The rise of remote working was well underway pre-pandemic, but the Covid-19 rampage has contributed a great deal to accelerating the trend. As Rodolphe Dutel, the founder of remote jobs platform Remotive, recently declared: “In three months, remote work jumped a decade forward”.
Sure, some people will settle back into the main corporate office once vaccines have made the world safer. But another thing is certain: many people, both on the employee side and the employer side, have now gotten used to the new mode of working, and can’t imagine going back to the old status quo.
With remote work becoming mainstream, we’re also discovering many issues that were previously overlooked.
Nobody was asking the tough questions about paying and managing remote workers when the category was restricted to just a few individuals at the fringe. Back then, the legal and tax implications were dealt with either by setting up expensive expatriation packages or by simply turning a blind eye to the fact that some members of the team weren’t exactly located where they were supposed to be.
Now, however, these issues have taken centre stage and it’s time to deal with them.
Take the case of taxation. As a rule of thumb, all direct taxation, which includes the payroll tax owed by employers and the income tax owed by employees, is to be paid in the country in which the employee lives. There were already many gaps and frictions here, but they were an issue for only a tiny fraction of the workforce (many of them high-level corporate executives or senior partners in professional service firms).
But what happens when every company has to deal with these questions for the millions of employees that have embraced remote work following Covid-19? Will some companies just rule out remote work because it's too much of an HR headache? Will they all just adopt products provided by the likes of Deel, Remote or Terminal to deal with it for them? Will they only let really 'valuable' employees do it?
The pay debate
An even more complex question is wages. How much should you pay an employee? Should their earnings be based on where they live, to account for the actual cost of living? Or should they be based on how much value the employee contributes to the business?
Here, again, geographic arbitrage is nothing new when it comes to labour costs. Companies everywhere, including in the tech industry, have long sought to outsource large chunks of their business in countries where workers are not paid as much as the people back at headquarters. But in the current environment, it’s less about the company deciding to relocate part of its operations in a low-cost country than employees deciding for themselves where they live and work — either in an expensive capital city, in a cheap house in the countryside, or in some remote location at the other end of the world.
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Let employees bargain individually, and we’ll end up with an equilibrium price depending on skill scarcity.
A straightforward approach would be that of supply and demand: let employees bargain individually, and we’ll end up with an equilibrium price depending on skill scarcity — that is, highly demanded engineers will likely keep the difference for themselves, whereas marketing and design people will have to agree to be paid less if they relocate to a cheaper area.
But it’s more complicated than that. For instance, those highly skilled engineers (say, from the US) are in fact competing with equally skilled peers from other countries (say, India) who might not have the luxury of relocating wherever they want but who can still do the job in a remote context. In this case, employees will be competing on proximity rather than wages, and they’ll be pulled closer to their employer’s headquarters if only to appear more valuable. Working in the same time zone and having more frequent opportunities to schmooze your boss in person makes it easier to defend a larger pay cheque!
In the end, both parties will have to make a few steps toward the others. Employers in general will have to be more lenient with those who prefer to work remotely, while also learning to deal with labour law, taxation and employee equity across borders — in many cases with the help of specialised providers. In the context of the pandemic, expect every company to be inspired by pioneers such as Automattic, GitLab and Buffer, where wages are 'elastic' — adjusted upward or downward depending on where an employee lives.
Expect every company to be inspired by pioneers such as Automattic, GitLab and Buffer.
As for employees, they’ll have to realise that, yes, it’s possible to relocate to an area where the cost of living is lower, but you have to make a difference by being an even better colleague at a distance: embracing written communication, making sure to attend off-sites to bond with colleagues and building relationships with 'buddies' (as in the case of Buffer) elsewhere in the organisation. You’ll also need to accept that eventually part of your earnings will effectively depend on where you live — one portion as a reward for your contribution, another for covering your living expenses wherever you are.
Europe and remote work
Could Europe benefit in this dramatically changed context? With Brexit now consummated, we’re certainly not making progress when it comes to more freedom in living where you want and working for anyone you want, no matter the distance. But just as there’s a freedom of establishment for any company operating in the EU, there should be a freedom of residence for any worker employed by an European company in a remote setting — and authorities as well as employers should do whatever it takes to make it banal, straightforward and convenient.
This will require either harmonisation or coordination when it comes to labour law, direct taxation, social security and employee equity, all of which are thorny questions; but why not get to work, particularly since remote work is here to stay and supporting it will eventually become a powerful lever from an economic development perspective?
Nicolas Colin works for investor The Family. He writes a regular column for Sifted.
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