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Work From Anywhere: Complexities of Remote Work Compensation and Taxation

Peter Durant
Peter Durant
Mar 14, 2024 4 mins

For many workers, working remotely is here to stay. It provides many benefits, such as reduced transportation time, and gives them greater mobility and freedom.

At the same time, the complexities of remote work come with potential costs. Traveling through different tax locales can trigger tax liabilities without workers being aware of it. There is an open question as to how to fairly pay remote workers vs in-person employees.

The solution to these problems is to embrace the latest technology in global payroll, such as UKG One View. Adopting a truly global payroll solution makes it easier to identify and calculate tax liabilities at scale, as well as generate insights needed to more fairly compensate workers.

Common Tax Problems with Remote Work

Most tax codes were written in an era when remote work was rare and most workers could assume their income fell under the specific jurisdiction where they lived. With the rise of remote work, however, there is a large contingent of the global working population that can feasibly work from anywhere with an internet connection. Unfortunately, doing so can often trigger existing tax laws, whether they are aware of it or not.

The definition of tax residency varies from place to place. Often, someone is considered a tax resident if they spend more than 180 or 183 days inside a country during a given year. Sometimes this is calculated on a rolling basis, instead of on a calendar year, and every country has its own set of rules which need to be taken into account. Within the United States, there is also the challenge of following state income tax laws for each state.

The definition of taxable income for income taxes also varies from place to place. In many countries, worldwide income is only taxable for tax residents, but the rules delineating what counts as worldwide income also vary.

person on a computer calculating federal income tax with remote employees

Double taxation occurs when someone owes taxes in two different countries for the same year. This is an uncommon situation but made increasingly possible with the rise of remote work. Some countries do have tax treaties designed to mitigate this issue, but this is by no means universal.

Financial reporting for tax purposes is another common challenge remote workers face, especially if they have bank accounts in separate countries. US citizens are expected to report assets held in foreign bank accounts as part of the Foreign Account Tax Compliance Act (FATCA). Much of the rest of the world requires reporting based on the Common Reporting Standard (CRS). To date, 113 countries comply with the IRS as part of FATCA, and 122 countries comply with CRS.

Tracking time spent in each country is another challenge. It is important because tax liability will vary depending on how much time is spent in each locale. Independent contractors and remote work employees should be aware of local tax laws before they file taxes.

Redefining Fair Pay

Remote work has triggered a lot of recent controversy about how to fairly pay remote workers. About 40% of organizations are considering a location-based pay structure.

In the past, this was less of an issue. When most workers at the same office lived in the same city, they all had roughly equal costs of living. But when those workers have the option of doing their work from a much cheaper location, it brings up questions about fair compensation and consistent pay practices.

For remote workers who move to an affordable place to live, it seems fair to be paid the same amount for doing the same work as someone who lives closer to the company. For those who stay in the same area, it may seem unfair that those remote workers are paid the same, given their costs of living are lower.

Remote worker compensation is likely to be an ongoing source of conflict for some time to come, across many industries. It is a relatively new kind of problem, in need of new solutions. To date, there is no universal consensus.

In the current world of remote work, it is best to be pragmatic, striking a balance between fair pay and staying competitive. Companies should strive to attract and retain top talent without breaking the bank. It’s a good idea to get an understanding of how your employees feel about this issue, through surveys, meetings and other forms of feedback.

Building a Unified Team

With team members scattered across the globe, fostering a sense of unity can be a challenge. Companies should strive to ensure every member of their team feels valued and connected, no matter where they are performing their work.

It’s important to regularly solicit and act on feedback. Employees want to feel like their voice is being heard, wherever they are in the world.

laptop with multiple message screens with people on them

In particular, address concerns about fairness and equality, especially concerns having to do with payroll. At the end of the day, people do show up to work for a paycheck, and it is highly meaningful to them that their pay be accurate and on time. They also expect that their payroll be calculated properly, with respect to relevant laws and regulations.

Fit in time for regular, one-on-one, face-to-face contact. Video calls can also be efficient when in-person contact is not available.

The Advantages of Global Payroll

Handling payroll for remote workers across multiple different countries is a highly complex affair. As we just discussed, it brings up questions having to do with everything from taxation to fair compensation.

Many multinational companies are behind when it comes to having a unified global payroll system. They often instead have a patchwork collection of different systems for different countries, some even reliant on manual entry. The inefficiencies of such systems only increase as more remote workers are thrown into the mix.

The solution is to use a comprehensive global payroll system as the single source of truth. Such a system will offer the flexibility needed to coordinate the tax liabilities of remote and in-person employees as they come up and to identify any potential issues with payment.

A single source of truth for your entire operation makes it easier to analyze data and create reports. A system like One View can generate insights, such as where pay inequities exist in your data. One View helps achieve accurate, compliant payroll across over 160 countries in a single experience.

Do you need a better payroll solution for your remote team? Contact us today.