The responses from our recent Remote Relo Tip Tuesday video that discusses virtual assignments and how they differ from traditional expatriate assignments made it obvious that this topic is of interest to corporate mobility programs.
That video explains that a virtual assignment is when an employee remains in their home country location while performing their job and being responsible for operations in a different host country location by performing their work remotely or virtually. While an individual may travel on a one or two week-long business trip occasionally to the host work location, unlike a traditional short- or long-term assignment, they do not live in the host country. Because of that, there are a number of traditional assignment benefits that are no longer needed to be provided, like:
- Host country housing and transportation allowances
- Cost of living allowances
- Global insurance plans
- Dependent schooling costs
- Immigration costs
Besides the possibility of reduced assignment costs, let’s consider some of the other advantages:
- With fewer expats to evacuate when a crisis arises (like say a global pandemic), virtual assignments may minimize risk for companies, allow for better duty of care and provide for improved business continuity.
- Second, dual career and family issues often get in the way of traditional assignments, but with a virtual assignment, partners can maintain their careers and schooling arrangements can remain in place for children.
- And third, immigration issues such as work permit restrictions, quotas and other legal limitations can be reduced, if not eliminated. With the recent executive order aimed to freeze the hiring of foreign workers with H-1B visas, virtual assignments are getting a lot of attention and consideration currently. Virtual assignments and remote work opportunities for transfers and new hires could be solutions for employers that would help offset any potential loss of talent without the H-1B and other related visa holders.
What are the downsides, you ask?
First, the role itself obviously needs to be able to be done remotely for the most part. Then, one of the biggest challenges relates to tax issues. Christopher Hall from GTN explains that, "From a tax perspective, the greatest concern around virtual assignments is the corporate tax impact to the organization. Employees working in Country A for an employer from Country B, could create an entity (also known as a Permanent Establishment) in Country A. The knock on impacts of this could be significant."
It's better to know going in if having remote workers in another country could result in the company being deemed as having a permanent establishment in that country, because this could result in additional corporate administration and tax costs. Additionally, many locations have specific thresholds related to reporting so there may (or may not) be employer reporting obligations and/or tax withholding obligations. These would be good to know about and avoid prior to discovering it after the fact!
There can also be some tax ramifications if a "virtual assignee" travels to the location. Depending on the length of time they work, the travel costs may be considered taxable income. Again, GTN explains (this time Brett Sipes), "In the U.S. for example, if an employee visits a single job location for more than 35 workdays in a calendar year and that travel pattern is expected to last for more than one year, then reimbursement of the travel costs is deemed to be taxable. Additional complexities may apply if the employee is deemed to be an itinerant."
Our friends at GTN suggest downloading their "Work anywhere checklist" and considering what your plans for the employee will be. Then run that by them for a free consultation. (email@example.com)
Additionally, Worldwide ERC has provided insights in one of their latest articles, "Leaders Focus the Future on Remote Work and Wellness."
Last but not least, check out Mercer's, "The Rise of Virtual Assignments."
Virtual assignments are defined as an arrangement in which the employee lives in one country but performs their job remotely in another country. While virtual assignments are being considered by almost half of companies (40%), this type of mobility is still evolving for most, with only 3% of companies having a formal policy.