31st October 2022
The Covid-19 pandemic didn’t start off the digital nomad revolution, but it certainly gave it a jolt. After the lockdowns ended there was a rise in the number of people looking to work on a contract basis, and particularly as digital nomads, which has been backed up by a study showing the growth is only likely to continue. But this trend does present some challenges, not least for agencies placing professionals around the world that will be grappling with unfamiliar, often complex, regulatory systems. But what do recruiters placing digital nomads need to keep in mind to remain compliant?
Research from Aquent’s ‘2022 Future of Work’ survey found that 60% of all employees across all levels and ages want to work as digital nomads in the next one to three years. While wanting to work in this way and being able to do so are two very different things, that is a staggering figure and suggests that both airlines, and recruiters that work with digital nomads, are likely to be busy over the coming years.
Driving factors
The study defines digital nomads as those who work entirely remotely while travelling to various locations of their choosing, often including international travel for extended periods. According to the research, flexibility of global location is the single most important factor that nomads seek in an employer, followed by being given a formal contract. Interestingly, being provided with worldwide health insurance, data security and tax guidance also ranked as driving factors, along with established working hours, paid workers’ compensation and the chance to work with at least a partly-integrated workforce.
Aquent senior VP and industry leader for technology, media and entertainment, Phil Lewis, said “Remote work empowers organisations to increase their ability to operate across multiple time zones, tap into skilled talent worldwide and access a more diverse talent pool.”
The growth in popularity of the digital nomad way of working should hardly come as a surprise. In the US, in 2020 alone, the number of people working in this way shot up by 50% to 11m and in 2021 it accelerated again to 15m, which should also give a strong indication of trends elsewhere around the globe. We have noted particularly strong demand for digital nomads across a range of cities in one of our recent blogs and it’s highly likely this trend will continue.
Nomad visas
What’s behind the rising popularity for this interesting way of working? Firstly, a number of countries have made it significantly easier for professionals to work in this way within their borders. Barbados was one of the very first countries to offer a ‘welcome stamp’ which it launched in June 2020. To qualify individuals must earn more than £37,000 during the 12 months they are in the country and must be able to afford the £1,780 application fee. However, during this period, they will not be subject to income tax. Malta followed last year with its ‘nomad resident permit’ which offers a minimum earnings threshold of £2,230 a month for contractors, while others like Iceland, Bermuda, Spain, Sri Lanka and many others have either followed suit or plan to do so. From a national perspective offering these visas makes sense as it drives more money into domestic economies while offering potential for upskilling and development opportunities. And from the contractor side, what’s not to like? Nomads have more freedom to travel than ever before, Brexit aside, and who wouldn’t want to be working on the beach one week, in a coffee shop in a major city the next and ultimately from wherever they wanted, if they had the opportunity to do so?
Fortunately for those looking to work from anywhere in the world, the rising desire for more employment freedom has also been replicated by growing demand for global contractors in almost every sector. Employers have partly recognised that, in order to stay ahead of the competition, they need to offer flexibility at work, but they also need the skills that many contract workers bring. As we know, most industries are struggling to source the skills they need, particularly on a permanent basis, and are turning to the contract market for expertise. And if it’s a positive, educated workforce you want, look no further than digital nomads. According to one study, nomads report higher job happiness and income satisfaction than other workers and are typically ‘technically savvy, highly educated and have a thirst for learning’, which are desirable qualities to say the least.
Compliance challenges
However, before we all get carried away and look to place nomads in every country around the world, there are significant challenges to consider. As the agency placing them into the roles they’re carrying out, you will likely carry a considerably tax and regulatory burden. One of the key factors to consider is employment law. Your agency will be responsible for the remote workers you’re placing and their compliance with local laws but, depending on the time spent in a specific country, you may also have to factor in foreign employment laws too. These can potentially impact areas including statutory holiday allowances, overtime pay, required working hours, notice periods and more and breaking these regulations could lead to fines or legal action.
Agencies must also consider the importance of ensuring international workers have the correct work visas and permits for wherever they are operating. Not every country offers digital nomad visas and some professionals will look to operate on tourist visas, which can lead to issues depending on the length of time spent in certain places, particularly for work reasons. If the country does offer a digital nomad visa, then the individual you’re working with will usually need to apply for this themselves, however some allow employers to apply and pay for documentation on their behalf. This is an increasingly complex field and it’s recommended that you seek specialist tax and legal advice if at all uncertain about the visa status of the professionals you’re working with.
Taxes and social security compliance can also provide a considerable hurdle for agencies to overcome. Depending on the country of work, the employment contract and various other factors, either employees or employers, or both, can be liable for income taxes and other contributions – but where you pay these taxes hinges largely on local and international laws. We would need significantly more time and space to outline what’s required in every country here, however we have written about tax and compliance requirements in some of our blogs, which are worth reading if you’re (understandably) struggling to get to grips with tax legislation, that’s often in a foreign language. Even domestically, you should also be aware of local reporting requirements. The US, for example, requires its nationals to continue filing local taxes even while working abroad.
Tax burden
Along with more traditional payroll taxes, you will also have to advise the digital nomads that you are working with over the risks of working for too long in any single jurisdiction, and over certain financial behaviours, in case the location is considered as their permanent establishment. This is a key facet in the ongoing Shakira-tax case and has been known to catch out professionals and the businesses they work with.
As you’ve probably worked out, while placing digital nomads has its benefits for both the individual and your agency, it also creates significant challenges. Since the introduction of the Criminal Finances Act in 2017, agencies in the UK have held the compliance and regulatory burden for the contractors they work with, so it’s really not worth the risk of navigating the challenging world of tax and social security legislation if you’re not certain about what you’re doing. If you’re unsure about the compliance of your agency or that of the digital nomads you’re placing around the world, then get in touch with the experts before it’s too late.
6CATSPRO is part of WorkwellTM Group
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