Though the raw numbers of those working remotely, or from home, have fallen since the peak of pandemic, nearly half of all tech jobs are still conducted outside of the office. In North America alone, as much as 25% of all professional work is done remotely, whilst 66% of the more than 35 million digital nomads worldwide are full-time remote workers (rather than freelancers).
These statistics illustrate the extraordinary evolution occurring throughout the global workforce. More people than ever are choosing to work from locations other than their employer’s offices, opening up interesting new opportunities for companies and employees alike.
Whether your business was international in scope before the pandemic or not, the chances are that it very well may soon be. Managing a remote team of so-called ‘digital nomads’ comes with its fair share of benefits, though it presents an array of challenges to HR, finance, and legal departments at the same time.
What are “Digital Nomads” - Legally Speaking?
The term “digital nomad” refers to anyone who is able to work remotely via an internet connection, either whilst traveling (the traditional definition) or from their home, local libraries, cafés, hotels, co-working spaces, and the like. As such, digital nomads can either be independent contractors working for themselves, or company employees whose role in the business can be conducted location-independent and remotely.
Legally speaking, there is no universal definition of a digital nomad. Employment law has been slow to catch up with the ballooning of the digital nomad lifestyle, and only a relative handful of countries have enshrined the rights of digital nomads in law. It can, for starters, be impossible for a company to legally employ a person if they do not have a legal and tax-abiding presence in the employee’s country.
The Benefits of Permitting Work as a Digital Nomad
After decades of doing business locally – hiring local talent to work in an office at the company HQ – it’s understandable that many business leaders should question the efficacy of the global trend toward remote work. Some well-known business leaders have even publicly spurned remote work. According to Elon Musk, working from home should even be considered immortal, seeing as holding a remote job is possible for some roles (e.g. programmers), but not for others (such as technicians, hospitality workers, and people food prep).
Yet, permitting employees who are fully able to deliver on responsibilities remotely (as long as they have internet access) to become digital nomads can have long-lasting positive ramifications for both employee well-being and the success of your business - especially if you nail remote employee recognition.
Statistics to Support Hiring Digital Nomads
- Workers allowed to ‘work from anywhere’ showed a 4.4% increase in output, according to one 2021 study, and were 35-40% more productive than office-based co-workers.
- The organizational savings on office supplies, rent, utilities, and so forth per part-time telecommuter (an employee who splits time between the office and home) can equate to $11,000 USD per year on average, or 21% increased profitability.
- Members of the digital nomad community tend to be happier with their work-life balance, illustrated by the fact that 94% of them would recommend remote work to family, friends, and colleagues. In fact, 90% hope to work remotely for the rest of their careers.
- Relatedly, employee retention is higher where remote work is available, with around 54% of respondents to one survey indicating that they would change jobs for greater flexibility.
- Depending on the location of a remote workforce, employers may enjoy the obvious benefits of asynchronous work being completed around the clock, across different time zones.
- When hiring digital nomads becomes a consideration, the talent pool accessible to employers suddenly becomes global. International sourcing means the organization can access the very best talent from around the world, rather than only the best talent available within driving distance from their headquarters.
Compliance when Managing a Remote Team
In order to reap the many rewards of remote work culture, businesses must comply with a host of varying and ever-changing local laws and customs.
Failing to comply with the labor and tax laws affecting your remote team can result in heavy penalties, including the payment of back taxes and reimbursement of employee benefits, financial penalties issued by local tax authorities, and legal fees.
Moreover, remote team management must take into account the nuances of diverse cultures, including:
- National holidays
- Religious holidays and customs
- Legal restrictions faced by female and LGBTQIA+ employees in certain countries
- Language barriers
Key Considerations for Managing a Remote Team Compliantly
Compliant remote team management, despite its challenges, is worth the effort. Next, we take a look at the key considerations one must make before adopting a business model to incorporate digital nomadism.
Employment law covers the various legal safeguards protecting workers’ rights, including:
- Minimum wage
- Maximum and/or minimum hours in a working week
- National holidays
- Sick leave, holiday, and overtime pay
- Maternity and paternity pay
- Health insurance
When managing a remote team of employees and digital nomads, companies may be required to comply with the employment laws of the country, or countries, in which their remote workers are based. Depending on the country, and the duration of stay, different documentation will be required by the employee in order to earn the ‘right-to-work.’ Typically, the ‘right-to-work’ requires a residency permit, a work visa, or a working holiday visa— depending o what the worker’s passport and the country they’re based in mandates.
A remote worker based in their country of citizenship, but working for an employer abroad that does not have a legal presence there would, in most cases, be considered a contractor. Any income would have to be declared in their personal capacity, and they would file their taxes as a sole proprietor.
The company can, however, use employer of record services to allow their worker the benefits of full-time employment. These organizations take care of legal compliance, registrations, and documentation companies need to employ workers across the world. We get into more detail about this below.
Compliance and “Digital Nomad Visas”
Employment law has been slow to keep up with the changing landscape of international business and nomad jobs. Nevertheless, there are a growing number of countries establishing “digital nomad visas,” specifically to accommodate remote workers working for companies abroad.
Put simply, digital nomad visas are legal documents that allow remote workers to reside and work for a time in a different country from where their employer is based. The length of these visas can fluctuate wildly, however, from just over 90 days in South Africa to 2 years in Hungary, and may require the applicant to meet specific criteria – such as a minimum salary – first.
Ordinarily, it is the individual employee’s responsibility to apply for a digital nomad visa for the countries they intend to use as a temporary home base. To do so, they must go through the destination countries’ government websites to complete each application.
In some cases, however, it is possible for the employer to apply for digital nomad visas on their employees’ behalf. For example, Dominica allows companies to purchase digital nomad visas for their employees at a rate of $800 USD for the first employee, and $500 for each employee thereafter.
The Nomad List: Countries that Allow “Digital Nomad Visas”
Below is a complete list of the 22 countries and regions which, as of January 2023, offer ‘digital nomad visas’:
- Antigua and Barbuda
- Cayman Islands
- Costa Rica
- South Africa
- United Arab Emirates
The Nuances of Digital Nomad and Tourist Visas
It is crucial that digital nomad visas not be confused with tourist visas. Many freelance digital nomads have in the past relied on tourist visas for entry into the countries from which they work. Strictly speaking, however, this practice exists in something of a legal gray area, and may contravene local tax laws.
When it comes to enabling digital nomadism within a company, a tourist visa is insufficient as it does not confer a ‘right-to-work.’ Instead, a digital nomad visa must be acquired to ensure that the employee is legally entitled to work abroad. If a digital nomad visa is unavailable from the country in question, then a work permit must be acquired instead. The red tape of acquiring a work permit is considerably more than a nomad visa and, with taxation laws, can make nomad life semi-impossible— which is why so many nomads turn to tourist entry.
Payroll Taxation and Social Security
Tax obligations for remote employees and their employers differ from country to country. Before permitting an employee to work remotely, HR and payroll departments must collaborate to establish an effective and legal means of both paying their employees internationally and making the requisite tax contributions according to the other country’s laws.
In some countries, remote employees are responsible for filing and paying their own taxes, whilst in others it remains the duty of the international employer to withhold their employee’s contributions. In yet other countries, digital nomads may not be required to pay tax at all, or need only continue paying tax to their original country of residence.
In addition to the varying tax obligations of companies with remote workers, there may be other payroll considerations to make. For example, in most Latin American countries it is mandatory to pay employees a ‘13th-month salary’, whereas the practice is only customary in Asia, and virtually unknown in Europe and North America.
Companies must also bear in mind the cost of living in a worker’s country of residence. Although it is generally accepted that digital nomads work from places with a lower cost of living, such as Bali or Thailand, this is not always the case.
In addition to the challenges associated with managing a remote team, there are also legal risks attached. These risks should be extensively evaluated against available company resources, and projected returns, before deciding whether or not to facilitate digital nomadism within your business.
Employers are obligated to classify their workers as either employees or independent contractors. However, if a local tax authority determines that a company has misclassified its employee as a contractor, or vice versa, it may demand the company pay back taxes, as well as other heavy fines.
The legal distinction between employees and contractors can vary greatly, depending on the country.
Similarly, tax authorities are always on the lookout for companies operating in their jurisdiction without having established a legal presence. If they decide that a company is profiting through its presence in their country, they will declare ‘permanent establishment’ and penalize the company accordingly.
Simply having employees based in another country is not, necessarily, enough to trigger ‘permanent establishment.’ However, this often depends on the importance of the remote worker’s role to the company in question, as well as the amount of money generated by their presence in a given country.
Hiring the Right Talent
Naturally, one of the most important considerations to make with regard to global work culture is how to find, hire and onboard the right talent for the position in question. As discussed, remote work opens the door to talent from all over the world and thus, theoretically, a higher average talent pool.
If hiring locally, with a view to permitting a digital nomad work style, considerations may include:
- How well-adapted is the individual to travel, and will this affect their productivity?
- Is the individual capable of communicating effectively and clearly without face-to-face interaction?
On the other hand, when hiring employees living abroad, your considerations may differ:
- Is there a language barrier, and will we be able to overcome it?
- How will communication overcome the time difference?
- Do we have an efficient remote time tracking set up?
- Will local tax and labor law compliance affect how worthwhile it is to hire this individual?
Leveraging Remote Team Management Tech
One of the greatest non-compliance-related challenges facing remote team management is the issue of how to effectively collaborate, communicate with, and manage the workloads of a disparate team of digital nomads. Thankfully, a host of software solutions and remote team management tools have been developed in recent years to simplify and optimize the process.
How Digital Nomads Can Work Anywhere via an Employer of Record (EOR)
Employers of Record are global business solutions providers who take care of local employment, payroll, contracts, and HR compliance, all whilst adhering to the local employment laws and tax obligations of the remote workers’ place of work.
Typically, an EOR has hubs already established in dozens of countries around the world, affording them expertise in local laws, and a legal presence necessary for payroll and tax. Thus, by collaborating with an employer of record, businesses can safely and affordably establish a digital nomad/remote work culture in which their employees can work anywhere in the world.
Additionally, employing digital nomads via an EOR means employers are spared the anxiety of unintentional non-compliance and the risks we spoke of earlier.
Remote work is the future. This is not just according to like-minded people currently working from home or abroad, who enjoy the flexibility, but also according to companies enjoying the significant increases in productivity, employee retention and output, and overall profitability which comes with a remote work culture.
To effectively manage digital nomads and remote teams of employees, it is crucial to be aware of the myriad of related compliance issues, and how the nuances of local tax and labor laws differ from country to country. Moreover, companies must research which documentation will afford their remote employees and digital nomads the right to work, country to country.
Currently, the most effective tools in the global employer’s toolbox are:
- ‘Digital nomad visas’ that allow employees to work abroad for a set time.
- Risk evaluations to weigh the pros and cons of remote work against potential risk.
- Remote team management software that streamlines communication and collaboration between employer and employees.
- Employers of Record services that offer all-inclusive third-party solutions to ensure international compliance across local employment, payroll, contracts, and HR.