Susan Gross Sholinsky Quoted in “Staying Compliant in an Era of Hybrid and Remote Work”

How companies incorporate hybrid and remote work practices into their talent strategies can vary widely. As employers build workforces of the future—while continuing to permit employees to expand their workplace footprint into new jurisdictions—it can be important for senior leaders to understand and plan for various human resources, tax, legal, and other regulatory issues such moves may trigger.

Addressing key employment tax, compliance, and other regulatory concerns associated with remote work was the subject of a Deloitte Dbriefs webcast, “Staying Compliant in the New Era of Remote Work.” The webcast discussion included different employment structures available to employers and insights into leading remote work practices. …

Legal Compliance Issues

“Employers should make sure that once they have an assessment process in place, it is implemented consistently,” said Susan Gross Sholinsky, an attorney at law firm Epstein Becker Green, who provided legal insight on the webcast. “Not being consistent can welcome discrimination claims based on a view that an employer is treating certain employees differently based on gender, race, or other protected factors.”

From the entity compliance perspective, each new workplace location may trigger a new license, registration, or other requirement. The assessment phase, the volume of filings, and the sheer administrative burden of maintaining these requirements year over year should be a business decision point. Another consideration is whether to allow employees to work from locations where the employing entity has not done business previously. What many organizations are finding difficult is figuring out how to allocate those compliance costs from remote work administration across the organization.

A valuable process for the employer can be to regularly review state and city regulations as well as those of countries where certain aspects of employment law or taxation can make it more difficult to agree to remote work requests. Alternatively, for example, Ireland and the Netherlands give the employee a right to work remotely and make it difficult for the employer to refuse such a request.

There may be other legal hurdles to face when choosing the right remote employment model. “If companies are trying to use the independent contractor approach because they don’t perhaps have an office in that state or country, they should understand that in the United States, many states are cracking down on misclassification of employees as contractors,” said Sholinsky.

Entities doing business in a new location will need to consider laws and regulations at many levels. In the United States, for example, noncompete agreements may not be enforceable at all or against individuals earning below a certain salary threshold in certain states, added Sholinsky. Other state-by-state requirement variations may include harassment training of a particular length and content, pay range disclosures, and whistleblowing protections.
Employers may need to do a similar deep dive into the domestic legislation of all countries where they allow people to work remotely, depending on the location and the duration of the remote work. It can be overwhelming when having the first remote workers internationally. In most cases, it’s nevertheless feasible to set up a companywide strategy as long as you bear in mind that sometimes local employment laws have to be checked, and there may be other local requirements.

Some locations, such as the European Union, also have protective regulations like those recently implemented during the pandemic, such as the right to disconnect. And under equal pay for equal work requirements, when having people temporarily working in Europe, employers must grant them some minimum benefits, depending on that country’s legislation.

In the United States, employees working across state borders may be entitled to different insurance coverage from those for locations where offices are based, said Sholinsky. Some states also have short-term disability, paid family leave, and paid medical leave plans, some of which employers pay for and some the state pays for. There are a lot of notice and posting requirements, and pay day, expense reimbursement, and commission plan rules vary from state to state. Even overtime and minimum wage rules vary. Some states have a minimum salary threshold that’s higher than others. Entities doing business in a new location may need to register at the city, county, and state level.

Issues with IT tools and cost reimbursements may arise from international remote work. Some countries leave these to negotiation between the employer and employee, but others have strict rules requiring employers to pay a home office allowance for each day of remote work or to reimburse some costs. Another common question that should be considered is whether a legal entity needs to be established for remote work or whether there are specific employer obligations, ranging from setting up a payroll to subscribing for work accident coverage. In most countries, employers have a duty of care even when the employee works from home in a different country. Moreover, the employer is required to ensure that the employee has a safe work environment.

Employment Model Options for Remote Work

As employees consider remote work options, employers can consider different work models to reduce or simplify the amount of administration and compliance obligations they face. It’s important to identify applicable employment models, project costs for viable options, and assess fit to the organization. Consider the following options, understanding that the regulatory and legal implications of each must be carefully considered:

Local employee. For certain roles, make the remote worker a local employee in the jurisdiction where they want to work, leveraging the infrastructure that is already in place to fulfill compliance obligations. The local entity is already filing a tax return and paying tax, operating payroll, and providing fringe benefits. An intercompany service agreement can have the local entity provide some services back to the company the individual used to work for.

Secondment. Lend the employee to the entity in the location that the individual wants to work. An intercompany service agreement can have the local entity provide a service back to the employing entity in the former location.

Home country employment. In this model, the remote worker continues to be employed by the same entity, doing the exact same job. Such a structure may cause the entity to have a taxable presence in the country where the employee is working, resulting in additional compliance requirements.

Global Employment Company (GEC). This model is designed to mitigate the corporate tax risk from a home country employment model. Rather than eliminating compliance obligations, it acts as a magnet, attracting those issues to the GEC, which is designed to address the compliance obligations.

Engage in agency. This operates like a GEC, but it’s a third-party agency that hires the employees. The prior employer engages the agency to provide administrative support, usually payroll, medical, and pension plans, and to fulfill the compliance obligations that exist in the countries where your employees want to work.

Whichever model is used, companies will want to document why they made the decisions they did. Each model has its own set of benefits and challenges, and there may be hundreds or even thousands of different employee requests to address. Employees also need to know the compliance obligations and activate the right functions within the company to manage them. 

We are now three years into the era of remote work. Legislation and market practices will continue to evolve. Employers will need to monitor the shifting landscape and adapt.