Trip likelihood assessment

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Compliance risks assessed by WorkFlex

An employee working from abroad may constitute a so-called Permanent Establishment (PE) in the destination country. Constituting a PE triggers a local tax liability. This liability has a monetary and an administrative aspect.

 

Monetary aspect

The profit attributable to the PE is taxable in the destination country. Whether the practical financial consequences are limited or rather significant, depends entirely on the circumstances of the case.

 

Administrative aspect

Regardless of the extent of the financial consequences, constituting a PE comes with a considerable administrative burden. The PE needs to be registered with the local authorities, the local profit has to be administered and a corporate income tax return needs to be submitted.

 

Given that there is no “permanent” in temporary work from abroad and because of these consequences, employers want to prevent their employees who temporarily work from abroad from constituting PE.

 

Given that a PE implies certain permanency – it is the name after all – managing the PE risks of temporary work from abroad is possible. The WorkFlex compliance logic helps employers with this, not only by flagging potentially risky employee requests but also by providing mitigating measures such as employee instructions.

 

An employee working abroad may trigger the obligation for the employer to calculate, withhold and remit wage tax in the destination country.

 

In other words: this employer compliance risk consists of the employer having to set up payroll in the destination country.

 

This compliance risk strongly depends on PE risk. In case a temporary remote worker constitutes a PE in the destination country, this is likely to also trigger a wage tax liability.

On the contrary: as long as no PE exists, this is an important indicator that no payroll obligation arises either. However, some other factors may impact this qualification, such as the employee’s residential status in the destination country. The WorkFlex compliance logic assesses various parameters that may trigger this local wage tax obligation.

Social Security risk around temporary work from abroad is twofold:

1) The employee might no longer be part of the home country social security system

2) The employee might become part of the destination country’s social security system – with the obligation to contribute premiums accordingly.

 

In practice, both risks are managed through obtaining A1 certificate or Certificate of Conformity (CoC). These declarations can be obtained from insurance companies and/or authorities, and confirm that the employee remains covered (only) by the social security system of the home country.

 

Upon approval of the employee request, WorkFlex can apply for an A1 or CoC and – after it has been issued – it will be uploaded to the platform.

 

If such an A1 or CoC can be obtained, WorkFlex qualifies the social security risk as low. However, in case the country combination is not covered by a social security treaty, such a declaration can not be obtained. In that case, the social security risk can neither be excluded not mitigated, thus the risk qualification will at least be medium. For these cases, it is ultimately a matter of risk appetite whether the employer allows or rejects the employee request.

Local labour law might become applicable to the employment of an employee who temporarily works from abroad. However, the existing employment contract is likely to prevent this. Through WorkFlex this risk is further mitigated by instructing the employee to refrain from working over hours, on weekends, and on holidays.

 

Some employers consider so-called PWD-notifications another type of labour law risk. PWD-notifications are notifications based on the EU-Directive for Posted Workers. Although some national translations of this directive might suspect otherwise, temporary remote workers were never meant to be covered by this directive. After all, a posted employee is actively sent by the employer to a country with the objective to perform services locally.

 

An employee temporarily working from abroad does so for private reasons and without any local business reason. Therefore, PWD-notifications are not in the WorkFlex scope.

An employee requires a valid title to work in the destination country. The penalties for working without such a valid work title are significant and can be imposed on both the employer and the employee.

 

The rules and regulations around work entitlement were not written with temporary remote workers in mind. Although some countries have adopted types of remote or nomad visas, most have not. For these countries, WorkFlex qualifies temporary remote workers as business travelers.

 

The WorkFlex risk qualification will be low if the employee is allowed to temporarily work in the destination country. In case any active employer effort is required, e.g. local VISA sponsorship, the risk qualification is likely to be high.

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