Work-from-Anywhere Policies: The Top Legal and Payroll Mistakes Companies Make
The push for remote work opportunities is perhaps nowhere more evident than in global markets. Since 2020, global remote job postings on LinkedIn have skyrocketed from 2% of postings to 14% this year. And why?
Employees point to two primary drivers: work-life balance and flexibility. A recent McKinsey survey found that regardless of income level, 87% of workers – the most ever recorded — want flexible work arrangements when offered And, Buffer’s State of Remote Work 2024 found “that 98% of remote workers want to continue working remotely at least some of the time, with work-life balance cited as the primary benefit.”
For global mobility HR managers, however, work-from-anywhere policies can create hidden legal, tax and payroll risks when employees work across different jurisdictions. HR and mobility leaders can avoid compliance mistakes by understanding the tax, legal and payroll risks when hiring international remote workers. Here are some common payroll and legal mistakes to avoid.
Permanent Establishment and Tax Nexus Risks
Remote employees can unintentionally create corporate tax presence or legal obligations in another state or country, and those can become a costly hit to the company’s bottom line. “The most expensive work-from-anywhere risk is one most companies do not know exists until an audit letter arrives,” says Boundev, which places senior AI engineers globally. “When an employee works from a different state or country, they can create a “nexus” — a taxable presence for the company in that jurisdiction. This means corporate income tax, sales tax, and payroll withholding obligations the company never planned for.”
Even just a single employee working in a remote location may trigger corporate filing obligations for state income tax. And don’t be fooled thinking that because your employee works from home rather than a company office, your company will avoid these rules.
Long-term remote international placements can be viewed for tax purposes as “permanent establishment” creating corporate tax obligations for the company in that jurisdiction. Failing to withhold the correct taxes can trigger penalties and back payment obligations. In 2015, for instance, a permanent establishment dispute in the UK cost Google £130 million to settle.
There are three conditions to determine if a permanent establishment exists, says CountryTax Calc, an independent tax comparison tool:
- A place of business: A physical location where business activities occur. This can be an employee’s home office.
- Fixed nature: The location must have a certain degree of permanence, generally more than six to 12 months.
- Business activities: The enterprise’s business must be carried on through this fixed place.
There are some ways to bypass the permanent establishment designation, however. In 2025, the OECD issued rules to clarify when a part-time remote worker may avoid permanent establishment. The “50 Percent Safe Harbor Rules” include two tests. The “temporal test” specifies the employee must spend 50% or less of their working time in the jurisdiction. The “commercial test” requires the company to show a genuine commercial reason for the remote employee to work from that jurisdiction at least 50% of the time.
Failing to understand and adhere to these country-by-country requirements can result in severe and expensive consequences.
Payroll Tax Obligations
While the risks for tax nexus and permanent establishment are significant, looming even larger are payroll tax risks. In Payroll.org’s 2025 “Getting the World Paid” survey, participants said their number one challenge was managing compliance with global payroll rules.
“The 2025 survey reinforces what we’re hearing from global payroll teams—fragmentation is still a major blocker,” said Eynat Guez, CEO and Co-Founder at Papaya Global, one of the survey’s sponsors. “Managing fragmented payroll processes is incredibly complex, especially considering the last mile of it—cross border payments. Without unified and streamlined solutions for payroll and payments, organizations struggle to meet today’s standards for compliance, accuracy, and agility.”
Many companies don’t regularly monitor country-by-country (or even state-by-state) payroll requirements, and only about one-fourth say they even have a formalized global payroll strategy. Further complicating global payroll management is not having the right talent and/or technology needed for these critical functions. Technology support for global payroll tax management is improving, but continues to be fragmented and lags behind in fully leveraging AI. The survey showed that only 21% of global HR leaders are incorporating AI solutions to shape their payroll strategy. Finding qualified, in-country knowledgeable talent is also a distinct challenge as well. An alarming “74% of respondents said it is either difficult (29%) or location-dependent (45%) to find qualified professionals in global payroll,” the survey notes.
What are some of the potential mistakes?
- Misclassifying employees as independent contractors. It’s been estimated that some 10 to 30% of employers misclassify employees, not surprising given that every country has its own definition of what constitutes an independent contractor.
- Hiring an international remote worker before registering for payroll taxes. That means having a tax ID established, any required business registrations in place and your organization’s infrastructure established. Overlook that and the consequences can range from delaying your employee’s pay until compliance is met, to the organization facing as much as a 15% penalty.
- Failing to meet critical deadlines. Just as in the US, tax filing and payment deadlines are not to be squandered. Miss one, and you can count on some level of penalty. Multiply that by dozens of varying deadlines across the many countries in which you’re managing work-from-anywhere employees. Miss those, and not only will your company face automatic penalties. It also may draw added scrutiny from local tax authorities, should it occur multiple times.
How to Build a Compliant Work-from-Anywhere Policy
Global HR mobility leaders can protect their organization and their employees with well-crafted work-from-anywhere policies. A strong work-from-anywhere policy should start by laying the foundation for eligibility: which organizational roles are suitable for international remote work. Secondly, it is important to assess the best (meaning, least risky) countries for placing international remote employees. What is the country’s permanent establishment threshold? Six months? Less? More? How about tax laws and immigration rules? And of course, look at the stability of each region from a political and social perspective. Set up a country-by-country matrix for quick, centralized side-by-side comparisons to keep your team well-ahead of compliance risks.
Work with your relocation management partner to then articulate an understandable guide for both employees and your HR team. It should include things like who is eligible and how to apply, length of assignments by country, and relevant tax and legal details, performance expectations and HR’s process for approving requests. Laying out these details helps ensure consistent application of your policy and avoid discrimination claims.
Managing Remote Work Without Compliance Surprises
While international work-from-anywhere opportunities are sought after by top talent, and thus a proven talent acquisition tool for HR teams, they also create complex compliance challenges. Ones that benefit from the expertise of seasoned international relocation management consultants.
At CapRelo, our international and in-country teams are your boots on the ground knowledge base to help ensure your work-from-anywhere policy is compliant, no matter the jurisdiction. Add in our AI-driven technology that integrates the myriad global legal and tax laws into a single state-of-the-art compliance library. Let our team remove compliance surprises while supporting flexible, industry leading work-from-anywhere solutions.
