In the United States, employers withhold and pay taxes in the state in which the employee works, even if the employer does not have an office in that state. Thus, if an employee works from home and moves to a different state, the employer must withhold and pay taxes in the employee’s new state. To do this, the employer must 1) register the business with the tax agency of the state in which the employee lives, and 2) withhold and pay taxes according to that state’s tax laws and regulations. This is true even if the employee’s move is temporary. State laws vary on the point at which an employee is considered to be working in the state for tax purposes. For example, employees in Illinois are subject to the tax withholding and payment if they work in Illinois for more than 30 days in a calendar year. In New York, the standard is 14 days. However, some states are not enforcing these requirements when employees temporarily move due to COVID-19, so employers should monitor the requirements of each state to which their employees relocate to determine when tax implications apply and whether they will be enforced during the pandemic.
There are also tax implications when U.S. employees relocate to another country. In the event that an employee moves outside of the United States, employers are generally subject to taxation by the country in which the employee resides, unless the two countries have an income tax treaty. Even if there is such a treaty in place, an employee’s work abroad can create a “permanent establishment” that reinstates the employer’s tax obligations (for example, if an employee continues to work in another country after the pandemic). Like U.S. states, the laws of foreign countries vary as to when foreign employees become subject to tax laws, and to the extent that days worked in the country factors into the analysis, some countries have waived length-of-stay considerations in light of the pandemic.
An employee’s tax position will generally not change if they are working from home and move within the UK, unless they move to or from Scotland. Such a move could have tax implications because the Scottish government has power to set a different rate of income tax from the rest of the UK. If an employee lives in Scotland for a longer period than anywhere else in the UK during a tax year, they will be liable for Scottish Income Tax. However, it is an employee’s responsibility to inform the tax authorities if they move to or from Scotland and their tax code will be adjusted automatically, so the employer does not have to take action in this situation.
If a UK employee works remotely from abroad, the position is more complex. The basic rule is that employers must continue to calculate and deduct income tax through the “pay as you earn” tax system from all payments made to UK employees temporarily working abroad. Such an employee may also incur income tax liabilities in the host country. By allowing an employee to work abroad, the employer inadvertently risks creating a permanent establishment in that country for corporate tax purposes. An employer may also need to continue to deduct social security contributions from pay, although this will depend on the country in which the employee is working and the length of time they will be working in that country.
Remote working will, in principle, have no impact on the employee’s tax position. Indeed, remote working will not affect the social and tax treatment of the remuneration served to the employee or the reimbursement of professional expenses. Note that in France, employers shall proceed to withholding of income taxes and social security taxes incumbent to the employee.
The situation may differ if the employee works remotely out of France on a regular basis, which may affect not only his/her tax residence and the related income tax, but also the social security contributions to be paid. From a legal standpoint, the employer has no right to impose the residence of an employee. The exact impact of the employee’s out of country residence would require a case by case analysis.
For the record, it is worth emphasizing that remote working, even during the pandemic, cannot be imposed by the employee.
Applicability of pay and labor laws
Employers in the United States must comply with the pay and labor laws of the state in which their employees live. When an employee moves to another state, employers should consider the labor laws and obligations of the employee’s new state. For example:
Minimum wage: The employer must pay the higher of the minimum wage set by the employee’s state or county.
Pay stubs: Some states require employers to provide pay stubs, and also regulate the form and content of the pay stubs.
Payday requirements: The employer must conform the frequency of an employee’s payroll to the requirements of the employee’s state, regardless of the employer’s typical pay schedule.
Paycheck delivery: The employer must deliver paychecks in the manner and timeframe required by the laws of the employee’s state.
State disability insurance: The employer must withhold money for state disability insurance if the employee works in one of the five states that require such withholdings.
Overtime: If the employee’s state calculates overtime differently than the federal overtime requirements, the employer must use the calculation with the greatest benefit to the employee.
Breaks: The employer must provide paid and unpaid breaks as required by the laws of the employee’s state.
Workers’ compensation insurance: The employer must provide workers’ compensation insurance according to the laws of the employee’s state.
With regard to remote work policies, workers’ compensation statutes are particularly important for employers to understand. In some states, these statutes do not limit the employer’s liability to injuries that happen in a certain place, meaning that employers could be liable for work-related injuries that occur in employees’ homes if they are working remotely. In such cases, employers should consider requiring safety inspections of the remote workspace pursuant to safety compliance checklists.
U.S. employers whose employees move to another country must similarly comply with the other country’s employment laws, including laws on termination and benefit contributions.
The fact that an employee moves from one part of Great Britain to another will typically not affect their employment rights, as the same legislation applies across England, Scotland, and Wales. Although the Northern Irish government is responsible for employment rights in Northern Ireland, in practice these tend to be very similar, although not necessarily identical, to those in Great Britain.
If an employee works remotely abroad for a UK employer, it is possible that they will retain employment rights in the UK, particularly in relation to laws on termination of employment and discrimination. They may also acquire employment rights in the country from which they are working. For employment tribunals in England, Scotland, and Wales to have jurisdiction to hear a claim, an employee must have “a sufficiently strong connection” with Great Britain and British employment law. Relevant factors include where the employee was recruited and paid, where they are based, where they pay tax, the governing law of the contract, where the employee’s home is, and whether the employment relationship has been managed from the UK.
Non-UK nationals who come to work in the UK for an overseas employer may also acquire employment rights under UK law. They may be entitled to statutory protections against dismissal and discrimination as well as rights such as holiday, family-related leave, and minimum wage entitlements, even if their employment contract is not governed by UK law.
Assuming that employees remain in France and that French legislation applies, remote working legislation will not depend on the location of the employee, but rather on the legal instrument in force within the company that will govern remote working. Two different situations may be identified: (i) exceptional circumstances and “force majeure” and (ii) existence of a collective agreement or of a company charter.
Exceptional circumstances and “force majeure”
Article L. 1222-11 of the French Labour Code allows employers to put in place and impose remote working on their employees where exceptional circumstances arise, notably in the case of a pandemic or in the event of “force majeure”. The pandemic related to COVID-19 typically falls under this definition, and most employers have unilaterally set the modalities of remote working during COVID-19, though not necessarily in writing. It shall be noted that during the COVID-19 pandemic, the French government has also generalized remote working on a 100 percent basis and “imposed” employers, in particular during lockdowns, to put in place remote working for activities that could be worked remotely, as part of distancing and protective measures. The French government has specifically framed its recommendations through National Guidelines that have been regularly amended and updated depending on the evolution of the pandemic. After a recommendation of 100 percent remote work, the government has allowed employees who expressed the wish to return to work (due to feelings of isolation in particular) to return on-site subject to the employer’s consent. The latest version to date of the Guidelines, entered into force on 9 June 2021, no longer imposes 100 percent remote work, but requires employers to set a minimum amount of days of remote work, in the framework of the social dialogue (the French government has set for civil servants a minimum of three remote working days).
The modalities of remote work are not defined by law and are at the employer’s discretion. That being said, the employer should proceed based on the information and consultation of its staff representatives, in particular on the impact of the working conditions on its employees, and assess and update, whenever necessary, the document related to the yearly assessment of risks on health and security of employees (if applicable, in coordination with staff representatives).
General labour rules will remain in force. In particular, employees on remote work shall benefit from the same rights as other employees, with no discrimination. Furthermore, business expenses shall be borne by the employer, after validation, and employees. Despite the fact that no framework is required during the pandemic, the interprofessional nationwide agreement on telework, dated 26 November 2020 (and extended by Ministerial Order dated 2 April 2021), reminds employers of the necessity of anticipating these situations.
Collective agreement or charter
Remote working may also be put in place by a collective agreement or by a charter drafted by the employer either during pandemic or in regular situations. Where the employer has unions, the negotiation of a collective agreement shall prevail without the obligation to reach an agreement.
Where a collective agreement cannot be negotiated or concluded, the employer may still use a charter. Before pursuing this option, the employer should inform and consult its staff representatives, if any. It is no longer necessary to proceed by addendum to the employment contract (unless remote work is part of the employment relationship).
Both the collective agreement and the charter can define the framework of telework, in particular: the activities eligible for telework, the frequency of telework, and the modalities of implementation of telework, including the reimbursement of expenses incurred during remote working.
Note that, irrespective of the legal instrument putting in place remote work, any accident that occurs during telework will be deemed a work accident and entail application of the related protective legislation. To limit these situations, the place of remote work should generally be defined to limit the different locations of telework, without imposing a specific place of residence.
Employers in the United States may consider adjustments to employment contracts either to reflect the current work-from-home climate or to maintain a program for remote work going forward. Several of these adjustments respond to the fact that remote workers are often located in a separate state or country, and include:
Remote work stipends: During the pandemic, several employers repurposed their office maintenance budget to provide employees with remote work stipends to facilitate working from home. These stipends can be used to cover, for example, internet or phone bills, desks and chairs, computer equipment, or access to a shared workspace (this can also be covered by a separate stipend specifically for this purpose, called a “coworking stipend”). Employers that plan to continue allowing their employees to work from home should strongly consider instituting formal policies for remote work stipends, especially because some states require that employers reimburse employees for expenses of the necessities for a home office.
Remote work agreements: In light of state and federal orders requiring that employees work remotely, some U.S. employers have drafted remote work agreements for these employees. Remote work agreements ensure that employees understand expectations for performance of remote work, and agree to meet these expectations. Employers who are considering permanent remote work policies should use these agreements to ensure that remote work productivity remains consistent.
Required relocation: Most employers in the United States can generally make hiring and firing decisions based on where an employee lives. For this reason, if an employer prefers that employees live in the same state as the office, the employer may present relocation ultimatums to current employees or include relocation requirements in employment agreements. Employers in the United States have not signaled plans to impose this requirement on remote workers, but it is recommended where employers hope to hire an employee temporarily out of the country.
Change in employee status: Maintaining a traditional employment relationship with applicants or employees working from a foreign country can expose employers to risks or obligations under the other country’s laws. The question of whether local laws apply to such an employee is a fact-specific analysis that depends on the foreign country at issue, the length of time the employee is in that country, where payroll is paid, and other factors. For example, the European Union applies its wage and hour laws to any employee who works in the European Union, even for a very short time. If an applicant or employee is in another country temporarily, employers may mitigate risk by onboarding them as a fixed-term employee on the local payroll, or by treating the employee’s presence in the foreign jurisdiction as a secondment.
In the UK, employers need to be aware of their health and safety obligations to employees who are working remotely. They remain obligated to ensure an employee’s health and safety “so far as is reasonably practicable,” and mandatory health and safety risk assessments should include the potential risks to those working from home. Although employers are not obligated to provide equipment for those working from home, except potentially where an employee needs particular equipment as a result of a disability, many employers provide equipment in the interests of business efficiency.
As employers begin to prepare for a physical return to the workplace, they are focusing on two key issues. One is how to manage employees who have worked from outside the UK during the pandemic. In many cases, employers are requiring such employees to return to work in the UK, even if not to return to the workplace yet, to minimize some of the tax and employment risks discussed above. Some employers are implementing “overseas working policies” requiring employees to obtain permission before working from abroad in future. Policies may also place limits on the locations from which employees can work and the periods that can be spent working abroad.
Another key concern is how to handle an anticipated increase in flexible working requests from employees who have become used to working from home within the UK over the last year. All employees with six months’ service are entitled to make a flexible working request, which could include a request to work wholly or partially from home. Employers must follow a reasonable procedure when considering requests and can only refuse requests for specified reasons. Refusing requests can also result in indirect discrimination claims if requiring employees to work permanently at the workplace disproportionately impacts people with a protected characteristic (such as sex, for example, if refusing a request for remote working puts women with children at a disadvantage). The largely successful experiment with remote working during the pandemic may make it harder for employers to justify refusing requests to work from home in the future.
In France, no specific adjustments of the employment contracts have been required during the pandemic so far.
As mentioned above, employers have an obligation to ensure their employees’ health and security. This includes assessing these risks whenever required, including in particular the anticipation of the return to on-site work.
In this respect, the French government has issued different guidelines in collaboration with the National Agency on the improvement of working conditions (Anact).
In any case, employees cannot refuse to return to work where their health and security is not at stake. Failure to comply with the employer’s requirements may expose the employees to sanctions.
For more information about remote working issues, please contact one of the authors of this post or the Hogan Lovells lawyer with whom you work.
Authored by David Mitchell, Heather McAdams, Jo Broadbent and Alexandra Tuil