COVID-19 has created the digital nomad – what now for employers?
As businesses try to manage the realities of the post-pandemic workplace, they are being forced to deal with issues such as tax and HR regulation of digital nomads.
Today, the hybrid work model, characterised by the ability of employees to work from home and at the office, is a defining moment for human resource management post the COVID-19 pandemic. However, in as much as employers and employees have to come to terms with the realities, there are a number of other issues that have to be considered, including tax and how to deal with remote workers.
It’s a significant and emerging trend, says Nicol Myburgh, Head: HCM Business Unit at CRS Technologies, a specialist services and solutions provider focused on the human capital management market.
“There is more to this trend than simply allowing or not allowing the hybrid model, and employers should embrace it,” says Myburgh. “With everyone suddenly being able to work from anywhere great opportunities have been created, but also some threats. On the one hand, employers now have access to an unlimited skills pool, but on the other, employees have many more opportunities within their grasp, which brings employee retention to the forefront of business priorities. Companies need to engage and retain their staff and the best way to do this is to listen to what they want.”
Remote work or the ability to access company infrastructure and perform all responsibilities, either onsite or off, is growing and has moved from being a possibility to a reality.
The concept of a digital nomad has, however, presented human resource managers and business owners with a dilemma.
As Myburgh explains, “The digital nomad movement has been steadily growing, but since COVID it has exploded. Everyone wants to be a digital nomad and work from a new location every couple of months. This creates a few challenges, and many countries have gazetted new legislation to simplify the ‘movement’ part of the digital nomad lifestyle, but tax legislation hasn’t kept up with the changes.”
This will have implications for businesses. CRS Technologies emphasises that there are double taxation agreements (DTAs) between most countries to regulate how taxation would work if a permanent resident of one country works for a period of time in another.
“These agreements usually determine which country is entitled to income tax, based on the period of time the employee spent in the country during the tax year, the origin of the income, where the income was earned, in which country the employee permanently resides, etc. This differs between countries and agreements.”
At the same time, CRS Technologies says employers have several options when it comes to managing digital nomads.
For example, they can change the employer-employee relationship to an employer-independent contractor relationship.
In this case the tax burden shifts from the employer to the contractor.
Myburgh adds, “The employer could make use of an employer of record (EOR). This company would have an entity registered in a particular country, employ the employee on behalf of the employer and invoice the employer monthly for the employee’s salary. The EOR would then be the party liable for income tax. The other option is for the employer to research countries where it could easily manage income tax requirements and give the employees a ‘safe country’ list as options, should they wish to work remotely from a different country.”
While allowing for work to happen from anywhere on the planet is nothing short of amazing, it is critical that companies fully unpack the flip side of remote working across continents, says CRS Technologies.
The company advises businesses to prepare robust policies and approaches. These not only protect the business, but also the employees who opt for the digital nomad lifestyle.