4 Things to Consider Before Letting Your Employees Work Abroad

Traditionally, the term digital nomad has been associated with travel bloggers, copywriters, and other tech-savvy entrepreneurs who traversed the globe while working virtually. Post-pandemic, this stereotype is likely to fade as a wide range of professionals seek to combine remote work with international travel.

This trend toward borderless remote work presents opportunities and challenges for employers. On the one hand, employers are likely to find happier, more productive employees abroad. On the other, companies may struggle with legal challenges and payroll complications.

Before your employees embrace the digital nomad lifestyle, consider how you’ll manage the nuances of international remote work. 

So long as digital nomads work for a U.S company, they can continue to participate in US benefits plans, such as 401(k), pension, and stock option plans. However, in order to contribute to a 401(k) or IRA–Roth or regular–employees need to have earned income.

Many Americans living abroad qualify for the Foreign Earned Income Exclusion (FEIE), which allows them to exclude up to $107,600 of their foreign earned income from US taxation for the 2020 tax year. If an employee qualifies for the FEIE and excludes all of their earned income from taxation, they won’t be able to contribute to these plans.

Employees who move their home office to a foreign country may also find that they are no longer covered by the company’s group health insurance. If this is the case, you’ll need to determine who is responsible–the employer or the employee–for finding an alternative or supplemental solution, such as a local or travel insurance policy.

Generally speaking, employment laws apply where the work is performed. So if your American employee moves to France, French employment laws may apply to your relationship with that individual. In many countries, you may find that these laws favor the employee more than their U.S counterparts. For instance, foreign laws might mandate minimum paid time off or limit the employer’s ability to terminate an employment relationship.

Typically, local laws are more likely to apply the longer an employee works from that country. Employers should consider the specific laws of each country and the length of time the employee intends to work from that location when discussing the possibility of international remote work.

U.S companies must report and withhold payroll taxes for their U.S employees–whether they live in the U.S or abroad. For those working overseas, companies may also need to report employees’ income to their foreign host countries.

For employees, working abroad can offer tax advantages that can help them reduce or even eliminate their US tax liability. Submitting Form 673 exempts eligible expatriates from US federal tax withholding. When allowing employees to work from a foreign country, employers should be prepared to handle these requests.

As digital nomads cross borders into new time zones and countries with different holidays, employers should set clear expectations for working hours and vacation policies. Once again, local laws regarding paid time off may come into play so make sure you’re aware of the requirements. On the other hand, employers can use this opportunity to expand their working hours across multiple time zones.