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Where are your employees working?

The tax implications of remote working

The landscape of remote work has evolved at an unprecedented pace over the past two years of the COVID-19 pandemic. Meantime, news headlines are still riddled with delayed return-to-office announcements and new hybrid work commitments.

Hybrid and remote-working models have become the norm more quickly than anyone envisioned pre-pandemic. But the shift to remote and hybrid work regimes adds layers of complexity for tax teams. Everyone will need to address the tax implications of remote working, both for the employer and the employee. And when remote working is cross-border this can be a complex picture.

Following the peak of the pandemic, employers continue to grapple with the implications of working remotely. Remote working raises a myriad tax-related issues for companies to consider and proactively address.

What does this mean for the business and the employee?

The pandemic challenged companies to think differently about how and where their employees work. During the crisis, some companies announced (semi) permanent flexible “work from anywhere” policies, and now we see some companies telling employees that they may not need to return to the office.

This is part of an employee-focused approach which demonstrates flexibility and support for employees who prefer to work from an alternative location. It also enables potential corporate benefits such as reducing real estate footprint and enabling access to a wider talent pool.

In this paper, we explore the questions tax leaders should ask if they are considering remote work as part of their future workforce strategy, and what they should think about next to manage this new way of working.A new reality has emerged, and tax leaders need to take a take a longer-term view to shape the future and consider four imperatives to address and manage the current and future potential tax compliance risks of working remotely on a longer-term or permanent basis to limit any tax exposures.

The practical steps to roll out a remote work strategy

Deloitte’s view is that companies should develop an action plan that addresses current and future potential tax compliance risks. We believe it is essential to adopt a holistic view to enable individual cases to be controlled and assessed (from a corporate tax, employer and employee compliance perspective) and that there is appropriate tracking and identification of the type of entity that employs the individual.

 

Here are four actionable steps:

Step 1: Assess people exposure and risks

Data collection: Start by gathering data on remote workers to understand size and levels, locations, timeline, etc.

Risk assessment: Identify and assess the immediate compliance risks and downstream impacts (tax, payroll and reward impact). The end goal is to use the key findings to develop policies and processes to manage long-term risks.

Step 2: Consider digital tracking technologies and monitor potential tax triggers

Travel tracking, analytics and communications tools can be used where permissible to pre-empt tax exposure, locate workers, and enable remote work. For example, travel tracking dashboards and program analytics, including benchmarking and modeling (for data on policy usage, travel patterns, spend, and performance) can support strategic decisions, while communication hubs and agile communication channels (such as mobile apps, text, chat bots, and video) can be used to drive compliant behavior.

Leverage automated technologies to track location data, such as employee-friendly calendar apps with built-in location services. This will help employers to manage employee expectations in terms of tax withholding and income reporting, as well as the employer’s fiduciary responsibilities around tax compliance.

  • Implement digital solutions that analyze data and report risk based on a rules engine.
  • Be proactive in keeping up with the latest regulatory updates and consider their applicability and impact to your remote workforce.
  • Reassess risk exposure on a frequent basis.
Step 3: Use multiple data sources to help with understanding workers whereabouts

Data sources can include travel and expense reports, HRIS systems, Virtual Private Network (VPN) data, surveys or calendars where employees are asked to opt in and validate their location. Once the location data are validated by the employee, it can be imported into an analytics solution to identify risk exposures and compliance obligations based on company policies and tax law. Reports and country dashboards identifying risk can then be used to make payroll tax adjustments and other compliance decisions.

Step 4: Consider the role of global mobility as a strategic partner

As traditional long-term expat assignments reduce in volume, global mobility can play a strategic role in shaping the organizational response to remote working given the function’s experience collaborating across stakeholders (Talent, Payroll, Tax, etc.) to manage compliance and the global talent experience. A global mobility function can also pivot its expertise to increase focus on remote work, such as advising the business on staffing assignments virtually and designing remote work programs and policies, aligned with other global mobility policies such as short-term assignments, business travelers and commuters.

The future workforce

With the shift to remote work and hybrid likely to outlive the pandemic, companies must look to strategies to embed resilience and agility to evolve with shifting work preferences resulting from pandemic-driven changes. This is an opportunity to rethink the future of work – including what work is and how it is delivered, who performs the work, and where it is performed – and course correct.

Deloitte is urging companies to reflect on and consider these four imperatives:

 

  • Balance the interest in work from anywhere policies and or remote working with potential compliance implications. Every time an employee crosses a domestic or international border to work, their movement can trigger HR, immigration, payroll, and tax ramifications.
  • Pay more attention to the data to determine the tax exposure (payroll, withholding, etc.) when employees are working from locations different from their home offices.
  • Focus on having the right digital solutions in place to assist with managing tax compliance concerns. These can help identify where employees are working and enable triage and informed decision-making. Technology tools that track and analyze remote worker locations and educate employees on actions to mitigate risk can help organizations sustain a successful remote work strategy.
  • Flex global mobility support and start thinking about who is best positioned to establish, lead and manage the strategy and implementation of a remote work program and policies. Global mobility may be uniquely positioned to lead from the front, given its experience with global talent strategies and mobility, planning and deployment, and coordinating across similar stakeholders.

Deloitte has developed a range of services to help businesses proactively identify and address potential regulatory compliance risks. For information access Deloitte’s Business Travel Analytics.