate the cost of any given risk by multiplying the probability of the negative outcome occurring by the cost of the penalty that would be incurred.
For example, offering a WFA policy for 30 days per year poses an extremely low probability that any employee will trigger PE in a foreign country. Although the penalty cost of PE is high, the probability of incurring that cost is negligible in this scenario, so offering that policy leaves your company in a fairly safe position.
Conversely, an unacceptable risk might be permitting someone in a high-risk role like sales to spend more than half the year in a country where there’s a significant risk of creating a permanent establishment that could cost the company millions. In that case, it would be hard to build a business case to allow them to work from anywhere.
As you develop and compare potential WFA policies, consider four key questions. The answers will directly factor into the ROI of a given policy option, allowing you to optimize your policy by maximizing the benefits and minimizing the risks.
1. Is WFA a viable option for your company?
Not all jobs can be done well remotely. This may seem obvious, but it’s not always as clear cut as you might think. WFA can further complicate matters if employees are working across different time zones. However, over the course of the pandemic, many business leaders who once thought their businesses couldn’t function remotely or asynchronously discovered that in fact they could.
And even industries that require fixed schedules and a physical presence—like automotive plants—may have departments (financial, legal, HR) that can operate more independently. Before you seriously consider adopting a WFA policy, ask yourself whether asynchronous remote work would be possible for your company and how likely it would be to result in lower productivity. Think about this for the business as a whole, as well as with respect to individual departments and roles.
In some cases, industry-specific regulation can be a limiting factor in where employees can work. For example, certain types of financial institutions are highly regulated and may need to comply with specific licensing requirements in order to conduct business across state and country lines. In other cases, remote work may be possible, but less efficient. Asynchronous work poses certain challenges, particularly with regard to communication—however, it can also increase efficiency by letting work continue around the clock. McKinsey & Company has identified which industries are best suited for remote work.
2. How many days of WFA should you allow in a given year?
The number of days you permit employees to work from anywhere per year should be a function of two factors.
First, as discussed in Question 1, consider whether productivity will be negatively impacted by extended periods of remote work. For example, many jobs in the technology sector, such as software development, are relatively independent and often performed remotely. It’s hard to see how WFA for any length of time would pose problems. However, in other industries or roles that require a high degree of collaboration, a month or two out of the office from time to time may be workable, but longer time periods might not be ideal.
Second, think about external regulations. Many visa and immigration rules are based on standard time periods (e.g., 30, 90, or 183 days). For example, American citizens are generally permitted to spend up to 90 days in a given country under a traditional tourist visa. It’s unlikely that carrying out remote work for a US-based company from abroad—work that doesn’t involve interaction in the local market—would pose a serious risk of triggering PE within this timeframe.
It’s not a coincidence that most of the WFA policies adopted by major companies to date range from one to three months per year. Shopify employees are permitted to WFA for three months per year, Revolut offers two months of WFA, while American Express allows one month. For any given WFA policy, a shorter duration lowers the probability of several key risks: triggering PE, running afoul of immigration rules, and becoming subject to local employment law.
3. Which countries will you include or exclude?
You can approach this question in one of three ways: a pre-approved roster of countries, a list of banned countries, or a combination of the two. (For geopolitical or security reasons, most companies ban at least a few countries.)
As you determine which countries to include in your policy, consider which risks are particularly relevant to each location, as well as the overall level of risk. The US and UK, for example, have some of the most stringent regulations in this area: Even stays that border on 30 days have the potential to raise tax issues. In contrast, and particularly over the course of the pandemic, a number of countries have introduced policies with the explicit aim of attracting remote workers. Many countries whose economies previously relied heavily on tourism have made a calculated decision to offer remote work visa programs in order to attract relatively high-earning remote workers and the discretionary spending they bring.
4. Should you dynamically link your performance management system to your WFA policy?
While most of the data suggests that expanding employee flexibility, whether by WFH or WFA, results in increased productivity, there are ways you might be able to amplify this benefit. Just as employers have historically offered performance-based bonuses or awarded paid sabbaticals to those who stayed with the company for a certain number of years, allowing employees to work from anywhere can be used as an incentive benefit linked to either performance or retention.
What’s the Right WFA Policy for Your Organization?
Nothing is without risk. On the one hand, adopting a WFA policy may expose your company to a host of compliance risks. On the other hand, failing to offer at least some flexibility around international remote work puts you at risk of losing some of your best talent. What’s an employer to do?
My hope is that the ROI framework will provide you with a basic understanding of the potential costs and benefits of adopting a WFA policy. What’s more, it should help you compare different policy options and see how adjusting specific components of your WFA policy can impact ROI.
That being said, some of the risk areas are complex. They vary by country and are constantly evolving as regulators attempt to adapt to an increasingly geomobile global workforce. While this basic framework can help you develop a relatively low-risk WFA policy for your company, if you’re considering a more expansive policy, it may be worth seeking professional advice.