Why Your Company Needs A Digital Nomad Policy The enormous influx of mobile workers could spell danger for companies that hire them.
By Chris Porteous Edited by Jessica Thomas
Opinions expressed by Entrepreneur contributors are their own.
Most businesses have had to deal with digital nomads in one way or another since the start of the Covid-19 pandemic. In standard terms, a digital nomad is anyone who performs their job via the internet while traveling. In some cases, it's precisely what some workers need to get that perfect work-life balance they want. From the perspective of some companies, a digital nomad workforce is a good thing. It means they don't have to maintain a workplace because employees can perform their job just as efficiently remotely. Where they go isn't the company's concern. Or is it? A recent study done by MBO Partners notes a massive increase of over two million new nomadic workers between 2019 and 2020. The enormous influx of mobile workers could spell danger for companies that hire them.
Related: Our 20 Team Members Span 5 Continents. Here's How We Get Things Done As A 100% Remote Company
The average demographic of a remote worker
Virtual Vocations notes that in a study of its remote work corps, most remote employees held a higher education degree. The ages span across generations, with Baby Boomers being just as likely to be remote employees as Millennials or Gen Xers. Thanks to the internet, there's no limitation on age or experience for remote workers. Additionally, this wide availability of work means a much more significant proportion of people taking advantage of remote work opportunities.
One of the most noteworthy issues that employees in corporate organizations have to deal with is being stuffed into an office. Being chained to a desk leads to employees losing motivation. The pandemic saw corporate offices become more proactive about allowing remote working arrangements. Having a large volume of people in a small space could lead to disaster in the form of infection rates. The goal was to allow fewer employees into an enclosed office environment. However, as borders reopened and restrictions were lifted, many of these employees realized they could work elsewhere in the world because everything was being done remotely anyway. The remote work revolution changed the lives of many corporate employees.
Better standards of living
The main driver for many of these employees is that they prefer to live in places where the cost of living is more affordable. In a city like New York, the cost of living is many times higher than in a more rural setting like Colorado. Employees who work for NYC rates of pay could live at a much higher standard in those rural areas, making it attractive to work remotely. Similar situations have arisen in third-world countries with lower costs of living than the United States. Although this can be beneficial to the employee, it can create undesirable fallout for their company.
Companies within the U.S. pay a federal tax rate and a state tax rate. These taxation rates vary massively, with some states offering tax-free status for some businesses, while others levy a heavy toll on companies setting up within their borders. Typically, when a business hires employees, it pays taxes based on the state it's incorporated in, along with employment taxes. As employees start working in their home states, businesses might be required to pay taxes in those states and even establish a registered presence within the state just to pay taxes.
A similar situation arises overseas. However, international tax rates and laws might be completely different from within the U.S. Running afoul of international labor laws could make it difficult for a company to operate within an international jurisdiction. Some countries offer special allowances for businesses hiring within the country. However, having an already hired employee operating within a country's borders might mean paying taxes retroactively. In such cases, the business might find itself completely unable to meet those obligations or be forced to pay taxes twice — once within the U.S. and once within the international destination.
Shutting down the remote work trend
At the start of the pandemic, businesses were just happy having workers performing their functions. As a result, many companies didn't have a solid remote work strategy for managing these employees. The prevailing wisdom was that if the company didn't know about their traveling, they could do nothing about it. The "don't ask, don't tell" situation gave rise to a company culture that tacitly encouraged this type of behavior. As conditions improved, these companies started to renege on their previous oral agreements. Many businesses require employees to come in one or more days for the week, making it impossible for them to be digital nomads. The notable effect of this change was a massive wave of resignations from workers who had come to enjoy working remotely.
Agreements had to be made with many of these employees, especially those the organizations could not afford to lose. The resulting agreements saw skilled employees having a verbal agreement about their work status and where they're allowed to go. Some companies established "no-fly zones" where digital nomads were expected to avoid, either due to legislative issues or because they could not establish a tax-paying presence there. These agreements aren't binding in a corporate sense. As a result, businesses might not be as protected as they want to be if the government of these locales decides to change their approach to companies with digital nomad hires.
Alternative approaches
One of the most successful approaches to the issue of digital hires is seeking out freelance employees. Job postings for freelancers have risen significantly since the pandemic, and many former corporate employees have taken to freelance consulting as a new job. One of the most significant benefits of having a freelance employee is not having to pay taxes for them. Freelancers usually count as independent contractors, and as a result, they are responsible for filing their own tax returns. The business doesn't have responsibility for them, so the onus is on them to follow the regulations for taxes wherever they live and work.
Another approach is crafting a custom digital nomad strategy that addresses employees who work remotely from anywhere in the world. Formalizing these agreements through written regulations gives the company a level of protection if the employee does something that impacts the employer. It can also avoid having to fake pay stubs to explain tax payments in international areas. These agreements require identifying which individuals within the organization are digital nomads and where they'll be traveling to and from. It requires some work to track down the regulations in those locales, but it's well worth the effort. In today's employment market, losing skilled employees over remote work agreements simply won't do. Companies need to go the extra mile to secure their employees' wellbeing and investment in their skill set.
Related: 4 Tips for Running Your Freelance Business as a Digital Nomad
