AirBnB made a splash recently with its dramatic announcement of changes to its remote work policy. While many companies are trying to bring their employees back to the office, AirBnB made a move in the opposite direction – giving its employees complete control over where they work.
In a letter to its entire workforce, AirBnB co-founder and CEO Brian Chesky explained that the company was addressing the realities of today’s world. “We started this process by asking a simple question—where is the world going? The answer is obvious—the world is becoming more flexible about where people can work.”
The innovative new policy allows employees to work from anywhere – home or office – and move from state to state without any change in compensation. They can even work from abroad for short stints of 90 days each year if they wish.
While remote work is clearly the wave of the future, and AirBnB has effectively positioned itself as a progressive employer, employees have to consider a number of factors before they take full advantage of the policy. Government policies on remote work still vary widely from place to place and employees will have to cope with complex tax considerations, a wide range of labor laws abroad, and the limited (but growing) number of countries that currently offer remote work visas.
Movement Between States Can Have Tax Ramifications
The concept of working from anywhere can conjure romantic notions of freedom – working on the move as a digital nomad within one’s own country. But performing work in multiple US states creates tax complications on the state tax level.
In most cases, people who live in one state but work in another have to file two sets of tax returns – a resident tax return in the state where they live and a non-resident return in the state where they work.
This is significant to the employer as well. If the state where the employee is physically performing the work is different from the state where the business is officially registered, it usually creates a tax nexus, requiring the employer to register with that state as well and pay employer taxes to the state where the work is being performed.
The exception to these rules – for both the employer and the employee – is if there is a reciprocal agreement between the states. The employee has to provide a non-resident form to the employer to be free from having to file a non-resident tax form. The forms differ from state to state. Residency is determined by the address provided on the employee’s W-4 form.
In most cases, the employee will receive tax credits for the income taxes paid to the resident state to avoid being taxed twice on the same earnings. With the rise in remote work during the pandemic, however, some states have invoked the “Convenience to the Employer” rule to demand payment of income taxes if a company is located in the state even if the work was performed in a different state, creating the potential for double taxation on the same income.
At the same time, nine US states have no state income tax – Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming – making them attractive destinations for domestic digital nomads.
Withholding the correct state and local taxes and filing the right paperwork could be complicated. Each state has its own standards and procedures, and it could be different for every out-of-state employee working remotely for the company.
The Digital Nomad Visa – A Work in Progress
One of the most striking features of the new AirBnB policy is the right “to live and work in over 170 countries for up to 90 days a year in each location.”
While every country has a different set of residency requirements, the 90 day limit is likely to keep people from having to pay taxes on their remote work earnings abroad. The UK, for example, has the so-called “91 day rule” by which a person who spends an average of 91 days or more per year in the UK over a three year period, may be considered a resident for tax purposes. However, other countries can have shorter periods, so people must check residency requirements carefully before embarking on a remote work adventure.
Working remotely abroad is a relatively new phenomenon at that current scale, and many countries are issuing special “Digital Nomad” visas. These allow people to live in a country and work remotely for a foreign company.
Without a Digital Nomad visa, remote workers can find themselves in a legal grey area. They cannot apply for a regular work visa because that typically requires a contract with a local employer, leaving them with the precarious option of working remotely while on a tourist visa. The EU website leaves the issue of remote work ambiguous, stating that “Foreigners who wish to do some remote work whilst on holiday in Europe can do so with a tourist visa,” without defining the limit.
The Digital Nomad visa, which typically requires a passport, a letter indicating ongoing remote employment, a fee, and sometimes proof of sufficient funding to cover costs during the visa period, solves all of the issues, creating a full legal framework for remote work.
Unfortunately, the visa itself is still a new device, and has been adopted to lesser or greater extent by only a few dozen countries. While the number is rising and should continue to rise as more companies embrace remote work, it is nowhere close to 170 countries. The figure is an aspiration more than a reality.
Even with the proper visa, remote employees will be subject to the labor laws of the foreign state, which could have an impact on labor issues. Remote employees will be subject to their contractual terms on issues such as overtime (which could be challenging because of time zone changes). Some countries require a particular way of calculating hours, which could be different than the employee’s base country.
It is also essential that employers and employees going abroad reach an understanding on issues that often occur, such as expense reimbursement, so that the employment process goes as smoothly as possible. Are trips abroad considered business trips if there is specific work done locally and how is that reimbursed?
The Future of People, Payroll, and Payments
As more companies adopt increasingly flexible policies on remote work, there is going to be an even greater focus on compliance, and a greater demand for innovation in payroll, in people management, and in payments, particularly with more demand for faster payments as people are on the move.
Papaya Global provides an innovative payroll solution for all types of employment in over 160 countries. Its platform offers full workforce management capabilities, and quick cross-border payments. Contact us for a consultation.