Temporary vs. permanent remote work: What is the difference?
Introduction
The rise of remote work has changed the way professionals operate worldwide, which offers unprecedented flexibility but - unfortunately - also complexity. In this series, we will provide insights in the considerations employers encounter when employees work remotely from different countries. In this first edition, we will briefly discuss the basic differences between temporary remote work and permanent remote work. In later editions, we will address specific topics more in-depth: working from a vacation spot, permanent establishment risks, migration law considerations, and the new EU Social Security Framework Agreement on cross-border telework. providing valuable insights in each subsequent blog post.
Temporary vs. permanent remote work: definitions
Basically temporary remote work typically refers to short-term arrangements, often lasting a few weeks to several months, where employees work from a location different from their usual place of work. In most temporary cases, the main residence of the employee does not change. Permanent remote work, on the other hand, implies a long-term or indefinite work arrangement from a location different from the company's premises. In this case, the permanent residence of the employee changes. As you can imagine, permanent remote work from abroad has greater consequences for the employer and the employee than the temporary counterpart.
Remote work and immigration law
When working from another country, the first question that needs answering is whether the employee has in fact the legal right to stay and work in that specific country. EU nationals enjoy the freedom to work across other EU member states, but this freedom does not apply to non-EU nationals. They may face a more complex process, often requiring specific visas or permits that authorize employment within the EU-member states. In addition, EU-nationals do not necessarily have the freedom to reside and work in other non-EU member states. It's important for employers to understand these limitations, as most countries levy substantial penalties for unauthorized employment.
Remote work and employment law
Temporary remote work usually means the employee remains under the home country's legislation; however, this does not exempt them from compliance with foreign regulations. In most cases, the minimum employment law conditions of the foreign country should be complied to. Of course, these minimum requirements vary per specific country. In addition, compliance with the requirements of the home country (such as working conditions) should be monitored as well.
Permanent remote work arrangements require a deeper understanding of the foreign employment laws, as in most counties the full range of employment regulations apply in that case. Because of this, an employee who works remotely from abroad permanently should have other employment conditions than the regular employees. Compliance with foreign employment law should be checked beforehand, to prevent legal disputes later.
Remote work and tax implications
Tax considerations are a major factor in remote work scenarios. The starting point for determining tax liability is tax residency. Resident taxpayers are generally taxed in their home country for their worldwide income, non-resident taxpayers are only taxable for income sourced from that country. With temporary remote work from abroad, there usually are no changes in tax residency. In that case the 183-day rule is a common benchmark for determining tax residency for temporary work from abroad. The specific text of the 183-day rule differs per tax treaty though, this should be considered when assessing the tax implications. In addition, it is important to monitor the tax residency status of the employee; if the permanent residence does move abroad, this can have far-reaching consequences.
For permanent situations, the employee is already considered a foreign resident. If an employee works 100% remotely from the country of residence, there is generally no split in taxable income. If the employee works in other countries as well, the (possible) tax liability should be assessed per country.
Employees with tax obligations in both their home and host countries, could lead complex compliance issues. Additionally, different countries may have varying fiscal treatments for benefits such as pensions and tax-free allowances, which could impact the net income of the employee.
Remote work and social security implications
If an employee is subject to social security abroad, the employer must register in that country and contribute to the social security scheme there. It's important to be aware of the social security consequences of remote work. For temporary remote work, the social security coverage of the employee will generally not change. If an employee works remotely from abroad on a permanent basis, the social security legislation of his home country generally is applicable. The EU has specific regulations, including the new EU teleworking framework agreement, which stipulate social security contributions for remote workers. These rules will be covered later in the series.
Additional costs
Compliance with foreign employment legislation, including contracts and payroll, often incurs additional costs. It is essential to factor in these costs to assess whether remote work from abroad for the specific employee is feasible and / or cost effective.
Conclusion
Remote work from abroad, whether temporary or permanent, can have various legal, tax, and social security implications. For employers, it's crucial to differentiate between temporary and permanent remote work arrangements to prevent unwanted surprises later in the process. While temporary remote work often allows for more flexibility with fewer legal changes, permanent remote work demands thorough preparation and ongoing management to avoid potential legal disputes and ensure compliance across jurisdictions.
Staying informed and proactive is key, so stay tuned for the upcoming posts! Feel free to reach out with any questions or for further consultation on managing your global mobility challenges effectively.
