WFA - WTF?!
One of Flexa’s co-founders, Maurice, gives us the lowdown on one of the most in-demand employee benefits right now: Work From Anywhere schemes
16th Jul 2021
Disclaimer: This article is intended to give an overview of trends that the Flexa team are seeing amongst our clients and across the wider market. The below is not intended to be legal / taxation advice. Always talk to a competent employment lawyer and / or taxation expert before introducing a Work From Anywhere scheme.
At Flexa, we’ve recently seen a remarkable increase in the popularity of “Work From Anywhere” (“WFA”) schemes across our client base. Companies such as Threads Styling, EduMe and 11:FS have taken the plunge and are supporting their team members in their dreams of taking some time to live and work abroad.
This increasing prevalence is not surprising, given that WFA schemes have become one of the most sought after benefits amongst candidates. From our own employee surveys, we know that 35% of candidates would like their employer to offer a WFA scheme; fascinatingly, this is this top-ranked flexible benefit across all our surveys (note: we don’t categorise flexible location and flexible hours as “benefits”, as these are core ways of working).
But what exactly is a WFA scheme and how does it work in practice?
Let’s start with a distinction: “Work From Anywhere” does not equal “Hire From Anywhere”. The latter approach refers to companies who will hire a new team member from anywhere in the world. The new joiner is officially employed by either a local office / subsidiary within the company’s group entity or, as is becoming increasingly common, by an “Employer of Record” in that nation.
For companies looking to hire from anywhere (like many Flexa clients), we recommend checking out Oyster or Deel, who are well versed in the legalities of remote hiring. However, this article will focus solely on WFA, whereby an employee spends a period of time working outside of their usual jurisdiction, wherever that may be.
On the surface, establishing a WFA scheme should be easy. If the pandemic has taught us anything, it’s that knowledge-based work can be performed from pretty much anywhere, right? The employee can simply make a request, get it approved by HR / their line manager, and head off to a beach cafe with their laptop… surely? Well… no, not really!
As Benjamin Franklin famously uttered: ‘... in this world, nothing is certain except death and taxes.’ How right he was. And, of course, it’s mainly taxation that causes a world of headaches when it comes to WFA schemes.
The foremost potential taxation pitfall is that the employee could be treated as tax resident in both jurisdictions, i.e. their destination of choice, as well as their usual country of residence. Furthermore, in this situation, the employer may also become saddled with reporting responsibilities, or even tax withholding responsibilities, in a country where the company has no legal presence (and no taxation expertise on hand).
In certain instances, the above traps might be avoidable by way of “double taxation treaties” but, suffice it to say, this is not an avenue most companies will wish to go down, given the complexity involved.
So, if an employer does wish to introduce a WFA scheme, but desperately wishes to avoid a potential tax headache, what’s the best way forward? This is where things get really murky…
As a rule of thumb, in most countries, individuals who spend fewer than 183 days in a given year in that country will not be treated as tax resident. Easy, right… what’s the catch?
The challenge is that a large number of countries have bespoke rules relating to tax residency, making the 183 day rule of thumb a very risky one indeed. Here are a few examples of where things might go wrong:
- In Switzerland, tax residency kicks in after just 90 days
- In Hong Kong, tax residency kicks in after 90 days if the individual owns a property in HK
- Australia operates a particularly convoluted test for residency. There’s a beauty of a flow chart here
- Even in the UK, residency status is checked through a head-scratching series of rules and regulations, which also take into account any previous residency in the UK, or even family member residency. You can see this in all its glory at section 3 here
With all this in mind, Flexa clients have generally abided by a “safety first” approach. This will typically mean that the maximum cap on a WFA scheme is 45 days, or occasionally 60 days.
Why 45 days, you may ask? Generally speaking, we have not come across any residency test that would suggest that a new visitor to a country would become tax-resident in fewer than 45 days. In other words, a max of 45 days abroad in one stint “plays it safe” and makes it very unlikely (but not impossible!!) that an employee on a WFA scheme, and / or their employer, will fall foul of local tax authorities.
Summary: Work From Anywhere schemes are genuinely great and we highly encourage Flexa clients to look at the option of introducing WFA. However, there are a number of taxation and legislative pitfalls to be aware of. With this in mind, we would always encourage a client (or prospective client) to obtain professional advice in this regard.
If you would like more information on this topic, please get in contact with us and we will try to help or, if more appropriate, make introductions to legal specialists in the field.