If there’s one positive thing to come out of Corona, it’s certainly that the world of work has changed at turbo speed since the outbreak of the pandemic. Working conditions have become more flexible, and physical presence in the office is less important. Many companies today rely on a Remote Work Policy, sometimes as hybrid models, sometimes even “remote first” or “work from anywhere”.
🌏 Especially for modern and internationally oriented companies, it no longer matters much where employees work from. Often, due to the shortage of skilled workers (e.g., in the IT sector), companies are even dependent on recruiting specialists abroad.
❓ Due to flexible working conditions, none of the people recruited abroad have to relocate anymore. But how does the payment of income tax and social security contributions work in such cases? In principle, there are two ways to employ staff abroad:
1️⃣ Establishing a company abroad:
To be able to pay income tax and social security contributions, companies generally need a foreign registered office. However, establishing a foreign company involves considerable effort and costs. It is therefore usually only worthwhile for a number of approximately 10 employees or more. This means that if a company regularly employs staff in a specific country (e.g., Romania), it should consider establishing a foreign company for cost reasons.
2️⃣ Using an “Employer of Record” / Payroll Agency:
If companies employ only a few staff members in a country or shy away from the effort of establishing a company, they may be well advised to use an agency. The agency based in the respective country concludes an employment contract with the employees and handles their complete payroll. The agency then leases the employees to the company. The company pays a flat fee to the agency and, in return, retains the right to issue instructions to the employees. This means that the company remains the employer in the actual sense; only the formal processing is transferred to the agency. Alternatively, it may also be possible to merely commission a payroll agency with payroll accounting in the respective country.
➡️ Are you already implementing Remote Work Policies? How do you regulate the employment of staff abroad?