A few weeks ago a friend who is a CEO in Europe called me for advice. Their American subsidiary was allowing employees to work anywhere after the pandemic, and their lawyers and accountants were suddenly confronting consequences after an employee moved to a state where the company had never done business.
Many companies are in a similar situation. As vaccines roll out and cases decline, leaders are considering what the future of work looks like for their organizations. We have seen CEOs from companies like Twitter, Facebook, and Shopify pledge that they're going to allow their employees to work from anywhere, or WFA.
Companies offering a WFA model want to proactively create the flexibility employees want today and remain competitive in the labor market. At the same time, they may be setting themselves up for unexpected and significant costs and challenges.
As someone who has led a fully remote organization since 2007, I've seen firsthand the headaches that can come from allowing employees to work from literally anywhere. Ignoring these and riding the WFA wave may have major implications for your business, which is why leaders need to think carefully before committing to the WFA model.
Here's a scenario: You've decided to let all employees to remain remote and work from wherever they want after the pandemic. Soon after, a top employee decides to move to London, even though your entire business is based in the United States.
To accommodate this move, you need to figure out how to set this person up as an employee in a new country. You need to ensure all compliance regulations are followed, potentially set up a business entity in the United Kingdom and arrange payroll and benefits in a new market. This will take substantial time and money.
Suddenly, you're in a bind: Do you expend all this effort to let one employee work from another country, or refuse to let that person move? If you do the latter, you'll risk losing a star performer, and undercut your own WFA policy. Plus, what happens if the employee doesn't even like London and moves to Spain?
Allowing your employees to work from anywhere, without restrictions, has complications and unintended consequences.
Unfortunately, logistical challenges are only part of the battle when your employees move to new states or countries. These types of migrations can add significant costs as well. For example:
- If an employee changes states, you may find your current health care plan does not fit that state's regulations. You may need to pay competitive costs in that state's insurance market to secure the coverage guaranteed to other employees.
- If your company is in retail, having employees in certain states can trigger Nexus sales taxes, meaning you might have to start collecting sales tax from that state.
- State income rates and business taxes vary, and you may need to pay to register in each employee's state and report to that state quarterly. Tax laws are still not clear for remote workers in all states, and companies could be on the hook for additional taxes once these laws are settled.
- If your employees move to new countries, your organization may be required to set up a business entity in each country to ensure compliance. That can easily trigger tens of thousands of dollars in costs.
A company cannot just let employees work wherever they want unless they are ready and willing to absorb these costs. While big companies have HR teams that can handle many of these burdens, smaller businesses will be disproportionately impacted.
Potential legal consequences
As a business leader you might be wondering: Is it really necessary to jump through all these hoops today for each employee, or can we deal with that messy red tape later?
The fact is, compliance is an area where you absolutely must do things correctly. Nicole Sahin, CEO of Globalization Partners, an Employer of Record (EOR) that helps businesses legally hire and onboard employees in 180 countries, has seen multiple companies incur significant fines because of poor compliance. In one case, poor compliance nearly tanked a lucrative initial public offering.
Playing fast and loose with tax, compliance, and labor laws may seem easier upfront, but the second your company must undergo due diligence, or is audited by a regulator, the consequences will become clear, and may be painful. Sadly, allowing employees to work from anywhere, without covering your bases creates a lot of new risk for your business.
Scared? You should be, just a little. While it's tempting to offer a WFA policy, consult in advance with HR experts, lawyers, and accountants to ensure your company has the will and resources to make that policy a reality. Once you've offered a WFA future to employees, it is going to be hard to close the barn doors behind the horse.