'It used to be very glamorous to go on those assignments; it’s a bit more of a grind'
Flexibility is becoming a big selling point with many job candidates.
This can include an employee being able to work anywhere including another province or even another country.
So what do employers and HR need to know about minimizing risk and maximizing productivity when it comes to cross-border remote employees?
Canadian HR Reporter recently spoke with two lawyers about some of the best ways to establish such an arrangement, all while keeping on the right side of the law.
“There’s a lot of concern about the cost in many ways of doing these remote-worker deployments,” says James Egan, senior counsel at EY Law in Toronto.
“And what I found is that, in this economy, there’s a lot of pushback from the business leaders at the different clients, are they getting the right value from these assignments? Are they realizing all the cost and the hassle factor for these assignments? And so what I am trying to encourage our clients to do is to think about how they can better leverage the trends and the opportunities available in rethinking what remote work is,” says Egan.
The hybrid model is becoming the preferred way for the majority of employees, according to a recent survey.
Be aware of the tax implications
While advances in remote technology are allowing these types of employer-employee arrangements to become commonplace, there are risks to be aware of as well.
“The types of issues introduced new complexities to the working relationship and related tax obligations of both the employer and employee such as the following: what province’s payroll withholding rates apply to the particular employee? What payroll reporting obligations apply for the employer,” says Steven Sitcoff, partner, tax at McMillan in Montreal.
“And then if the employee is paid for a payroll that’s located elsewhere than where they reside, how is the rate differential to be dealt with so as not to create a cash-flow issue for the employee or an additional tax reporting burden for them?”
While the “golden age of globalization” ended with the onset of COVID, according to Egan, organizations today are focusing on ways to address some issues that arose in their businesses during the pandemic.
“It’s either on creating deliberate redundancies and supply chains, all the weakness we saw during COVID and secondly, introducing enhancements to existing systems so that’s one big issue or trend in the remote-worker space.”
Worldwide effort to attract workers
As well, countries worldwide are putting in place the infrastructure to attract more digital nomads, he says.
“It is really about connectivity: the ability for higher Wi-Fi signals and greater investment in that space. I pointed out in a webinar that according to the World Bank, the three largest investments by governments right now in their infrastructure. The first is sanitation. Second is electricity. The third is the scope of their web-based enablement, because they recognize that having that connectivity is so important,” says Egan.
In addition to Canadian workers going to other jurisdictions, there are similar problems and concerns being faced by those who wish to have cross-border remote employees within Canada, says Sitcoff.
“Some of these types of issues can be particularly challenging for a foreign employer, that is a non-Canadian employer, which has not previously had or even planned to have employees based in Canada and the potential issue goes well beyond payroll concerns. Namely, employers that introduce remote working arrangements can inadvertently find themselves becoming subjected to corporate tax in places where they no longer or never had a physical presence to begin with.”
The nature of remote working has also changed in recent years, says Egan.
“If someone goes off an assignment for three years or five years, they lose touch with the home office, and being reintegrated was a real challenge. So there’s a common opportunity to business and today’s societies that they want to have less remoteness if you will, from their work experience, in the sense that they’re not as interested, at least not all of them, in that sort of longer term assignment.”
“It used to be very glamorous to go on those assignments, and you be treated like royalty and have all these perks, and now a lot of that’s been stripped away; it’s a bit more of a grind,” he says.
While those workers are often typical “traditional computer analysts and data engineers and system specialists,” there is a new type of individual who is fitting into the space, says Egan.
“A lot of the digital nomads are sole proprietors: they have a special skill and they are not employed specifically by a single company, they may be looking from one opportunity to another and hence, they’re more offering their skills to the market as a whole. They’re on a short-term, three-, six-month assignment to do a specific project in a specific location and we’re seeing a lot of countries that are opening up their doors to allow for that type of structure to help with local companies being more competitive and more connected.”
A worker was ruled a contractor, not an employee in a recent case brought before the Ontario Labour Relations Board.
Get good advice before making decisions
More workers are taking advantage of these opportunities, says Sitcoff and it’s key to check in with the experts to get it right.
“I’ve seen it across the board, especially in the last 18 months or so, everywhere from the entire spectrum from support staff, as a customer service employees to C-suite executives and this is something that could be important to manage because it may have tax implications, which go well beyond payroll related concerns, which are important in and of themselves to address properly.”
“It can be imprudent for any company to entertain these types of arrangements without properly conferring with their advisors as to an appropriate structure to make sure that they’re not creating a potential pitfall either for them or for their employees, and neither situation would be good for an employer,” says Sitcoff.
It’s important to ensure the proper status of an employee before sending them in to a foreign country.
“If they’re working on behalf of a Canadian company abroad, it could be creating a permanent establishment, it could be creating a tax risk for that company, so they have to really be careful how they organize that person being deployed abroad. If they looked like a formal assignment just in a different category, then that could create a tax obligation for the company to pin that location abroad, as well as tax obligations for the individual themselves. If the individual is basically an independent contractor, then the risk for the company is the person really meeting his or her obligations? Are they paying their taxes? Are they doing all those things they have to do that could impact and rebound on the company, both for tax purposes, and workplace health and safety and all the rest of it,” says Egan.
