International remote working – immigration, labour law, payroll and other compliance risks

This is the third in our series of blog posts regarding the recent increase in interest surrounding international remote working and the second regarding compliance. Once again, in the context of this series of articles we will focus on the area of international remote working where an employee performs duties for their employer while being physically located in a different country.

In our previous blog post, we looked at the key compliance issues associated with an international remote worker’s tax and social security liabilities. However, in addition to these, there are numerous other compliance issues associated with the right to work, which laws govern the relationship between the employee and employer, payroll issues and many more. This article will attempt to cover the pertinent points that HR practitioners need to consider in relation to each of these areas.

Does the employee have the right to work?

This is likely to be the area which attracts the most scrutiny before a company decides to utilise international remote working arrangements such as virtual assignments. One of the first issues for a company to address is whether or not an employee has the right to be located where they are working and whether they have the right to work in that location. For example, if an employee who is presently working for a company based in Singapore decides to move to Thailand for a short, medium or long period of time and continues to perform their services for the company while based there, a crucial question for the employee and employer will be – does the employee have the right to be in Thailand and work from there?

There are likely to be multiple immigration options for the employee, ranging from entering Thailand on a standard tourist visa through to more long-term solutions such as obtaining long-term residence permission, but many of these options will not permit the employee to work. In many cases, employees seeking to work remotely while being based in Thailand would likely feel that they can simply enter Thailand on a standard 60-day tourist visa. However, this does not give the person the right to engage in paid employment while there. While the employer may take a hands-off approach when it is the employee who chooses to work remotely, assuming it to be the employee’s choice, there can still be implications for the company. If the employee uses a short-stay visa option and chooses to renew on a regular basis, there may be procedures which can be time-consuming, such as the employee’s need to exit and then re-enter a country impacting the employee’s levels of productivity. This may then be made even more difficult in the present environment where travel is disrupted by pandemic-curtailing measures in many countries. There can also be limitations on the number of times this type of travel is permitted before the employee is then prohibited from re-entering, which may put the employee’s ability to work for the employer at risk. 

Most importantly though, even if these practicalities can be overcome, it is important to remember that in the overwhelming majority of cases a person may not undertake paid employment if they enter a country on a tourist visa. As such, as reported in our recent Managing Mobility Survey, almost two thirds of companies only allow an employee to undertake a virtual assignment from a country where they have the right to work.

Which employment legislation will apply?

An additional concern is which labour laws will apply to the employee while working remotely. In the case of long-term assignments, this tends to be straightforward in that the employee and employer must act in compliance with the labour laws of the country to which the employee is assigned. However, what will happen when the employee is assigned to work for a company in the Philippines but remains physically in Japan? Which country’s labour law will apply to the employee?

If in the above example the employee enters into an employment contract with the Philippines company, the terms and conditions in the employment contract will be the same as those provided to other locally recruited staff in the Philippines. However, as the employee is physically located in Japan, Japanese labour law may take precedent and be applied in areas regarding mandatory provisions such as leave and termination. Therefore, any company seeking to utilise international remote working should consult employment law specialists in the locations where they expect their workers to be based.

Payroll

In terms of payroll, the most pressing issue will be whether or not the company is able to pay the employee in their location and currency of choice. This is straightforward when an employee remains in the home country while performing services for an entity in another location on a virtual assignment basis, as the employee will continue to receive their salary via home country payroll as they did prior to the assignment. However, the company will need to be mindful of where taxes need to be paid on the employee’s salary, as discussed in our previous blog post.

However, other cases are less straightforward. Our employee who chooses to relocate from Singapore to Thailand for a short period of time will likely accept the fact that the company will continue to pay their salary in Singapore dollars and will accept both the inconvenience of having to withdraw money from an ATM on a regular basis and the possible impact of currency volatility during this time, as the move has been at the employee’s request. However, the Japanese employee who works for a Philippines-based company while continuing to be based in Japan will likely not wish to be paid in Philippines pesos and often the company may not have the ability to pay the employee in a foreign currency in a foreign bank account.

Healthcare

The Covid-19 pandemic has led to a significant increase in home working and with it questions regarding the employer’s liabilities in the event of accidents which occur at home while a worker performs their duties. This is also applicable to international remote working and different jurisdictions have different laws on the matter, so it is important for HR personnel to know what is required and what the company’s liabilities are. For example, a person based in Singapore who chooses to work remotely from home for an employer based in Australia may be covered by Australian laws in relation to workplace accidents. So, in this instance, if the employee has an accident at home in Singapore while performing their job for the Australian employer, they may be liable to compensation in accordance with Australian legislation.

There is also the issue of medical coverage in the event of an accident. We discussed the issue of eligibility for membership of social security schemes in our last post in the context of the retirement benefit component of such schemes. The same principle applies to government-provided medical services. Several countries limit access to government healthcare to citizens, residents or those who make contributions to their social security schemes. Therefore, a person from Australia who is employed by a company in China but prefers to live in Hong Kong will not have the same level of access to hospital services, and the fees they pay for the services they can obtain will be significantly higher than those applicable to Hong Kong residents.

Another consideration is medical insurance. Before utilising virtual assignments, the HR team should also check with their medical insurance provider to see if employees who continue to remain and work in their home country would still be covered by the company’s medical insurance policy if the employee is working for the benefit of a subsidiary in another country. Likewise, if an employee chooses to relocate to another location for a short period of time, such as a couple of months, but continues to work for their employer, they may not be covered by the employer’s medical insurance policy as many policies have geographical limitations regarding coverage.

Data security

An area which is often overlooked but is of significant importance is data protection and security. A person on a virtual assignment may be based in one country but accessing data, such as employee records, confidential financial information or other sensitive data, on a computer network or server in another country. There may be legislation or contracts between companies and their clients which prevent this from happening. For example, common inclusions in commercial contracts are clauses prohibiting one party from transferring data in relation to their commercial relationship to its operations and employees based in other countries. 

There is also government legislation to consider. For example, the European Union’s General Data Protection Regulation (GDPR) provides legislation regarding personal information and what companies need to do to maintain the security of such information, including accessing it. Therefore, a person based in China on a virtual assignment for a company in Germany will need to comply with GDPR requirements if they are accessing personal information relating to the German entity’s employees or clients.

Many countries have legislation regarding the storage of personal data and will levy punishments, including fines, in the event of a breach, with the EU’s presently the most severe. This means that companies will need to take measures to ensure that when their staff are accessing their networks from other countries, they are doing so securely. For example, a person who is undertaking a virtual assignment could compromise the company’s IT security infrastructure if they are accessing the company’s IT network courtesy of an unsecured Wi-fi network in a coffee shop, bringing financial and reputational consequences.

Conclusions

While tax, social security and legal issues (such as immigration and employment legislation) are the areas that will attract the most attention when companies are evaluating compliance and administrative issues associated with virtual assignments, this blog post shows there are other areas which also require equal care and attention from HR staff when formulating a policy around international remote working. Policies will need to encompass both the company’s and employee’s respective roles, responsibilities and liabilities regarding healthcare, occupational health and safety, and even data security. 

In our last post we summarised that virtual assignments are more likely to be used in extenuating circumstances when an employee is unable to be physically based in the location where their role is to be performed. Likewise, the issues discussed above also lead us to believe that virtual assignments will be most companies’ preferred mode of international remote working as the risks posed and the liabilities that can arise by permitting an employee to work from anywhere can be considerable for both the employee and employer.

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