As hybrid work becomes more normalized and business travel and international assignments return, the workforce is more geographically dispersed than ever before.
A survey of 1,800 knowledge workers found that nearly 60% are working further away from the office than before 2020. Furthermore, 91% of employees agreed that they “should be able to work wherever they want as long as it gets the job done.”
Work location flexibility has become so mainstream that people are willing to leave jobs that don't offer it. When respondents were asked what caused them to leave their previous employer or leave their current employer, lack of flexibility in work location ranked among the top five reasons. Therefore, companies that adopt hybrid, distributed operations can gain a competitive advantage in attracting and retaining talent, which is essential in an era of skills shortages.
Tax and compliance implications
But as finance leaders know, “work from anywhere” policies can lead to significant risk and compliance issues. Financial experts we spoke to say the tax implications of a highly distributed workforce need to be closely monitored, especially as the number of employees moving across states and borders increases. I'll tell you.
In the same survey, we asked finance professionals about the overall impact of distributed work, including international projects, business travel, and remote work. Half of the finance professionals surveyed said inefficient processes for tracking foreign employees are a challenge for their organizations.
When we asked finance executives how many hours a week their teams spend managing compliance issues (including tax) arising from business travelers, telecommuters, or international assignees, 75% said they spent hours mitigating those risks. Teams said they spend between 3 and 6 hours each week.
unexpected complexity
One of the key issues that regularly comes up when we talk to finance leaders about the distributed workforce is the exact payroll source for both U.S. cross-border payroll withholding and international payroll withholding. It's a collection. Of course, to ensure that payroll withholding is distributed correctly, organizations must first understand where all employees work on all business days. This was easy back when the workforce was primarily office-based. Today, companies have a complex mix of hybrid workers, business travelers, and internationally assigned employees. It's becoming increasingly difficult to know where everyone is working at all times.
Another important issue is the risk of accidentally establishing a permanent establishment in another country. For example, if a senior executive works remotely in another country for an extended period of time and conducts certain types of business activities, unexpected tax complications may arise.
How are financial leaders and their organizations addressing these issues?Many companies initially tried to track work location using employee self-reporting. However, our research shows that only 33% of respondents accurately report all days worked out of state or abroad. If companies don't know where their employees are located, they can't effectively manage risk. There may also be concerns for finance teams regarding increased levels of tax risk.
Visibility through technology
More and more companies are turning to technology solutions to accurately understand the location of their hybrid, mobile, and mobile workforce. Travel and work location tracking tools provide organizations with a proper audit trail of work locations, helping them gain visibility into risk and avoid potential tax and employment-related compliance penalties. A technology-enabled pre-travel risk assessment can help identify problems before they occur.
These technologies offer great protection for companies that want to adopt hybrid working. The best news? Employees don't mind sharing their location information for compliance purposes. Our research shows that 92% are happy to share their city with a company and 79% are happy to share their street with a company.
When managed properly, the use of technology for travel and work location compliance can be a win-win for businesses, finance teams, and distributed employees.
Learn more about Topia's technology solutions for distributed workforce compliance.
To read the survey cited above on attitudes towards distributed working, download it here.