Global Mobility: Reimagined Post-Pandemic

At a glance:

• The main takeaway: Historically, multinational companies approached cross-border work arrangements using a few traditional mobility programs, but now the options have expanded post-pandemic.
• Impact on your business: The finished shape of these new work arrangements is still emerging, but they require careful planning and consideration to be utilized effectively, particularly from a tax standpoint.
• Next steps: Aprio’s Global Mobility professionals can help design and implement mobility strategies and reporting aspects to mitigate risk and support both employers and employees.

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The full story:

The COVID-19 pandemic put unprecedented strain on companies and economies around the globe, forcing businesses to make drastic changes practically overnight. Offices emptied, teams scattered, and companies had to implement remote and/or hybrid work policies to keep their talent connected and productive amid lockdown restrictions and extreme uncertainty. And while this newly established “virtual workforce” generated concerns and considerations for US-based multinational corporations, the ensuing “Great Resignation” may have presented the largest challenges for employers to navigate. Now companies have found their post-pandemic recovery strategies tangled up in the dual need to keep pace with economic pressures while retaining talent in a very competitive labor market.

Before the pandemic, most multinational companies approached cross-border strategies using a few traditional mobility programs — usually some combination of transfers, formal assignments, and long- and short-term business travel. These tried-and-true approaches to mobility gave companies the control and flexibility to calculate and consider the benefits of intentional talent placement while ensuring any associated costs aligned with program goals. As the labor market has tightened and employees are increasingly demanding geographic flexibility, many multinational companies are reconsidering their approaches to cross-border business strategies as they attempt to attract and retain top talent while remaining economically conscious.

Companies with large or scattered footprints are increasingly eschewing traditional approaches to managing a global workforce in favor of three strategic approaches that have proven to align well with most recovery strategies: remote work, hybrid work and outsourced work. The finished shape of each arrangement is still emerging, but each requires careful planning and consideration to be utilized effectively.

Three emerging work trends for cross-border businesses

Remote and hybrid work have been the topics of much discussion since the beginning of the pandemic. These newer working arrangements come with their own sets of pluses and minuses, and it is important to consider both when planning how to manage cross-border business strategies in the future. And while there are some risk factors that should be considered, the benefits that come with virtual talent can also be quite significant.

Allowing for flexibility in work arrangements is not just a good way to save money on costly office space but it also aligns with what employees are looking for in today’s job market. Employees increasingly demand flexibility as part of their benefit packages, so employers who want to acquire and keep the best talent are wise to include some form of hybrid or remote work provisions in their employment contracts if they want to stay competitive.

Geographic flexibility also effectively expands a company’s potential talent pool into a veritable talent ocean. Instead of sourcing employees from the area surrounding their offices, companies with flexible work arrangements are given the opportunity to fill positions with the best candidates for the job regardless of where they may reside. Remote work arrangements also allow for employees to work without relocation, obviating the need to consider relocation and other assignment-specific costs specific to each employee.

The potential advantages to these new talent mobility strategies are significant, but they come with caveats. In addition to all the potential downsides cited by middle managers and the owners of real estate investment trusts, remote work arrangements in particular run the risk of incurring unanticipated tax liabilities that may cause headaches to unprepared companies. These unanticipated liabilities can arise from any of the following:

• State and Local Income Tax – The longer a company’s employees live in any given state, the more likely it becomes that their employer will be deemed to have a taxable presence in that state. Failing to register employees and pay the necessary state taxes will often result in significant penalties and compliance costs, making it imperative for companies to be aware of where their employees live and work.
• Foreign Permanent Establishment Risk – Employees who live and work in foreign countries for extended periods risk creating a permanent establishment in that country. The rules surrounding permanent establishment clauses differ depending on the country of origin, the host country’s domestic tax laws, or whether the countries in question have struck a bilateral income tax treaty which defines the concept and its stipulations. Regardless of the specifics, an employee accidentally creating a permanent establishment triggers an avalanche of obligations for the employer, including local registration, payroll, Social Security, and corporate income tax filings in the US and the host country.
• Payroll Taxes – Companies with remote workers may need to withhold, remit, and report taxes based on where the employees live and work. Employees working in foreign countries may create the need for a separate shadow payroll, as well as incur a compliance burden that may include foreign Social Security tax.
• Tax Filings – Employees who live in different states or countries may have to file tax returns in multiple jurisdictions. Depending on the applicable rules and regulations, employees who work in more than one location during a single year may have to pay taxes twice on their income. It may be possible to mitigate this double taxation by utilizing foreign or domestic state-to-state tax credits, though most employees will likely need assistance to successfully do so.

A variation of the remote work strategy known as the “digital nomad” concept has also begun to take shape as it gains popularity among young professionals. The strategy is very similar in principle to the remote work model, though it differs in one key way that employers would be wise to consider. Whereas remote workers typically perform their work from a single location, digital nomads earn by working virtually from any number of different locations. This may be appealing to some employers, but it’s important to consider the potential tax complications that can come from such arrangements.

Some countries have started to incentivize virtual workers to relocate and work from within their borders as a way to boost their local economy. Barbados, for example, has programs that allow foreigners to work virtually from inside the country without personal tax liabilities or tax obligations — though not every country has such programs in place. It would be wise to consider things like work permits, visa restrictions, and residency laws to avoid triggering employer and employee tax obligations.

The bottom line

Creating sensible and sustainable talent mobility strategies in a post-COVID landscape can require a significant amount of precious company resources. Proactively addressing any potential tax issues that arise at both the employer and employee levels should thus be a top priority for companies who wish to control costs and reduce the likelihood of tax-related headaches in the future. Many companies will find this to be an ongoing challenge that requires the assistance of outside professionals with experience navigating the complexities of multi-jurisdiction employment.

Companies looking for help in this area would be wise to reach out to Aprio’s Global Mobility professionals. Uniquely qualified to assist with mobility-related tax and payroll issues, Aprio’s Global Mobility professionals can help design and implement mobility strategies and reporting aspects to mitigate risk and support both employers and employees.

To contact a Global Mobility professional at Aprio, please complete the Contact Us form below.

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