This playbook isn’t here to convince you to become a remote company. You probably already know the pros and cons, as this topic has been covered at length across the world wide web.
What’s evident is worldwide talent is invaluable when building a startup in a niche domain such as fintech & web3. With such a shortage of engineers, product managers, compliance specialists and marketeers with specialised experience and interest in this new area, startups have to look for talent outside their own countries and adapt to a remote, flexible or hybrid working frameworks.
In our three part series we’ll cover the following:
- Part 1, Legalities & logistics (this article), will take a deep dive through the legal, logistical and other critical aspects of managing a remote workforce in 2022 and beyond.
- Part 2, Policy & Tools, will look at creating a remote working policy and communicating this with your team. It will also include a handful of tools that may be useful for your team.
- Part 3, Remote culture will touch on important considerations when building and maintaining your startup remote culture.
Focus on what’s right for your start-up
Running a business in 2022 is very different from the pre-pandemic years. The tech is available, the processes have been tested and expectations have been set. Today, many employees believe remote working should be the norm.
But in-person connections still play an invaluable role. At Luno, we believe that our business is built on the strength of our relationships with each other. That’s why in 2021 we launched a new working approach: ‘Remote but Reachable’. Under our new framework, Lunauts are free to work remotely, but come together “in-person” at least once per quarter — although our workplaces are open for them to use as often as they want. This is our way to balance the flexibility, the lack of commute, the additional time spent with families or passion projects that we’ve learnt to value during the pandemic, with more deliberate, thoughtful interactions with each other. Luno’s approach shows that, when it comes to remote working, one-size-doesn’t-fit-all. So don’t think you should go all in just because everyone else is doing it.
Take your time to experiment and find the right level of flexibility that works for your organisation. It’s the only way to become the best remote company you can be.
Legalities: check the law
So you’re a UK company, and have found an amazing engineer in India. Perhaps you’re an Australian company needing a product manager in the US, or the reverse. Can you legally hire them? Which laws will apply, the ones of the country your company is based in, or the ones where your future employee resides? What else do you need to consider?
Assuming you’re familiar with the employment laws in your country, you should get acquainted with the employment rules in your employee’s country of residence.
But there are other legal aspects for you to consider:
A. Check if you need a legal entity in the country you are hiring
Some countries require you to have a presence in the country where you hire your remote workforce. Setting up a legal entity requires considerable effort and is time consuming. There are platforms like Remote and Deel that can help you take care of the paperwork — but that will come at a cost, of course.
B. Clarify where your employees can work from
Let’s say you’ve employed someone from the UK, does it mean they need to work from there? Or are they allowed to work from anywhere? You want to understand if there are tax implications for you and your employee if they stay out of their country for a certain period of time.
C. Look for the more remote work-friendly countries
To make-up for lost tourism revenue due to the pandemic, some countries are starting to grant “digital nomad visas”, “remote work visas”, or “freelancer visas”. If you need to limit your hires to a certain number of countries you should start with the most remote work-friendly nations, such as Portugal, Mauritius or Bali, as they’ll offer you a larger talent pool to choose from.
These types of visas make things easier for your HR team as they are required to ensure employees can legally work from their country of choice. Otherwise both you and your employee could be subject to penalties.
D. Avoid legal headaches with clear employment contracts
In case of dispute, there is no ‘hard-and-fast’ rule telling you which code of law applies and when. It depends on a number of factors and ultimately it’s up to a court to decide, especially when there are multiple and conflicting laws.
This handy Global Guide on Overseas Remote Working from international law firm Squire Patton Boggs provides guidance in relation to employment, immigration, tax and social security risks across 19 countries in the world.
Remote Working Legislations
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Australia
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Squire Patton Boggs have assumed that if an employee relocates to Australia as their Lo“home country” and is living and working there but for the benefit of a company in a different country, the arrangement will typically take one of two forms:
Scenario 1: The employee remains employed by their original employer based outside Australia (“Overseas Employer”) and works for that employer remotely from Australia
Scenario 2: The employee becomes an employee of an entity in Australia (“Home Employer”) and is assigned to work remotely for an entity outside Australia (“Overseas Entity”)
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Employment Issues
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The employment laws of which countries will apply in these scenarios?
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Scenario 1: As Australia is the country where the employee lives and works, the Fair Work Act 2009 (Cth) will require the
Overseas Employer to comply with Australian employment law despite its geographical location.
Scenario 2: The laws of the Home Employer (Australia) will apply. It is not possible to ‘contract out’ of the application
of Australian employment laws even if the employee’s contract of employment specifies a foreign jurisdiction as being the applicable law. The Home Employer will have a non-delegable duty of care for the safety of the employee living and working in Australia.
In both scenarios, the employee may gain employment rights in the country in which the Overseas Employer/Overseas
Entity is situated depending on the laws of that jurisdiction.
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In scenario 2, is there a risk that the Overseas Entity will be deemed to be an employer for Australian employment law purposes?
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No, not under the laws of Australia.
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If Australian employment laws apply, do these prohibit or otherwise require payment for any confidentiality or non competition provisions entered into with the employee?
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Australian employment laws do not require payment for such provisions.
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Does Australia impose any additional obligations in relation to homeworking?
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Yes. Australian workplace health and safety laws continue to apply when staff are working from home. Employers remain under a duty to eliminate or minimise the risk to workers’ health and safety as far as is reasonably practicable, including the risk to workers’ mental health. Employers must consult with workers and take all reasonable steps to ensure that their home workstations are set up correctly to minimise risks. This should include a safety assessment of the remote workspace. Australia’s health and safety regulatory body, SafeWork Australia, provides further guidance on working from home arrangements on its website.
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Payroll, Employment Tax, Benefits and Social Security Issues
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Would a local payroll be required in Australia? Can an overseas employer operate a local payroll?
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Scenario 1: No.
Scenario 2: Yes, the Home Employer would be required to keep employment records, including payroll records of employees for a period of seven years. An overseas employer can operate a local payroll in Australia, provided it complies with Australian law.
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Would either of these scenarios require the Overseas Employer/Overseas Entity to register in Australia for tax, social security, other benefits, etc.? Are there any financial penalties/criminal sanctions for failing to do so?
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Scenario 1: Yes, for the Overseas Employer. This is because, if the employee is working and living in Australia for more than 183 days per year, they should be paid in Australia.
Scenario 2: No, for the Overseas Entity.
Criminal penalties: None.
Financial sanctions: Yes, for breaching employee record obligations. If an employer’s failure to meet its record-keeping obligations is found to be serious, wilful or repetitive, the maximum penalties a court may impose for record-keeping and pay slip contraventions are:
- $12,600 per contravention for an individual
- $63,000 per contravention for a corporation.
Further details can be found here.
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Are there any potential Australian tax implications for:
- the Home Employer
- the Overseas Employer
- the Overseas Entity, or
- the employee?
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Home Employer: The Home Employer would need to deduct Pay As You Go Withholding (PAYGW) and pay any relevant superannuation, Fringe Benefits Tax (FBT) and payroll tax.
Overseas Employer: The Overseas Employer would be required to register and pay local taxes including PAYGW, FBT, superannuation obligations and potentially state-based payroll tax if the group has total wages in Australia which exceed the relevant threshold (e.g. $1m in NSW). However, if the employee was in Australia for less than 183 days and was a resident of a country which has a double tax treaty with Australia, the Overseas Employer may be exempt from Australian tax obligations.
Overseas Entity: The Overseas Entity would not have any obligations in Australia unless it was regarded as the “employer.”
Employee: The employee would be required to lodge Australian tax returns and pay Australian tax unless they were in Australia for a period of less than 183 days and were a resident of a country Australia has a treaty with and were paid by an offshore employer which did not have a permanent establishment in Australia.
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If employment tax is payable in both Australia and another country, would double taxation relief be available?
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A foreign tax offset can be claimed for offshore tax paid in respect of income which is taxable in Australia, although there
may be limitations.
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Do either of these scenarios create a permanent establishment risk for corporation tax purposes for the overseas entity, i.e. the Overseas Employer or the Overseas Entity?
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In normal circumstances the presence of employees in Australia for an extended period of time can result in a permanent establishment in Australia, depending on the activities and responsibilities of those employees. However, the Australian Taxation Office has provided advice that if employees are temporarily relocated in Australia or are restricted in their travel as a consequence of Covid-19 this should not lead to the creation of a new permanent establishment in Australia.
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India
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Squire Patton Boggs have assumed that if an employee relocates to India as their “home country” and is living and working there but for the benefit of a company in a different country, the arrangement will typically take one of two forms:
Scenario 1: The employee remains employed by their original employer based outside India (“Overseas Employer”) and works for that employer remotely from India
Scenario 2: The employee becomes an employee of an entity in India (“Home Employer”) and is assigned to work remotely for an entity outside India (“Overseas Entity”)
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Employment Issues
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The employment laws of which countries will apply in these scenarios?
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Scenario 1: If the arrangement is continued for a long period, Indian employment laws may apply in addition to the laws of the overseas country.
Scenario 2: Indian employment laws will apply.
In both scenarios, the employee may gain employment rights in the country in which the Overseas Employer/Overseas Entity is situated depending on the laws of that jurisdiction.
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In scenario 2, is there a risk that the Overseas Entity will be deemed to be an employer for Indian employment law purposes?
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The risk is limited unless the Overseas Entity acts as if it were the employer (please see Labour Leasing below).
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If Indian employment laws apply, do these prohibit or otherwise require payment for any confidentiality or non competition provisions entered into with the employee?
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No.
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Does India impose any additional obligations in relation to homeworking?
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No.
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Payroll, Employment Tax, Benefits and Social Security Issues
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Would a local payroll be required in India? Can an overseas employer operate a local payroll?
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Depending on the nature of the arrangement and length of stay of the employee, there may be some tax withholding obligations on the Overseas Entity/Employer on salary payments made to employees during their stay in India. So for practical purposes, a local payroll provider may be required. Overseas employers cannot operate a local payroll.
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Would either of these scenarios require the Overseas Employer/Overseas Entity to register in India for tax, social security, other benefits, etc.? Are there any financial penalties/criminal sanctions for failing to do so?
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Scenario 1: Depending on the nature of the arrangement and length of stay of the employee, there may be some tax withholding obligations on the Overseas Employer on salary payments made to employees during their stay in India. In such cases, a tax registration will be required. There may be practical difficulties in getting those registrations without having a presence in India.
Scenario 2: It is assumed that the salary will be paid by the Home Employer and they will already have tax registrations in place.
Yes, there may be tax implications and financial/criminal penalties for non-compliance with the requirements under taxation laws.
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Are there any potential Indian tax implications for:
- the Home Employer
- the Overseas Employer
- the Overseas Entity, or
- the employee?
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Depending on the duration of arrangement:
- Home Employer: The Home Employer would need to deduct and withhold income tax at source and pay it to the Indian tax authorities.
- Overseas Employer: The Overseas Employer would be required to register and pay the withheld tax of the employee to the Indian tax authorities.
- Overseas Entity: The Overseas Entity would not have any obligations in India unless it was regarded as the “employer.”
- Employee: The employee would be required to lodge Indian tax returns and pay Indian tax.
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If employment tax is payable in both India and another country, would double taxation relief be available?
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Possibly. This would depend on any Double Taxation Avoidance Agreement between India and the overseas country.
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Do either of these scenarios create a permanent establishment risk for corporation tax purposes for the overseas entity, i.e. the Overseas Employer or the Overseas Entity?
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Scenario 1: Potentially, yes.
Scenario 2: The risk of this is likely to be low, although it is still possible.
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UK
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Squire Patton Boggs have assumed that if an employee relocates to the UK as their “home country” and is living and working there but for the benefit of a company in a different country, the arrangement will typically take one of two forms:
Scenario 1: The employee remains employed by their original employer based outside the UK (“Overseas Employer”) and works for that employer remotely from the UK
Scenario 2: The employee becomes an employee of an entity in the UK (“Home Employer”) and is assigned to work remotely for an entity outside the UK (“Overseas Entity”)
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Employment Issues
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The employment laws of which countries will apply in these scenarios?
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In both scenarios, if the employee is living and working in the UK they are likely to gain UK statutory employment rights. Whether the employee also gains employment rights in a different jurisdiction will depend on the laws of that jurisdiction.
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In scenario 2, is there a risk that the Overseas Entity will be deemed to be an employer for UK employment law purposes?
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From a UK perspective, the starting point would be that the Home Employer is the employer for employment law purposes.
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If UK employment laws apply, do these prohibit or otherwise require payment for any confidentiality or non-competition provisions entered into with the employee?
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No – there is no requirement for payment to be made for such restrictions.
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Does the UK impose any additional obligations in relation to homeworking?
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Employees who work from home in the UK have all the same rights and obligations as workers on site. The Health and Safety at Work Act 1974 imposes an overall duty to ensure, so far as reasonably practicable, the health and safety of employees. Employers should carry out a risk assessment of the work activities to be carried out at home to ensure appropriate measures are taken to reduce any associated risks.
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Payroll, Employment Tax, Benefits and Social Security Issues
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Would a local payroll be required in the UK? Can an overseas employer operate a local payroll?
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Scenario 1: The Overseas Employer would generally only be required to operate PAYE via a local payroll (whether dealing with this directly or via a payroll agent) if it has a place of business in the UK. However, it may be required to account for National Insurance contributions if it is resident in an EU state.
Scenario 2: The Home Employer (not the Overseas Entity) would be required to operate PAYE via a local payroll.
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Would either of these scenarios require the Overseas Employer/Overseas Entity to register in the UK for tax, social security, other benefits, etc.? Are there any financial penalties/criminal sanctions for failing to do so?
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Scenario 1: The Overseas Employer may be required to register for PAYE and National Insurance (NI).
Scenario 2: The Overseas Entity should not be required to register for PAYE/NI. Financial penalties apply for failing to register for and pay PAYE/NI on time. Various penalty regimes can potentially apply and the amount and frequency of the penalty can vary depending upon the number of employees, the amount of time that has passed since the relevant deadline, the number of failures and the amount(s) involved.
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Are there any potential UK tax implications for:
- the Home Employer
- the Overseas Employer
- the Overseas Entity, or
- the employee?
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Home Employer: The Home Employer will usually be required to operate PAYE/NI. It may also need to consider whether it has any employment tax obligations in the Overseas Entity country.
Overseas Employer: The Overseas Employer will need to consider whether it is required to operate PAYE/NI via a local payroll. It will also need to consider the Permanent Establishment (PE) position and whether it has any employment tax obligations in its own country.
Overseas Entity: The Overseas Entity should not have local PAYE/NI obligations. It will need to consider the PE position and whether it has any employment tax obligations in its own country.
Employee: In scenario 1, if the Overseas Employer does not operate a local payroll then the employee will need to deal with paying income tax/NI. If the employee is taxed in both countries, they will need to consider whether they can claim double taxation relief.
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If employment tax is payable in both the UK and another country, would double taxation relief be available?
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Double taxation relief is usually available but this is subject to certain conditions and can depend upon the exact circumstances and the other country involved.
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Do either of these scenarios create a permanent establishment risk for corporation tax purposes for the overseas entity, i.e. the Overseas Employer or the Overseas Entity?
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If the Overseas Employer/Overseas Entity has an office or other premises in the country where the employee is living (which could include the employee’s place of residence in certain circumstances, although this would be unusual), this would typically be a PE. A PE can also arise where the employee is involved in entering into contracts on behalf of the Overseas Employer/Overseas Entity. The PE position should be considered taking into account the particular circumstances.
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Ultimately, it’s always best to consult a lawyer, who should also help prepare employment contracts that clearly indicate which country’s employment laws should apply in what circumstances.
Logistics: Ensure your company is set up
You’ve nutted out all legal aspects and are ready to transition to a fully remote or hybrid model. Great! But before you do that there are several logistical questions you need to answer:
- Who can work remotely. Is this limited to certain roles? If so, are other benefits granted to those who can’t work remotely?
- Expectations of working hours. Can remote employees choose their own hours or do they need to be online from 9 to 5?
- Preferred comms tools. Zoom, Google Meet, Microsoft Team, Slack, Skype, etc. — what are the comms platforms chosen by the business and how can your remote workforce access them? Which tool should they use and when?
- Best practices to follow. How quickly are they expected to reply to messages? What if the email is urgent? Does anything change if they are in a different time zone? How often do you stay in touch? Research shows the best managers are the ones who excel at frequent and consistent communication.
- Security requirements. Do remote workers need a VPN or follow any form of security process to work on important company files or sensitive data? Can employees work from public Wi-Fi networks?
- Technical support options. What IT support options are available to staff (such as help desk via email or Slack, 24/7 emergency hotline, etc.)?
- Guidelines to set up work environments. Are you familiar with the Health and Safety rules of the country your employees work from? Have you provided them with a home office safety checklist or guidelines on how to set up an ergonomic workstation and ways to avoid injury while working from home? Completing a health and safety risk assessment of your employees’ workspace might also be necessary — this can be done virtually or by the employees themselves.
- Legal rights of remote employees. How can you track remote workers' hours and compensate them if they work overtime? Should they need permission from their managers when working outside certain hours? Remember that remote and hybrid workers have the same rights as in-office workers.
- How to measure productivity. What does success look like? How would you measure productivity across different roles making sure everyone feels their contribution is recognised and fairly rewarded?
- Consider social spaces. How do you replace the traditional ‘water cooler’? Remember that natural settings allow your teams to connect with one another. Slack extensions such as Donut allow staff to arrange coffee dates. Consider virtual games, talent shows, lunch & learns and other ways for your teams to connect — whatever you do, make these optional if you want to foster genuine connections.
The best place to collate answers to all these questions is a clear and detailed remote working policy for all employees. We take a look at pulling this document together in our Remote Startup Playbook - Part 2: Policies & Tools.
