What teleworking in Europe means for compliance.
Many employees globally were faced with remote working due to Covid-19 restrictions. As “lockdowns” continued to be implemented across Europe, many employees returned home or relocated to other countries. Previously, remote working was dismissed as not being a viable option for many firms who were strong believers that being physically present in the office was the only way to be a united successful team. However, as restrictions ease, the job market reopens and industries return to a level of normality, the popularity of remote working has not reduced (despite Zoom burnout). This article explores at a high-level some key factor’s employers should consider to ensure local compliance in an overseas remote working environment.
EMPLOYMENT LAW PROTECTIONS
If employees live and work abroad, even for short periods, they can benefit from the applicable local mandatory employment protections. These may include minimum rates of pay, paid annual holidays, termination rights and leave entitlements such as maternity.
It is imperative employers are aware of the relevant employment law of the overseas country to ensure the practices applied by the company are compliant and that the relevant procedures have been established. For example in Ireland, The Organisation of Working time Act 1997 states employers are obliged to record working time information for each employee on a daily basis (starting and finishing times, rest breaks etc). Employers need to ensure they have safeguards in place to ensure no employee is working more than 48 hours a week and that employees receive a minimum daily rest period of 11 consecutive hours per 24-hour period. Other EU countries have similar regulations.
HEALTH AND SAFETY
The responsibility for Health and Safety at work rests with the employer regardless of whether an employee works remotely or is based at the office. The employer must ensure that the employee's home workspace and equipment are appropriate to safely perform all duties.
In France working from home is regulated by the Labour Code. The regulation provides for the mental and physical wellbeing of the employee. The employer must prevent employee isolation, control workloads and ensure a balance between the worker's private and professional lives (Articles 6 and 9 of the 2005 ANI). In the Netherlands, employers must provide employees with the equipment needed to ensure a safe working environment which in some cases might involve contributing towards or purchasing relevant equipment such as chairs and desks.
Some EU countries have certain allowances which should be paid to the employee which will add to the employment cost of employees. In France, an employee is entitled to an "occupancy allowance" when the company does not have premises where the employee can work and therefore the employee is de facto obliged to work from home (Supreme Court, 8 November 2017, n°12-19.667). In Luxembourg and Portugal, employees are entitled to a daily meal allowance to contribute towards the cost of lunches.
Employees who are working remotely overseas may create unintentional tax consequence. Employees may face double taxation issues resulting in a lower net salary. Employers may have obligation to pay taxes in overseas countries. Important questions which should be asked are:
- Is there a double taxation agreement in place between the “home” and overseas country?
- If taxes are due in both locations, what relief is available for double taxation and does a foreign payroll need to be run in conjunction with the “home” payroll?
SOCIAL SECURITY OBLIGATIONS
The general rule is that employee and employer social security obligations arise in the country in which the employee is physically carrying out their duties.
However, there can be exceptions to this rule. In the European Economic Area (EEA) and Switzerland, if the employee is sent abroad by their employer for up to two years, or the employee is working in two or more countries they can continue to pay taxes where the employer is based, e.g. an Irish employee of an Irish firm is transferred to the Spanish office for 8 months. Providing they contact revenue and receive clearance, they can continue to pay their social security contributions in Ireland and not be liable for Spanish social security. However, it is best practice for employers to review:
- Can the employee remain enrolled in the “home” social security?
- What company is the employment contract connected too? Is it still the “home” entity or has it been novated to the overseas entity?
- Where is the employee covered for health and unemployment benefits?
Where an employee is working remotely, they will be accessing an employer’s network from a remote location. This access creates a potential weakness in the system. Employers should review their own internal IT infrastructure to ensure it is sufficiently protected from phishing, vishing and remote access threats. Privacy concerns should also be considered such as security of telephone and video calls. Most importantly, staff training should be completed to ensure basic IT etiquette is being maintained: maximising Wi-Fi security, good practice when using personal or work devices, remote conferencing and tips on how to recognise phishing/vishing attempts.
RISK OF APPEARING TO HAVE A PERMEANT ESTABLISHMENT
Permanent establishment (PE) is created by business activity that is sufficient to be viewed as having a stable and ongoing presence in a overseas country. If the activity results in locally created revenue, then the overseas country may impose corporate taxes at the local rate. Every country has criteria that will define when business activity reaches a level that will trigger PE and resulting taxation. It is important to monitor companies’ growth and the activities of the employee when they relocate to an overseas country to ensure the company is not viewed as a PE.