With hybrid work becoming more normalized and business travel and international assignments returning, workforces have never been more geographically dispersed.
In our survey of 1,800 knowledge workers, we found that nearly 60 percent worked away from the office more than they did pre-2020. Additionally, 91 percent of employees agreed they “should be able to work from wherever they want as long as they get their work done.”
Work location flexibility has become so mainstream that people are willing to leave jobs that don’t offer it. When we asked respondents what prompted them to leave their last employer or what would cause them to leave their current employer, a lack of work location flexibility ranked in the top five reasons. Companies that embrace hybrid and distributed work will therefore have a competitive edge in talent acquisition and retention—critical in an era of skills shortages.
Tax and Compliance Impacts
But, as finance leaders know, a “work from anywhere” policy can lead to significant risk and compliance issues. The finance professionals we speak to tell us they must keep a closer eye on the tax implications of highly distributed workforces, especially when increasing numbers of employees move across state or national borders.
In the same survey, we asked finance professionals about the overall impacts of distributed work, including international projects, business travel and remote work. Half of the finance professionals surveyed said that inefficient processes for tracking international employees were a challenge for their organization.
When we asked finance executives how many hours per week their teams spent managing the compliance issues (including tax) arising from business travelers, remote workers, or international assignees, 75 percent said their team spent 3 to 6 hours every week mitigating those risks.
Unforeseen Complexities
One key issue that arises regularly when we speak to finance leaders about distributed workforces is accurate payroll withholding—both U.S. cross-border payroll withholding and international payroll withholding. To ensure payroll withholding apportionment is done correctly, an organization must first, of course, know where all employees are working on all business days. When workers were primarily office-based, this was simple; now, companies have complex combinations of hybrid workers, business travelers and employees on international assignments. It has become increasingly difficult to ascertain everyone’s work location at all times.
Another critical issue is the risk of accidentally creating permanent establishment in other countries. If, for instance, a senior executive works remotely in another country for a long enough time and they conduct certain types of business activities, it could create unforeseen tax complexities.
How are finance leaders and their organizations tackling these issues? Many companies initially tried to use employee self-reporting to track work locations. However, we know from our survey that only 33 percent of respondents accurately report all the days they worked out of state or country. If the company isn’t clear on the location of employees, it can’t manage risk effectively—and for finance teams, this can create concerns about elevated levels of tax risk.
Visibility With Technology
Growing numbers of companies look to technology solutions to accurately determine where their hybrid, traveling and moving workers are located. Travel and work-location tracking tools provide organizations with proper audit trails of where work takes place, giving them visibility into risks and helping them avoid potential tax and employment-related compliance penalties. Technology-enabled pre-travel risk assessments help identify problems before they occur.
These technologies provide better protection for companies that want to embrace hybrid working. The best news? Employees don’t mind sharing their locations for compliance purposes. In our survey, 92 percent were happy to share the city and 79 percent happy to share the street where they were located with their company.
When managed well, the use of technology for travel and work location compliance can be a win-win for companies, finance teams and distributed workers.
You can learn more about Topia’s technology solutions for distributed workforce compliance here.
To read the survey on attitudes to distributed work quoted above, download it here.
