Many years ago, every evening at 10 p.m. a local television station would present the following public service announcement: “It’s 10 p.m. Do you know where your children are?” Today, HR professionals need to ask themselves a similar question: “It’s 2016. Do you know where your employees are?”
Employees are legal links to their employing entity. Wherever the employee lives and works (in general terms) the employer is also present. The employee is considered to be the legal agent of the employer because the employer controls the work the employee performs. Most countries’ definitions of employment recognize some aspect of dependence in the relationship and look to the employer to provide certain benefits and protections to the employer’s subordinates. Additionally, many countries view the relationship as requiring even more of the employer because of the difference in bargaining power. In these countries, laws and enforcement systems are designed to protect the employee against improper treatment at the hand of the employer.
When countries see an employee working physically within that country’s borders — especially those countries that have strict laws regarding the employer’s obligation - they see that employee as one of its own and looks to the employer to ensure it is compliant with local obligations. Among these local obligations may well be for the employer to have an employing entity present within the country. Other obligations may include expanded leave laws, robust social security payments, strict overtime hour limitations, or generous vacation requirements. If your employee is hired on a U.S.-type benefits package, that employee is likely to learn the differences quickly. She or he may find the local labor inspector to be their new best friend.
In addition to employment laws being triggered, an employee’s presence may also trigger interest by the tax collector. Of course the employee will be required to pay local taxes, but because the employee is the dependent agent of the employer in many instances, the employer may be obligated to pay corporate taxes as well. In hard economic times, tax collectors are just as interested in additional opportunities to collect taxes as companies are in finding ways to avoid additional costs. Allowing employees to work remotely at a lower wage might seem like a way to cut costs, but if the location imputes a corporate tax, this solution is not likely to end well.
Employment and tax laws have historically been designed to address the physical location of objects, work, products and people. The age of the Internet may have changed the ease with which employees can work from “anywhere,” but it hasn’t changed the consequences arising from employees working remotely — especially if the remote location applies different employment or tax laws to the relationship established or the work performed by the employee.
Hence the need to ask the question: Do you know where your employees are?