Since the pandemic many people are ready to embrace remote work. Whereas the debate was initially about working from home, it has since shifted to working from anywhere. From regularly working from your holiday home abroad, to hiring cross-border talent, working from anywhere is on the rise. From an ESG perspective, a solid working from anywhere policy can be a true asset if carefully prepared.
WFA and ESG
There are many opinions on whether working from anywhere (WFA) has a positive impact on the environmental footprint of a company. This can be the case, but the answer is more nuanced. Carbon emissions depend on several factors, which are not always easy to measure. Additionally, considering that the company has limited control over the employees' energy consumption at their home office, it would be untrue to say that WFA always has a positive environmental impact.
Companies should therefore set clear guidelines on how they wish to deal with these aspects upfront. Even though there are a lot of unknown variables, things such as professional travel and setting up a proper home office are additional measures that the company can control.
Where the environmental aspects are debatable, the social impact is less so. Although WFA certainly has its challenges from a human capital perspective (such as employee engagement and leadership challenges), it also has clear benefits.
WFA can provide extensive access to a diverse pool of talent. If done properly this can be a real asset in your diversity and inclusion strategy. Not only can the company be freed up from geographical restrictions, it will also be able to attract employees whose specific needs would otherwise hamper their employment possibilities, as well as attract talent with diverse cultural and ethnic backgrounds. WFA can also contribute to a better work/life balance and employee wellbeing. By reducing travel, employees can invest this gained time in their personal lives.
With wellbeing and diversity and inclusion (D&I) being among the key tenets of ESG, WFA can address both and therefore be a true asset of your ESG strategy. Make no mistake however, additional measures will need to be taken to add this extra ESG layer to your WFA policy. Practice has shown there are several pitfalls that come with WFA, especially in relation to the wellbeing of the employees. A carefully thought through approach on each of these topics is therefore essential.
Two sides to every coin
A successful WFA policy goes hand in hand with compliance management, and this is where the biggest challenge lies. When employees are WFA there are various corporate tax, social security, labour and regulatory laws that both parties will be confronted with.
Looking at the main financial risk, it will be key to manage the permanent establishment exposure in foreign countries and maintain sufficient economic substance in key locations. Many companies implement safeguards preventing a presence abroad for certain positions.
From a corporate income tax and transfer pricing perspective, companies are likely to exclude senior leadership from the possibility of WFA or at least set clear boundaries on the option of working remotely from abroad. HR professionals will most likely argue the opposite. In light of their retention strategy, they might wish to preserve the possibility of full WFA for key talent, mainly due to the additional administrative burden they face because of local social security and professional withholding tax exposures.
This element is of particular interest as the amount of corporate income tax paid by large companies comes under increasing public scrutiny. In a WFA context, people and profit taxes are the most relevant for the Total Tax Contribution (TTC). When collecting and analysing TTC data on a global basis, it is important to know how to deal with local practices as all countries have different tax systems and structures.
When implementing WFA, it will therefore be crucial to get a good grasp of the potential financial impact, resulting from both taxes (TTC) and other costs (operations, local insurances, local benefits and labour laws). Finding the right balance between compliance, financial exposure and human capital management will be crucial to making WFA a success in the long run, but it can also contribute to your ESG initiatives by ensuring proper governance.
WFA can be a perfect ESG initiative… if done right
All international companies are faced with questions on WFA to some extent. Where employees have gotten a taste of remote work during the pandemic, many are unwilling to go back to the office full-time. With exceptional COVID measures being lifted, and companies being confronted with various local judicial and tax systems, they should start preparing their WFA strategy today rather than tomorrow.
The complexity of the topic requires a high level of focus that can only be obtained if HR, finance and other stakeholders collaborate to a maximum extent. By proactively including D&I, mobility, wellbeing, TTC and governance into the debate, companies will be able to lift their WFA to its full potential.
