With vaccinations progressing at pace, organisations need to begin preparations for reopening in a very different world of work, writes Rachel Dillon from EY Ireland.
Regardless of what the new normal looks like, for the majority of employers it is now clear that there is no question of a return to the workplace status quo which prevailed before the pandemic.
In many instances, organisations have found that new remote and flexible working arrangements have delivered productivity gains along with cost improvements.
“Clearly Irish tax legislation will be required to adapt to fit with the new way of working, which for most will likely be a hybrid model”
In others, employees have found the change to be a positive experience and are reluctant to return to previous practices.
Indeed, the EY 2021 Work Reimagined Employee Survey of 16,000 employees across 16 countries found that more than half (54pc) of employees would consider leaving their job post-Covid-19 pandemic if they are not afforded some form of flexibility in where and when they work.
Given the choice, more than half of employee respondents (54pc) would choose flexibility in when they work. By comparison, 40pc want flexibility in where they work. On average, employees would want to work between two and three days remotely after the pandemic.
A clear challenge
These findings present clear challenges for employers as they decide on return to work arrangements. Reward and benefits policies may also have to be reshaped.
On-site yoga classes, free/subsidised meals in canteens and deskside massage services won’t hold the same allure for home-based employees.
Similarly, the tax implications of a company car may outweigh its benefit for an employee whose mileage has plummeted due to the elimination of long commutes.
Employers may wish to consider whether there should be a differentiated package for an employee who works entirely from home at their own request for example, and therefore has a significant degree of latitude in where they decide to live, in comparison to an employee who is required to go into the office regularly and, as a result, could be tied to living in a higher cost location.
Tax implications
Looking at the tax implications of remote working, as it stands, the availability of tax relief for the costs of working from home is quite limited.
“While employees may trigger personal income tax requirements in the country in which they are working, employers should be aware that they may also unwittingly create payroll tax withholding and social security obligations for the business”
An employer may, subject to meeting Irish Revenue conditions, provide an employee with office equipment and furniture provided that personal use is incidental, and pay a home working employee €3.20 per day tax free towards utility expenses – not a very significant sum.
If the company doesn’t pay this allowance, the employee can claim 10pc of their lighting and heating bills against their income tax bill. Even if this were to amount to €2,000 a year, which would be very high, the employee could only claim €200 against tax, which would be worth €40 at the 20pc tax rate and €80 at the higher rate.
Clearly Irish tax legislation will be required to adapt to fit with the new way of working, which for most will likely be a hybrid model. Hopefully, given the Government’s Remote Working Strategy, we will see some movement on these issues in Budget 2022, to bring about both clarity and an improvement in the current arrangements. In the meantime, organisations have to examine the tax implications of any supports they provide to their home working or partially home working employees to ensure that they are operating the Irish Pay as You Earn (PAYE) system correctly and not exposing themselves to interest and penalties.
Remote working abroad
Things can get significantly more complicated where employees are working from home outside of the jurisdiction in which they are legally employed and paid.
While in some locations there has been some leeway given amongst national tax authorities where working from abroad arrangements were the result of temporary emergency measures brought about by the pandemic, not all tax authorities have taken the same approach.
Where forbearance or concessions were given, in many locations, these have either been ceased or are unlikely to persist once the pandemic recedes.
While employees may trigger personal income tax requirements in the country in which they are working, employers should be aware that they may also unwittingly create payroll tax withholding and social security obligations for the business.
Employees working remotely could also create a new taxable presence for their employing entity in the overseas jurisdiction, exposing it to liability for corporate income tax or VAT. Furthermore, employment rights and immigration requirements may be very different. Organisations should take expert taxation and legal advice before they make any decisions to allow staff to work from home abroad on any basis.
While the return to offices will for the most part be a welcome development, organisations must use the time available over the next few months to design and implement the workforce arrangements that will make most sense for them and their particular circumstances.
Rachel Dillon is a Director and Head of Mobility Services for EY Ireland. Rachel has extensive experience advising leading businesses across all sectors in relation to reward, global mobility, employment tax and wider policy issues. She also spent time working in industry with a FTSE 100 listed company where she was responsible for the global mobility programme and senior executive reward. Rachel is an Irish and UK tax professional having also spent nine years with EY in the UK.
Published: 1 July 2021
