Posted: 22 Feb. 2021 5 min. read

Enabling a remote workforce in a tax-compliant way

In one form or another, remote work is here to stay. Even before the COVID-19 pandemic forced companies to abruptly implement work-from-home protocols, organizations around the globe were increasingly considering remote-work policies. Technological advancements have allowed a greater number of employees to successfully perform their duties outside the traditional office setting while remaining connected with their teams and their clients.

After the global crisis passes, it’s generally expected that many employees will want to continue to work from home, either part time or even full time, due to the enhanced flexibility this offers. Many employers are already implementing policies to facilitate such arrangements.

This presents a significant challenge for employers. Even before the crisis, they were under pressure to develop new skills and capabilities within their workforce as the nature of traditional jobs and responsibilities continued to evolve with the increased usage of robotics, automation, and cognitive computing, and develop their capacity to support a growing network of workers who could work from anywhere. The abrupt shift in 2020 to remote work has exacerbated those pressures and piled on even more, forcing companies to also have to quickly train their employees in resiliency, virtual collaboration, remote leadership, and more.

Leaders are struggling to activate these skills and capabilities because their workers are overwhelmed, and talent management and training models are outdated.

  • We need a novel approach
  • We need to provide learning in the flow of work
  • We need to tap into broader talent pools

To cultivate this future-ready workforce, organizations will not only need to attend to developing their current employees, they will increasingly seek to tap into the broader global talent pool, seeking out a more diverse set of skills, experiences, and expertise.

The tax challenges of remote work

As employers expand their workforce globally and continue to support remote work arrangements, both of which may involve employees working in locations other than where their corporate office is located, it’s inevitable that tax issues will come into play. The reality is that, in many cases, tax implications are driven by where an individual is physically present and performing work—not by the location of the head office or the employer entity.

While an organization may decide that employees who choose to work remotely from other jurisdictions will be fully responsible for handling their own personal tax complexities, it will still need to navigate a plethora of corporate income tax, indirect tax, withholding tax, payroll, immigration, and legal issues because of employees working in other jurisdictions—perhaps even in locations where no local corporate entity exists.

To say these cross-border tax-compliance issues are complicated would be a gross understatement.

Nonetheless, companies cannot allow these tax and legal compliance issues to be barriers to hiring the right talent no matter where it resides nor to supporting policies that enable remote work. It’s therefore becoming imperative that internal tax teams work closely with their talent, human resources, and mobility counterparts to understand their company’s remote-work and workforce strategy plans so that they can develop the policies, processes, and frameworks to make their workforce future-ready while remaining compliant as an organization.

Non-compliance is not an option

The risk and cost of non-compliance is high: financial penalties and fines could be levied, and an organization’s ability to conduct business in its other jurisdiction(s) may become compromised. Reputational risk becomes a concern, as does the personal liability of the board directors. With government revenues around the globe under increasingly significant pressure, especially due to the pandemic, one can reasonably expect an increase in the level of tax-audit activity.

Developing a future-ready workforce in a tax-compliant manner, therefore, is crucial. Being tax-compliant requires employers to know where their employees are performing services and what services they are performing, as this affects corporate tax requirements and drives downstream payroll and tax-withholding obligations.

Companies will need to pay even more attention to employee data. That means they’ll  need the right technological tools to enable the tracking and analysis of remote worker locations and travel. Employee education will also become paramount, focusing on actions to mitigate risks and enable triage and informed decision-making.

Practical action

How can organizations manage corporate tax compliance while embracing a remote work environment? I would suggest three distinct steps:

  1. Assess current exposure and risks: Identify immediate compliance risks, such as employees located in a jurisdiction where no payroll is operated and/or tax returns filed. In addressing existing exposures, an organization’s tax team can use the opportunity to fine-tune its data-gathering processes, collaborate with the HR and talent functions to support current remote work arrangements, and both educate and learn from each other.
  2. Revisit digital-tracking technologies: Employee data will be key, as noted earlier, and various travel-tracking tools exist that can be used to yield such data. Automated technologies can be used to track location data, such as employee-friendly calendar apps that have built-in location services. More important than the data itself is the ability to analyze it; consider travel-tracking dashboards and digital solutions that analyze data and report risk based on pre-established rules and criteria.
  3. Use multiple data sources: Given the importance of accurate employee data, consider using multiple sources: travel and expense reports, virtual private network (VPN) data, and surveys or calendars where employees are asked to opt in and validate their location, for example. This data can be imported into an analytics solution to identify and quantify risk exposures and determine compliance obligations based on established company policies and country-specific tax laws. Consider using technology solutions that create reports and country dashboards to identify risks, enabling payroll tax adjustments and other compliance decisions.

Remote work will continue to evolve. In many cases, it will provide a terrific opportunity for organizations to support their employees’ needs while enhancing their workforce by drawing from a more global talent pool. At the same time, they will also need to ensure their tax and HR global mobility teams work together to accomplish this in a tax-compliant way.

Meet the author

Guy Jason

Guy Jason

Partner, National Global Employer Services (GES) Leader

A tax partner at Deloitte LLP, Guy Jason is the Canadian national leader of the Global Employer Services (GES) practice.  He serves companies primarily in the technology and consumer business sectors.  Guy has worked for more than 20 years in public practice, advising clients on a variety of cross-border tax matters.  His client base ranges from large multinational corporations to Canadian headquartered start-up companies.  With deep experience in Canadian, US and international corporate tax matters, Guy brings fresh insights and a holistic point of view in addressing organizations’ domestic and cross-border mobility tax needs, which may include expat programs and business travelers, global payroll and compensation, personal tax planning, and remote work arrangements. He is an active speaker, writer and presenter at various forums on a variety of mobility tax related topics. Guy is one of Deloitte Canada’s “remote work” tax leaders, helping clients understand and manage the myriad of inter-connected corporate, payroll and personal tax issues.