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WORKSPAN
WORKSPAN DAILY |

European Perspective: Digging into Remote Work Compliance and Compensation


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metamorworks / iStock

This is part two of a two-part series examining the international and European perspective on long-term remote work and what challenges might lie ahead as it relates to compliance and geographic pay difference. Read part one here.

There are figures revealing that at least in some European countries of relevance, depending on economic structure, existing types of jobs, cultural and legal flexibility, etc., 25-35% of work could be done remotely without affecting productivity. Companies can capitalize on this by hiring at a distance and talent sourcing regardless of geographic location. This can be achieved through virtual meetings and also by deploying more contractors.

Projections from consultancy.eu surmise that one-third of work in Europe could be remote post-pandemic. Citing data from other sources, the potential share of time spent working remotely by country could be the following:

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Potential benefits for the companies may include a broader talent base to choose from, more streamlined work processes (if done correctly), savings on fixed labor costs and higher employee satisfaction.

Reciprocally, from a work candidate perspective, more and more job portals already advertise positions with specific flexible/remote work sections. While it is true that most of the companies posting jobs are technology-related (Microsoft, Facebook, Netflix, Twitter, Slack, Salesforce, Spotify, etc.), there are plenty of major European businesses, such as Siemens or others, tech-related or not, which are actively present in those portals, and well known for regularly hiring freelance, remote, part-time and flexible schedule jobs. 

Some reasons for individuals to choose remote work include a desire to break free from classic organizational structures, living in different places and planning some time outside the office to travel with the option to work along the way. In Europe, this has importance for younger and older people alike.

In any case, many regional and global European headquarters have traditionally needed to work across world regions and time zones, or with part-timers, “digital nomads,” etc. However, what is reasonably new is that solid-line reporting teams can now be distributed — located and working together in different countries at the same time, depending on the nature of the jobs in question.

Employee Well-Being and Resilience

From an employee wellness angle, it’s true that remote workers in Europe can have several advantages in terms of life quality. These employees might seek to work from Thailand or the Caribbean, but it could also be as simple as remaining in Europe and going to more nearshored and equally seaside, beautiful places such as Algarve (Portugal) or Cascais (Portugal), the Costa del Sol (Spain), Ibiza (Spain), Majorca (Spain), Sardinia, Cinque Terre (Italy), Capri (Italy), Malta, the Dalmatian Coast (Croatia) or some Greek island, for instance. Most of those places are a two to three-hour flight or land trip from many major cities in the European region.

It’s no surprise that, despite the high cost of living, cities like Vienna, Zurich or Geneva systematically score highest in quality of life worldwide. Additionally, other cities like Amsterdam, Berlin, Munich, or Cologne, Germany attract scores of expatriates and many multinationals are opening international work centers in emerging, venerable yet young-minded cities such as Bratislava, Slovakia, Krakow, Poland, Valencia, Spain and Tallinn, Estonia.

The pandemic has forced HR departments to cope with a tired local workforce, sustaining team morale, time management and handling return to work scheduling. And rewards professionals are updating health care benefits and work-life balance offerings. New strategies around mindfulness, relaxation techniques, emotional resilience and counselling, virtual coffee breaks or gym lessons have been necessary. At the same time, redundancies and restructurings, furloughs, and the like have happened.

What seems to be clear is that remote work offers great opportunity but requires structure to be implemented effectively.

Compliance, Tax and Legal Issues

For sure, compliance, tax, and legal issues have been taking up HR and rewards practitioners’ time even under severely restricted international mobility of employees. Remote work can indeed exacerbate these situations.

KPMG’s “Switzerland – COVID-19: Tax, Social Security, Immigration Implications for Cross-Border Workers” provides a good example of current tax and legal challenges:

  • Individual Taxation. When cross-border commuting employees, frequent for example in France, Germany and Italy vs. Switzerland, are required to work in their home country more often than usual, their home country would have the right to tax these additional home office workdays, or even subject employees to home income tax and not the one from their actual country of employment. Even if double-taxation treaties would allow recognition of taxes paid elsewhere via different mechanisms, this is quite some change with adjustment of payrolls required, tax-at-source and economic consequences, etc.
  • Corporate Taxation. A home office might meet conditions to be defined as a fixed place of business, thereby potentially exposing employers to local corporate tax for a home office. A short period would not typically be sufficient. But if we are talking about a top executive making decisions and signing documents from home, then there could be an issue. Also, allocation of costs in the new work-from-home (WFH) situation across international cost centers and legal entities (holding, selling and producing companies), can affect internal transfer prices, accountancy and existing agreements with tax authorities in places such as Ireland, the Netherlands, the Swiss cantons, etc.
  • Social Security, Benefits and Pensions. The issue of Social Security is an especially important one for governments, companies and employees alike in Europe, if only for the amounts involved. As a general principle of EU Regulation 883/2004, accepted in Switzerland (federal and state/cantonal laws), a frontier EU/EFTA worker is subject to Social Security in the country of employment if he/she works not more than 25% in the country of residence. Due to the current circumstances, employees are being obliged to work from home, which presents a challenge for international Social Security rules. By extension, this also affects other private or public, mandatory or voluntary, individual or occupational, defined benefit or defined contribution pension schemes, and affects the consolidation of benefits and possible pension rights. 
  • Immigration and Visas. Apart from the obvious travel restrictions, having to periodically update lists of allowed countries, consider border controls, medical tests required and quarantines, etc., there have been people with commuter, temporary and/or semi-permanent work and residence permits expiring during WFH; or seeing some countries limit visas significantly.

The EU and EFTA countries have passed legislation to avoid undesired effects of WFH like the ones cited above, partially or totally. Now it is a matter of seeing if this will extend into continued remote work situations after COVID-19, with specific analysis being required.

Rewards Localization

Many companies, especially the ones that have had trouble, have reduced compensation levels straight away during COVID-19 times. This has often occurred via short-term variable pay, salary freezes, or by taking down long-term incentive awards, modifying vesting periods and conditions, limiting eligibility of programs, localizing expatriates, and other means. All of this has involved technical rewards work and calculations, modification of documents, going through approval layers and other such administrative tasks.

In this light, a reflection appeared: applying compensation levels of the declared remote work site/home, as opposed to the normal office, even inside the same country, especially if the remote work site entails lower labor cost overall. This localization of rewards, apart from the need to have reliable, granular-enough market data, has led to some controversy on how to do it effectively. Alternatives have been, for instance:

  • Application of geography-based differentials or allowances (effectively, in-country COLAs).
  • Creating separate fixed compensation structures by geography.

However, even with some legal coronavirus relief subsidies, most often salaries in Europe cannot be touched easily (or at all), so this has pushed rewards and labor relation functions toward renegotiating, individually or with employee representatives, and trading off reductions with some other current or future rewards element advantages.

But regardless of how a specific company wishes to apply rewards localization, it is worth taking into account that maybe “It Really Is Back to the Office This Time” in the first place.

According to Cushman & Wakefield, vis-à-vis remote work, we should look at real estate trends to understand effective company preferences. After a market crushed by the COVID-19 recession, office space demand is apparently expected to start picking up this year in Europe and the United States. And from a C&W/CoreNet survey with 339 global respondents:

  • 58% of respondents expect an office-first hybrid model — majority of employers expect an office-centric model with remote work tweaks.
  • Another 22% of respondents expect a remote-first hybrid model.
  • Only 10% of employers go for office-only and 10% for remote-only arrangements.

This implies that the most predominant rewards model will be company office/worksite based. In that sense, it’s a bit like a “before COVID-19 situation,” but definitively in a new world, with adjustments for the people allowed to work remotely, and with strong future-of-work considerations. 

Those adjustments will vary according to overall rewards strategy, country and company division, job type and level, relevant market matching, career plans and expectations.

The New Normal

After going through different aspects of remote work, the conclusion is that it is probably here to stay. Frequently, it may be in a hybrid presential-distance form that will depend on concrete industry, types of jobs and company circumstances. Technologies will enable more and more remote work anyway and economies are trending toward interconnectedness, ecosystems and networks, so we’d better get ready.

In our view, remote work is, at the end of the day, a subset of talent and rewards management in the context of the future of work. This will require more imaginative ways to organize, lead and recognize professionals.

As next steps, companies may wish to revamp their people strategies and policies accordingly. They will need to update and upgrade their rewards schemes and the international practitioners will need to make sure that the digital transformation and technology adoption efforts the business is requiring are a success.

About the Author

Mario Ceron Bio Image

Mario Ceron, MBA, GRP, is the managing partner and CEO of Zereon Associates GmbH, a professional services firm based in Zurich. Zereon Associates is a trusted partner of WorldatWork.