“A new world of travel has emerged,” according to a recent promotional video released by Airbnb. “Millions of people are now more flexible about where they live and work. They’re spreading out to thousands of towns and cities, and they’re staying for weeks, months or even seasons at a time.”
Airbnb has now launched new features to accommodate the growing cultural trend of long-term travel. The new Split Stay option is one of them, allowing travelers to split longer stays between two different listings. Airbnb also just announced Airbnb Collections for certain types of travel, with Airbnb For Work being one of the first to launch.
Airbnb’s emphasis on flexible work is both an internal and external marketing strategy, as AdWeek recently pointed out. The objective is to encourage more workers to avidly travel for long term “workations” and book more stays at their homes.
This may seem like exciting news for remote workers, with Airbnb attempting to make it easier for them to set up shop anywhere they wish. However, allowing employees to freely globetrot on the job, without guidelines, can inadvertently create compliance risks for companies.
Labor audit trigger
The remote work revolution is among the momentous shifts brought on by the COVID-19 pandemic. According to data from Ladders, 25% of all professional jobs in North America will be remote by the end of 2022 and remote openings will continue to expand through 2023.
While employers may not mind if an employee takes an extended “workation” in another country, governments do. New regulatory measures and statutory frameworks are cropping up to address how remote work is treated in terms of tax, payroll administration, benefits, compliance and other functions of business planning. For example, new provisions concerning remote work were recently integrated into the labor codes of Chile, Norway and many other countries.
It also seems labor-related audits are on the rise, possibly thanks to the explosion of remote work. The GoGlobal team recently worked with a company after it received a request for a labor-related audit by Taiwanese authorities. The HR team thought one of their employees was living and working in Taiwan when they were really living and, effectively, working in the US. While the issue was eventually addressed without legal consequences, it still proved to be an onerous, costly process.
Other companies and workers may not be so lucky and several questions loom large: What happens if a company faces a lawsuit in another country for violating local employment laws? What happens if a worker’s actions on the job result in a lawsuit for the company? What if an employer is deemed to have permanent operations in a country by having a worker abroad?
Permanent establishment risks
A permanent establishment is a fixed place of business, generally giving rise to income or value-added tax liability in a particular jurisdiction. The term is defined in many income tax treaties and trade agreements between countries. For example, the European Union maintains specific rules of PE to determine taxation in situations of cross-border employment.
If a company engages a worker in another country, they may become subject to the same laws as any business operating in that country by way of permanent establishment policies.
When a foreign company engages a worker located in another country, it’s also possible the local government will deem that worker a contractor (since there is no legal entity to employ them). Notably, depending on the jurisdiction, permanent establishment can be triggered by merely signing or extending any form of a contract within the country. This can hold true even if the contract duration is short and temporary.
if a company unknowingly engages someone that is working from a different country, they may be exposed to such permanent establishment risks. This amounts to added tax liabilities and potential legal ramifications for the company or the worker – or both.
Know your employee
Labor laws don’t just differ from country to country. There can be a range of jurisdictions within one country, each with unique labor laws, taxation structures, contribution requirements and statutory benefits.
There has been great emphasis on ‘know your customer rules in recent years, aimed at helping companies prevent money laundering and fraud. With so many workers abroad and labor risks running rampant, more companies may make ‘know your employee’ a part of their remote workforce engagement strategy.
Why should you “know your employee?”
- In the best case scenario, a company that doesn’t know where its workers are located is putting itself at risk for a failed labor audit.
- In more serious situations, the company can face hefty fines, ongoing legal troubles and a tarnished reputation.
Here are two steps companies can take to implement a ‘know your employee’ framework:
- Qualify local employment and continuously practice due diligence in verifying where all workers are living and working.
- Educate the workforce about the risks associated with working in the wrong jurisdiction. This way, employees will understand that working in the wrong jurisdiction can hurt both them and the company.
With the second point, it should be noted there is a daunting series of ‘what ifs’ that can hurt the employee too: What if a worker gets seriously sick or suffers an accident abroad? The healthcare benefits from his or her home country may not be valid. What if a worker faces visa or immigration issues? What if tax authorities conduct an audit and find the worker is liable to pay taxes in the country?
When workers understand they have personal risks at stake, they will likely be more forthcoming in their travel plans.
Consider partnering with an Employer of Record (EOR)
In the new world of travel and work, many companies will want to offer employees the option of a “workation” as an added benefit.
To avoid legal troubles, companies may consider partnering with an Employer of Record (EOR). As part of the arrangement, the EOR legally employs workers on behalf of the hiring company through their legal entity. The EOR then assumes the responsibilities of operating a business and administering payroll in the country. The EOR model, which can be set up quickly, effectively protects both the company and individual by mitigating the risks of labor-related audits and permanent establishment.
Despite Airbnb’s attractive messaging that lauds the “live and work from anywhere” movement, there are still lurking risks companies must consider. After all, if anything goes wrong, Airbnb won’t be held responsible. The burden will fall on companies and their workers. In many cases, an effective EOR solution can instill the global hiring experience with agility, efficiency and peace of mind.