Have questions? Ask us!

Remote Teams and Compliance Issues

As discussed in previous articles, the use of remote teams for sales, technical and other business functions can have advantages for a company.  Even if team members are located in different countries, there are communication and management tools available that can give remote teams a sense of cohesion and shared purpose.  In this way, a business can secure the best talent available without regard to geographical location or having many local offices.

However, the management and business objectives of using remote teams should be weighed against potential compliance issues with each country involved.  These challenges must be met in both the company’s home country as well as the team member’s locale, including complying with immigration, tax and employment laws.

Virtual teams provide organizations with access to the top talent irrespective of location, but their malleable nature can also expose a business to regional legal and compliance issues.” 

Using Independent Contractors vs. Employees as Team Members

Hiring an independent contractor in remote teams has benefits for a business, given the ease of engaging a contractor instead of a full-time employee.  It can also be one way to hire a worker for a trial period, prior to offering full time employment.  This decision should be based primarily on the type and scope of the worker’s role, and the degree of autonomy in their position.

Subscribe to get more insights like this.

The compliance risk of using a contractor is that of misclassification, where they actually function as an employee under the rules of their own country.  The elements and consequences of a re-classification are discussed in depth in this article, and some of the factors for classification include:

  • Work Role and Activity: Sales and marketing efforts can often be safely conducted by contractors, but if there are contracts being concluded, this type of revenue generating activity could be seen as an employee function.

Technical support team members are often hired as contractors, and depending on how they are engaged and paid, and if their work is project based then this should be a valid contractor role. 

  • Method of Engagement: If the team member is solicited through a third party freelancer network or agency, the risk of misclassification is low.  Any contractors hired directly should function as a credible business to avoid the appearance of an employee.
  • Payment: How a worker is paid will also influence classification, since most contractors will work on a project basis, rather than a monthly salary.  If a business starts to pay a worker monthly, offers benefits and leave, then the relationship starts to look like that of an employee.

More countries are taking classification seriously due to the lost tax revenues and low worker protection for contractors, so each work role should be evaluated and managed for compliance with local standards.  If all work is performed remotely, then the company’s home country laws will probably not apply for purposes of classification.

Protection of Intellectual Property

For some companies, one of the greatest hazards in using remote workers is the protection of intellectual property.  This can be an issue with technical workers that have access to software, are developing new tools or may not be adequately safeguarding passwords or customer data.

Typically, non-disclosure clauses would be part of any employment contract, but these may be difficult to enforce in agreements with contractors living in a remote location.  In any instance, non-disclosure policies and terms should be clarified before work begins, and checks put in place to either monitor or limit a worker’s access to sensitive proprietary information.

Contractual Obligations

Whether the worker is engaged with an employment contract or as an independent contractor, the terms of the agreement will be influenced by the company’s home country as well as the worker’s country of residence.

There are several types of contract clauses that may not be enforceable in some countries, including:

  • Confidentiality: Non-disclosure of trade secrets and protection of intellectual property usually have to be spelled out in the contract.  The key is to not make the provisions too onerous, or unnecessarily restrict the worker.
  • Non-compete: Some countries do not favor non-compete clauses, and may limit the scope of a non-compete to a geographical region or a specific time frame.  This is especially true for employees, since there is a common labor policy to allow a worker to seek similar positions in the same industry. 
  • Notice and Termination for Employees: The employment laws of the worker’s own country or where the work is performed may override any contractual notice periods or cause for termination. 
  • Severance: Severance payments are also statutory in some jurisdictions, and companies should be vigilant about ICs seeking employee classification to obtain some type of severance payment.

Permanent Establishment and Taxation

Permanent Establishment

“Permanent establishment (PE) can occur when an employee on foreign assignment conducts business activity that would trigger corporate tax liability within the host country.”

While this may seem an unlikely result of using a remote team member to make sales calls or fix technical problems, many countries are increasing their scrutiny of business activity by local representatives, and even concluding contracts ‘virtually’ or online can be enough to fall under local PE laws.

Many companies avoid establishing a legal entity by using contractors for these roles, but if a contractor is reclassified as an employee then PE could be triggered for the company.  The bottom line test for PE has been “revenue creation” but there is movement toward a broader definition that could include remote workers in various business functions, even consulting or marketing.


There are distinct risks for companies or the local corporate entity that may be non-compliant with tax regulations due to having workers in a foreign country.  In many cases, the company could be found liable for both the employee and employer portions of unpaid statutory contributions, as well as unpaid taxes. 

When formally employing a remote worker in their own country, running a remote payroll from the home country may not be permitted under host country laws, and some type of local entity to run payroll or GEO solution may be necessary to avoid non-compliance.


The use of remote teams in multiple locations has appeal for companies that have a global presence or simply wish to access top talent in various locations outside the home country.  When a company hires a contractor or employee in a different country, they are exposed to compliance risks just as if they had a local office and formal business presence.

It is easy to overlook these issues due to pressing business priorities, but it is worthwhile to assess the exact compliance issues that could arise for global remote workers.  If you have questions about hiring contractors or employees in foreign jurisdictions, and methods of compliance, please contact Shield GEO and we can share with you the available solutions.

Get in touch to find out more about how an Employer of Record solution can help your company

Related Articles

Are you managing a remote or global team?

Join 14,000+ managers receiving remote guides and international HR resources!