Key points
- Remote work is becoming a permanent fixture in the global workforce, with employees demanding more freedom and flexibility
- Employers of Record (EOR) help businesses manage international work arrangements by handling payroll, benefits, and compliance with local laws
- Using EORs comes with challenges and risks, such as potential tax and legal implications, requiring robust remote working frameworks
As we settle into 2025, one thing remains clear for today’s international companies: remote work is here to stay. Employees are increasingly demanding more freedom and flexibility in where they do their jobs. Many employers looking to source talent in highly competitive markets are starting to see remote work as a key to boosting their employee value proposition for talent acquisition and retention.
An evolving global workforce
Over the past five years, international roles have transformed. They now range from traditional short and long-term assignments; to virtual assignments and global roles that see senior executives working across multiple countries. More and more, arrangements are sitting in the grey area between ‘traditional business travel’ and ‘overseas assignment’, while others enable employees to be permanently remote.
With international travel returning to pre-pandemic levels and hybrid work models becoming widely accepted, organisations are expected to encounter more requests for employees to work abroad. Businesses will need to remain adaptable and develop frameworks that accommodate various work structures. Nowadays, most employers recognise the importance of developing internal policies that manage business risks and enable them to comply with local statutory requirements when employees are present in overseas locations.
The challenge lies in implementation, as it is not always clear how those ‘grey’ employee types should ultimately be categorised.
What does this mean for employers?
Inevitably, organisations need to consider their infrastructure setup—particularly where they have remote workers who have extended their stay in a jurisdiction where the organisation has not yet established a corporate presence. Navigating multiple tax, payroll, HR, and legal systems across countries can hinder an organisation’s ability to adapt and remain flexible over time. Without proper assessment, the costs associated with allowing such arrangements and remaining in compliance could outweigh the potential benefits.
The hot new solution: Employers of Record and Professional Employer Organisations
Many businesses may look to engage with an Employers of Record EOR in countries where they don’t have an entity established or receive one-off requests from employees to work for extended periods.
Global Professional Employer Organisations (PEO) and EOR’s have a lot of similarities. Both set-ups enable businesses to recruit and hire talent internationally, even without a corporation entity in the overseas location. The difference lies in the structure of the employment arrangement and the responsibilities that the PEO or EOR takes on.
Global PEO’s hold a co-employment relationship with the employee and fulfil specific responsibilities on behalf of that individual. These responsibilities predominantly focus on outsourcing the Human Resources function and may touch on payroll management from time to time. EOR’s, on the other hand, are third-party organisations that onboard individuals as employees of the EOR, run payroll in the local currency, and administer employee benefits such as health insurance and retirement plans, whilst fulfilling local tax and legal obligations. This arrangement allows businesses to minimise compliance costs and risks in the short term.
Although engaging with a PEO or EOR can help manage local employer obligations, it is not intended to be a permanent solution and comes with potential risks the longer these arrangements remain in place. For example, an individual’s employment contract would need to shift to the PEO or EOR, which may trigger certain employee termination tax and legal provisions in Australia. A company operating under such an arrangement may create a Permanent Establishment (PE) under local tax laws, especially if more employees stay in a specific foreign location or if a senior employee’s responsibilities expand while working overseas.
The risk to the company then focuses on quantifying the extent of its obligation to adhere to both local employment laws, corporate tax reporting, and international transfer pricing obligations. Knowing when to transition from these arrangements to establishing a legal entity in the new market may require periodic review. This is where having robust remote working frameworks comes into play.
Developing these guardrails gives organisations the flexibility to monitor for potential exposures and plan well in advance of any possible tax issues.
When determining the right employment arrangement for your organisation, it is important to seek further advice. Pitcher Partners has a multidisciplinary tax team that can provide support.
For any assistance, please contact us.
