The events of 2020 brought endless challenges for academic institutions. As workforces transitioned to remote status, one challenge was answering the question -- How should we handle situations where employees work remotely for the institution from locations outside the United States?
Many colleges, universities, and hospitals came to find themselves with employees and students who never intended to work from locations abroad. Some individuals were “stuck” outside the U.S. due to travel restrictions, border closings, and visa delays. Others elected to remain in their home countries for health and safety reasons. And others asserted strong personal or family reasons to avoid travel to the U.S. Several such situations continue into 2021. One thing is clear: remote international telework will persist through the pandemic and beyond.
There’s nothing new about faculty and staff living and working abroad on business. But international telework arrangements are deceptively complicated and layered with policy, regulatory, and tax implications. Like other global enterprises, academic institutions often struggle with the same foreign regulatory issues that multinational conglomerates find challenging in the international employment area. But academic institutions are distinct, having interests and fiduciaries unlike any other organization, and demand solutions that account for the institution’s unique culture and mission.
We offer below five lessons learned from guiding international telework arrangements over the past year. While our focus is on foreign regulatory issues, this is not to minimize the many U.S. federal and state law issues that also affect these relationships and deserve parallel consideration.
The factual circumstances around each telework arrangement is critical.
Reliable data must inform the institution’s risk management strategy. Understandably, facts can be hard to collect where employees independently “go mobile,” health and safety situations evolve, and personal circumstances change. At a macro-level, many institutions have worked hard to develop a centralized understanding of their basic telecommuter footprint in each country, prioritizing those countries with potentially large volumes of remote individuals. Approaches to gathering this information have varied from school to school and department to department. Importantly, institutional leadership must make decisions based on a holistic view of the organization’s footprint in any country, whereas individual departments and units may be more focused on keeping their direct reports happy.
At the employee level, it’s important to evaluate the specific situation that prompts an individual’s international work, as well as the category of employee who works remotely. Distinctions between new hires, faculty, and non-faculty staff affect the policy considerations and the foreign regulatory analysis. More granular distinctions also bear on the analysis – e.g., fixed term versus tenured individuals; undergraduate students versus graduate students (GA, TA, RA); unionized versus nonunionized staff; and funding sources for each individual.
For example, the following core data often is critical:
- Whether the individual is faculty, staff, or a student.
- Volume of faculty, staff, and students in the country.
- Documentation with the individual.
- Length of time the individual has been (and will be) in the foreign country.
- Citizenship and immigration status of the individual.
- Where the individual will receive payment.
- Site at which the individual will work abroad.
- Whether the individual has authority to “represent” the institution or sign contracts.
- Whether the individual is servicing an institutional program in the foreign jurisdiction.
- Whether the institution has offices, webservers, or material assets in the foreign country.
With this information in hand, institutions can start to separate theoretical risks from practical risks and formulate an approach to any given remote work situation.
Non-U.S. employment law may govern the employment relationship.
Many countries adhere to the principle that the law governing an employment relationship is the law of the jurisdiction in which, or from which, the employee carries out work. International remote work arrangements complicate the application of this principle, particularly where the telecommuting relationship involves a home office, a fluid time period, or a new hire who has not previously worked for the institution stateside.
Another complicating factor is the unique relationship that institutions have with certain individuals, such as graduate students who often receive a stipend or other financial support for teaching or research services. The nature of the relationship between a university and its graduate students is the subject of debate around the world.
Where host country employment law applies, mandatory terms and conditions affect the institution’s relationship with the remote employee and supersede existing employment terms. For example, in some jurisdictions, even temporary “work from home” employees are entitled to minimum holiday entitlements, leave allowances, social security benefits, notice periods, grounds for termination, and work environments. Labor regulators can bring actions to enforce these protections, or employees may assert the benefits of local standards. Institutions must engage in a country-by-country exercise to determine whether and how to square the foreign labor regime with the telecommuter concept.
Non-U.S. payroll, social security, and withholdings deserve special attention.
Often the most logistically challenging element of remote work arrangements is determining whether the institution has foreign tax or payroll obligations in the host country, and if so, navigating the path forward. Wage withholding and payroll obligations depend on many factors, such as whether the institution has a permanent establishment in the country; the tax residency of the individual worker; and tax treaties and social security totalization agreements. A “one size fits all” approach may not work, even for a single group of employees working remotely in the same country.
Where non-U.S. payroll and social security obligations apply, institutions wrestle with the mechanics of foreign and U.S. tax duties. Some countries have issued temporary COVID-related relief to excuse tax withholding obligations, but such relief has been fleeting. As a practical matter, most institutions are not set up to run a foreign payroll system or remit funds to a foreign agency. It may seem tempting to convert employees to an independent contractor model to avoid entanglement with foreign payroll and employment law. But most countries will look to substance over form and disregard the contractor designation if the arrangement in reality operates like an employer-employee relationship.
Outsourcing the payroll or human resources function is among the strategies that institutions often consider. Payroll service providers, professional employer organizations (PEO), and employer of record (EOR) firms may be part of the solution, but no approach is perfect. For example, transitioning employees to a PEO for a temporary period can be awkward and counterproductive in certain countries and for certain categories individuals, or necessitate tax or employer registrations abroad. In countries where institutions already maintain offices, affiliates, or employer registrations, careful consideration goes into whether it’s prudent to connect remote workers with the institution’s existing host country infrastructure.
Permanent establishment concerns are real, but often manageable.
An important piece of the puzzle is whether remote teleworkers create a permanent establishment (PE) of the employer in the host country. PE is a tax concept that implies institutional tax obligations on the basis of activity in the country in which a PE exists. The PE analysis is grounded in tax treaties, local law, and government policies and driven by key factors such as whether the foreign activity occurs in a fixed place of business; whether the employee signs contracts on behalf of the employer; how long the employee is in the host country; the nature of the employee’s work; and other institutional presence in the host country – e.g., webservers, agents, or assets.
In the wake of COVID-19, some countries issued guidance to alleviate PE concerns relative to temporary remote work arrangements driven by the pandemic. The Organization for Economic Cooperation and Development (OECD) also took the position that pandemic-related temporary changes of location, such as working from home, should not create a new PE for employers. However, even OECD caveated its guidance on the basis that home office telework “does not become the new norm over time.” OECD guidance is just that – guidance – and individual countries have diverse interpretations of the guidance. Typically institutions can mitigate the PE risks associated with temporary “home office” work through monitoring and management steps, but high risk PE jurisdictions like India and China merit special attention.
Advise teleworkers of their obligations abroad.
No institution can anticipate every challenge that will arise in international telework, but institutions can offer basic guidelines to faculty, staff, and students working abroad. Typically these guidelines center on the period of permitted remote work, the policies and procedures that apply, and the worker’s obligations during remote status.
For example, institutional policies such as research compliance, intellectual property, export control, and information security continue to apply to remote workers. Coverage under institutional benefit plans may be affected or limited during remote working, and institutions should guide employees accordingly. Remote employees also must comply with applicable law in the jurisdiction from which they are studying or working remotely, including local regulations on immigration, internet usage, foreign exchange, and individual income tax.
A thoughtful communication with remote employees may help create a record of understanding among the parties. For example, given the patchwork of global data privacy laws that protect individuals abroad, some institutions will need to obtain express consent to use the employee’s personal information during the telework period.
Next steps
These lessons learned are hardly exhaustive. Other issues that merit consideration in cross-border telework include benefits, immigration, technology, data security, intellectual property, and online education for student workers. Knowledgeable counsel and tax professionals can inform the country-by-country regulatory and operational strategy, but institutional infrastructure must also evolve as remote work becomes the new normal. Getting this right is critical because getting it wrong may not only undermine competition for global talent, but it could also generate employee claims, reputational damage, and tax penalties. Looking ahead, employee mobility and work location flexibility will continue to be a high priority for globally-minded institutions. A thoughtful compliance strategy will make these scenarios a positive experience for both the employer and employee.
Our team is guiding many remote work arrangements. Please contact us at any point.
Authored by William Ferreira, Adilene Rosales, and Sarah Godwin
