Employees that worked remotely before to 2020 were typically freelancers. Remote work trends surged as many organizations began overseeing remote employees throughout the pandemic. As a result of this shift, the number of “digital nomads” in the workforce has exploded, particularly among full-time, non-exempt workers (as opposed to freelancers). According to a recent survey, the number of digital nomads surged by 96% from 2019 to 2020.
Employees who live and work in different parts of the country or perhaps the world are referred to as digital nomads. They travel and work in new places without the constraints of an office, frequently without their employer’s knowledge. While this trend may lead to happy employees and geoarbitrage (a means of hacking and increasing income relative to the cost of living), it is also causing payroll tax compliance and basic HR compliance concerns for firms.
Risks associated with payroll tax compliance
Employers who have remote workers who travel to different areas are exposed to legal issues, both in terms of tax compliance and HR legal compliance. Employers and employees are both liable for paying taxes in their respective workplaces.
While several states agreed to suspend these regulations during the pandemic, many have already been abolished or will shortly be. If an employee works primarily from a different location than their employer, both parties may be accountable for the employer’s taxes and registration in that new location, whether or not the employer is aware of it. Both the company and the employee may be liable for unpaid taxes and significant fines if they do not address these concerns.
These circumstances may potentially jeopardize the employer’s reputation and ability to conduct business.While several states agreed to suspend these regulations during the pandemic, many have already been abolished or will shortly be.
If an employee works primarily from a different location than their employer, both parties may be accountable for the employer’s taxes and registration in that new location, whether or not the employer is aware of it. Both the company and the employee may be liable for unpaid taxes and significant fines if they do not address these concerns. These circumstances may potentially jeopardize the employer’s reputation and ability to conduct business.
Risks of HR legal compliance
Digital nomads subject their companies to legal and HR compliance problems in addition to payroll tax concerns. Even if their headquarters or main office is elsewhere, when an employee primarily does work from a location, their employer is subject to the employment regulations of that area.
Whether the employer realizes it or not, the employee is establishing a “permanent establishment,” a workplace subject to local rules and regulations. Employment rules and regulations differ by state, especially when dealing with a strongly regulated state like California or New York. Employment rules will, of course, differ drastically from country to country.
Employers who are unaware of their employees’ work location may be infringing various laws, putting themselves at risk of fines and lawsuits. As previously stated, these effects could jeopardize an employer’s reputation or ability to function in the worst-case situation.
Managing the legal and human resource issues posed by digital nomads
Employers are starting to use a number of ways to mitigate the hazards posed by digital nomads. Some are tougher than others, and they may have an influence on staff morale and engagement. Employers should not underestimate the implications of alienating their employees and potentially losing talent, especially in the candidate-driven job market of 2021.
It’s worth noting that MP’s HR services team can help you choose and implement any of these options. They are as follows:
Source: mp-hr.com
