An influx of remote workers means new compensation considerations.
By Jean-Luc Barbier
In recent years, HR departments have witnessed the rise of a whole new type of workforce, one that now includes remote workers. As globalisation, skill availability, and outsourcing practices change, businesses have been taking advantage of freelancers, and the traditional work environment is being reshaped.
According to a recent Gallup survey of more than 15,000 employed workers, 43 per cent said they work remotely at least some of the time. This is a four point uptick from 2012. Many large organisations know that the best talent might not already be at their doorstep, and there is nothing stopping them for looking globally for a new employee.
Although the skill gains can be huge, there are also important considerations that can impact productivity, especially if remote workers are in another country. These issues include time zones, currency fluctuations, and language barriers, amongst others. Further, the question of how to pay remote workers pops up for many businesses time and time again. Wages can vary widely from one location to another.
Managing a remote workforce can be a full-time job, but ensuring that remuneration is accurate and on-time, and that all taxes are paid can be a whole other matter. Before engaging a worker remotely, first consider if they will be employed by the organisation or as an independent contractor.
Engaging them as a self-employed worker makes payment much simpler, as there are no complicated tax obligations. If, however, the worker is not self-employed and is an employee, then, depending on the residency of the person and the payroll location, a certain amount will need to be withheld from payroll. In some countries, workers who claim to be independent, self-employed consultants may still be classified as employees if they spend most of their time working for the company.
Currency fluctuations are also hard to manage, especially if the worker wants to be paid in their local currency. Whenever possible, pay the worker in the currency of the company’s home country. This will generate an equal pay rate across the team and reduce any negative factors that could affect the team.
If the employee is based in another country, it may be worth engaging a local payroll company and outsourcing the remote workers payroll. This will ensure that all local laws are met. When a remote worker is paid from the company’s home-country payroll, it may be necessary to withhold taxes, even though the worker lives abroad. The employee is then responsible for filing a claim to recoup the overpaid tax and pay their own tax liabilities in their country of residence. Some countries— such as Ireland and the U.K.—have double taxation agreements. Country of residence also increases in complexity when taking into account benefits such as healthcare, minimum wage laws, overtime, and annual leave, as many different tax rules apply.
To tackle payroll effectively, keep remote workers up to date with any pay changes. Organisations need to consider whether a remote worker should receive the same pay increases as an equivalent in-office worker. An accessible platform for all workers that provides details of pay structure, dates, benefits, holiday time, and sick leave can eliminate confusion for remote employees. Ensure that remote workers keep the organisation up to date on any personal changes, like moving.
Any organisation thinking of engaging remote workers in their own country or abroad should consider outsourcing payroll. Doing this ensures that all tax obligations are met and there are no surprises. Do not let the complications of remote workers deter engagement. As long as an organisation has the correct payroll set up, the benefits could far out way any issues.
Jean-Luc Barbier is international managing director and CEO, Germany of SD Worx.