How to manage remote employee relocation

Due to the rise in remote work, employee relocation is no longer exclusively requested by employers. More and more remote employees decide to relocate to different cities, states or countries to enjoy a better, healthier lifestyle or reunite with family and friends. 

While employees are usually focused on the logistics of moving all their belongings to their new place of residence, international employee relocation can cause HR departments severe headaches. 

But what exactly are the challenges employers face when remote team members request to relocate? And how can businesses compliantly and efficiently manage employee relocation across borders?

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Employee relocation describes the process during which an employee undergoes a location change. This can either mean moving to a different city, a different region or province, or even to a different country. 

Relocating employees to a different location can either be based on company needs (e. g. staff is needed at a different business location), or the relocation request can be made by the employee. Since remote work opens the doors for employees to work from wherever they want, relocation requests by employees are becoming increasingly common. 

Relocation requests from remote employees can take three different forms:

• Short-term relocation for travel purposes (e. g. workations)

• Short-term relocation as a resident but with intention to move back to the current country of residence (e. g. spending a couple of months in the original home country to be close to family and friends)

• Long-term relocation with no intended return (e. g. permanently moving to a foreign country)

Regardless of the intended duration, cross-border relocation projects can be a challenge for HR and legal departments due to the complex implications for taxes, employment law compliance, and more.

Employees relocating to a different area within the same jurisdiction is no big deal. But relocation requests on an international level are a totally different story. Moving from one country to another triggers several administrative, tax and legal changes, which makes it difficult to ensure compliance throughout the process.

There are various aspects that need to be considered, including employment law, tax regulations, and visa and residency requirements—at least if the employee plans to move to a country where he or she doesn’t have resident status yet. The main challenges of international employee relocation include:

• Complying with local employment laws

• Establishing a new legal entity

• Setting up local payroll

• Navigating local payroll taxes and benefits

• Avoiding permanent establishment risk

• Facing the risk of poor connectivity

• Dealing with time zone differences

• Adjusting the employee’s compensation package

• Dealing with immigration and visa requirements 

Complying with local employment laws

Employment laws and regulations differ from one country to the next. If an employee wants to move to a different country, this means that the HR department has to ensure that all the employment obligations are met that apply in the new jurisdiction.

Necessary adjustments may include weekly working hours, overtime, and annual leave entitlement. Also, in case of employee termination, the local proceedings must be observed. It’s no secret that businesses who fail to respect local labor laws risk heavy fines and penalties.

Also read in the Lano Employment Academy: How to guarantee global employment compliance

Establishing a new legal entity

Simply adjusting the remote employee’s employment contract to make it compliant under local laws is not enough. Depending on which country the employee has chosen to relocate to, it might not be possible for them to be hired under a legal entity that is not registered locally. 

In this case, employee relocation could trigger the need to establish a separate legal entity in the employee’s new country of residence—the only alternative being to end the employment relationship. But since incorporating a business is a very costly and lengthy process, the organization will take a financial hit.

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Setting up local payroll

Payroll works differently in every country. Not only do tax and social security contribution rates differ, but there are also different restrictions as to which practices are allowed and which aren’t. 

Depending on the country, it might not be possible to keep the remote employee on the business’s home-country payroll after they relocated. Consequently, it would become necessary to set up a separate local payroll in the employee’s new country of residence—including finding a cost-effective way to pay international employees.

Navigating local payroll taxes and benefits

Managing remote employee relocation also involves having to navigate different tax systems and learning about the statutory payroll taxes in each jurisdiction. Otherwise, the organization risks being fined for not paying enough payroll tax for the employee or for missing an important filing deadline.

Adjusting the employee’s benefits package is yet another challenge that arises with employee relocation. Businesses not only need to make sure to comply with the statutory benefits requirements of the new country, but also have to be careful to not make any changes that could end up being disadvantageous for the employee. That’s where an international compensation and benefits strategy comes into play. 

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Avoiding permanent establishment risk

The worst-case scenario is that the employee’s relocation leads to permanent establishment (PE). Permanent establishment describes a situation where a foreign business entity is considered to have an ongoing taxable presence in a country where it is not properly incorporated. This means that the foreign entity becomes liable for paying corporate income tax in the respective jurisdiction. 

Let’s consider the following example. A high-level executive of a remote-first company requests to relocate long-term to a different country while keeping his current position. In some countries, the presence of managers or other employees who make executive decisions and generate revenue for the business they work for can lead to PE risks.

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Facing the risk of poor connectivity

Relocating to a nice Caribbean island or to some hidden paradise in Asia might seem like the ultimate dream to many remote workers. But sometimes, this dream can turn into a real remote work nightmare when the internet connection proves to be far less reliable than expected and remote employees are far too distracted by their beautiful surroundings to be productive.

Dealing with time zone differences

Having a remote team whose members are all based within the same time zone—or at least within similar time zones—usually doesn’t require special arrangements. This dramatically changes when one or several employees decide to relocate from Europe to somewhere in Australia, for example. With a time difference of more than eight hours, arranging meetings and ensuring smooth workflows can be challenging.

Adjusting the employee’s compensation package

One of the biggest challenges for companies that go remote-first and allow their employees to relocate is to develop a global compensation strategy that complies with local compensation requirements and guarantees fairness towards all employees. Should the organization decide to base pay on employee location, this would mean having to recalculate salaries, payroll taxes and everything else linked to it.

Dealing with immigration and visa requirements 

Unless an employee is intending to move back to his or her home country, managing employee relocation might also involve having to deal with immigration departments to make sure visa requirements are met. Leaving it up to the employee to sort out residency and visa permits is often not a good idea, since they might unknowingly get it wrong, which could have severe repercussions on their personal situation and on the company they work for.

With so many challenges that come with employee relocation, businesses need all the help and advice they can get. Here are a few vital tips to succeed:

• Use an Employer of Record (EOR)

• Communicate asynchronously

• Introduce a clear remote work compensation strategy

• Don’t say ‘no’ straight away

• Be open about what employees can expect

• Get your employees involved in the relocation process 

• Always know where your employees are

Use an Employer of Record (EOR)

With an Employer of Record (EOR), businesses can compliantly hire employees in a different country without having to set up a local legal entity. This is possible thanks to the fact that the Employer of Record becomes the employee’s official employer in the eyes of the law, while taking over full responsibility for payroll processing, tax administration, employment law compliance, and more. 

Although businesses normally use EORs to hire new talent abroad, they can also be used to continue the employment relationship with an existing employee should the latter decide to relocate to a different country.

Communicate asynchronously

Employee relocation requests that involve employees moving to different time zones require businesses to switch to asynchronous communication. Asynchronous communication means having ways to communicate with each other that don’t rely on team members being available to respond immediately. Helpful collaboration tools for asynchronous communication are Slack or Microsoft Teams. 

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Introduce a clear remote work compensation strategy

As mentioned before, employee relocation can make it necessary to review the employee’s current compensation package. Some examples are Facebook, Twitter or Google who have announced pay cuts for remote employees deciding to relocate to less expensive areas. In order to avoid discussions with employees, businesses should establish a clear strategy outlining if and how employee relocation impacts compensation.

Having a clear strategy in place not only helps employees better understand the consequences and implications of a possible relocation project, but it also gives the company something to refer to when discussing salary and compensation with employees.

Don’t say ‘no’ straight away

Remote work has turned into an employee benefit in its own right. For instance, the 2020 State of Remote Work report by OWL Labs shows that 74 percent of employees are less likely to leave their employers if they are allowed to work remotely at least some of the time.

Rejecting remote work relocation requests without a valid reason could therefore result in the business losing some of its top performers. Trying to make employee relocation possible is crucial for retaining valuable talent.

Be open about what employees can expect

Employees who really want to relocate are often very invested in their project and want to relocate as soon as possible. Not knowing what support they can expect from their employer or how long it will take the HR department to process their request can put a damper on things.

By establishing clear procedures and guidelines on how relocation requests are handled, employers not only show their remote team that their requests are taken seriously, but can also prevent possible complaints about unfair treatment.

Get employees involved in the relocation process 

International employee relocation should be a collaborative process that involves all the parties that are concerned by the relocation project. In order to take some of the burden off the shoulders of the HR and compliance department, businesses can try and include the employee. Employees could conduct some preliminary research to identify key issues and potential problems before letting HR take over. 

Always know where your employees are 

An important rule when working with a remote team is to always be aware of where different employees are working from. Although the nature of remote work makes it hard for superiors and managers to keep track of all team members at all times, this doesn’t reduce the business’s responsibilities as an employer. Even if employees only take a short workation and work from abroad for a couple of weeks, the company should know about it, since this could trigger different compliance risks.