Workation: These legal aspects need to be considered
Combining work and travel in the form of a Workation is high on the priority list for many employees. Companies have also caught on to this trend and the benefits it reaps. But before embarking on a Workation, the legal aspects entailed in it should be considered.
In principle, the following applies: If an employee is on a work assignment for less than 4 weeks, the labor law of the home country still applies. But please note: The destination country’s regulations on maximum working hours, break times and minimum rest periods need to be taken into consideration.
Working from home vs. remote work
Most of the time, Workations are undertaken by employees who work remotely anyway. However, many managers and HR personnel are not aware that there are differences between home office and mobile working.
The term “home office” refers specifically to working from home, i.e., one’s own four walls. In most cases, it does not matter whether the home office is located within the country in which the company operates. However, it is usually not permitted to do work from a café, hotel, or any location outside of one’s own home.
Mobile working, on the other hand, refers to work done away from the place of business. In this model, work can be done from any location, such as a café, train or coworking space. This arrangement is usually an extension of the home office, as it allows the employee to be more flexible. However, this arrangement usually only covers locations within the country and not abroad.
In most European countries, there are no laws proclaiming remote work as a basic right of the employee, especially when the place of work is temporarily relocated to a destination abroad. Therefore, Workation terms are highly individual agreements between employer and employee.
Although there are no universal regulations for workations, there are some guidelines that have proven to be effective in the past. These mainly concern aspects such as the duration of the stay and the labor law of the respective destination country.
As a rule of thumb, the longer the stay, the more difficult the labor law and tax situation becomes for the employer. What can be handled quite easily within the EU becomes more difficult when traveling outside of Europe. In Portugal, for example, a longer Workation stay is not a problem. Bali recently started offering its own visa, which allows digital nomads employed by foreign companies to live and work tax-free in Bali for up to five years. Similar regulations are offered by destinations such as Hawaii, Dubai, or Mexico. However, on the official website of the countries, the necessary information concerning these matters is usually provided.
Within the EU, the ERW and Switzerland, cross-border employment relationships are subject to the EU Social Security Regulation (VO (EG) 883/2004). This regulation states that employees must pay social security contributions in the country that they work in.
To be able to work in most European countries, employees must have a primary residence or center of life. If a large part of one’s work is performed in the country in which the center of life is located, social security contributions must be paid there. Social security contributions are only paid to another country if the majority, so more than 25%, of the total activity is carried out there.
If the employee is only temporarily working in another country, the social security will continue to be paid in the country where the employee usually works. However, only if the employee is sent there by the employer. In most cases, employees seek out Workations themselves and are not sent abroad by their employer. This would mean that employees are not covered by social security for the duration of their Workation. In some European countries, such as Germany, employers can insure employees in the form of expatriation when on Workation.
Outside the EU, the situation depends on the individual agreements between the countries. As an example, if a German employee is working in the USA for a certain period of time, he or she must pay social security contributions there. If they are posted there by their employer, exceptions are possible. If in doubt, it may be worthwhile to seek out additional insurance for the trip.
The principle of income tax is simple: taxes must be paid in the country in which the employee works. However, due to remote work, the pandemic, expatriates and Workations, employees increasingly perform parts of their work abroad. Therefore, double taxation would be an issue for many employees.
To avoid this, many countries have concluded double taxation agreements. Within the EU, this applies to every country. If an employee works less than 183 days per year abroad, the taxation right remains with the home country. If the stay is longer, the taxes are divided between the two countries. The framework in which the 183 days are calculated can also vary from country to country. Detailed information on double taxation agreements between countries can usually be found on government websites.
Within the US, some states allow residents from other states to work locally for a certain amount of time without tax liabilities. However, these rules can vary greatly nation-wide, so it could be worth to consult a tax professional in order to deal with matters like this.
Visa and worker safety
Within the EU, residents can pretty much roam freely without consequences. However, if the Workation is planned in the US, for example, employees may need a work and residence permit. Many countries, such as Iceland, Dubai, Barbados and Mauritius, already offer a special visa for remote workers. Detailed information can be found on the federal websites of the respective countries.
The home countries’ labor protection laws remain in force during a Workation. Before the start of the trip, clarifications about safety measures at the accommodation need to be gathered. The access to medical assistance should also be guaranteed. Before embarking on a Workation, the health condition of the participants should be clarified.
Popular Workation destinations and their regulations
Haven’t found a suitable destination yet? To facilitate tax and labor law aspects and to save the HR department additional work, it can make sense to hold the Workation within the EU. However, intercontinental destinations should also be considered as a choice. Some popular destinations and their labor law conditions are briefly presented here. It should be noted that a visa of some sort is required for all these destinations if Workation participants are not from Europe. Information on visa requirements can be easily found on the websites of the respective countries.
Italy is one of the favorite travel destinations of Europeans in particular. In addition to beautiful beaches and good cuisine, Italy also scores on the labor and tax front. The 183-day rule applies and makes it easier for remote workers to work in the Mediterranean.
Labor law and maximum working hours should be considered when working from Italy. In Italy, a standard work week is 40 hours. This number can be exceeded by a maximum of eight hours per week. If employees work more than 6 hours per day, they must take a break for at least 10 minutes. In addition, employees must enjoy at least 11 hours of continuous rest within a 24-hour period. The maximum working time per day may not exceed 13 hours.
Spain also has a double taxation agreement with all European countries. The sunny paradise can therefore be visited for a Workation without tax consequences. This also applies to the many islands of Spain, such as Gran Canaria, Fuerteventura, or Mallorca.
A standard work week in Spain consists of 40 hours. The permitted overtime is calculated over the year and is therefore only relevant when working there for a long period of time. Up to 80 hours of overtime work can be settled with compensation. For the rest, employees must be provided with compensatory time.
Although the country is known for long siestas, this attitude is not necessarily reflected in labor law. Daily working hours are like those in Italy. After six hours of work, a minimum break of 15 minutes must be taken.
There are no tax consequences in Turkey if the Workation does not exceed 183 days in a period of 12 months. But be careful: This period starts with the beginning of the Workation and not with the respective calendar year.
In Turkey, the standard working time is higher than in other European countries and amounts to 45 hours per week. The allowed overtime hours per year must not exceed 270.
After four hours of work, the employee is entitled to a 15-minute break. Up to 7.5 hours, workers must take a half-hour break. If the working time exceeds 7.5 hours, one hour break time is required. However, these times can also be modified depending on company requirements and agreements.
Even though Croatia has only recently become an official part of the European Union, there have been double taxation agreements in place with most European states for a long time. Here, too, a Workation can be undertaken without incurring additional taxes for the work performed.
In Croatia, the average work week is 40 hours, with 10 hours of allowed overtime per week. If work in Croatia is done for more than 6 hours per day, a rest break of at least 30 minutes must be taken. In Croatia, this minimum break is part of the working hours.
Greece also has a double taxation agreement with other European countries. Greece also offers a foreign tax credit for US workers who invested working hours while being in the country of Greece.
The 40-hour week is the standard working week in Greece. This may be exceeded by 5 hours per week. In addition, overtime is paid with a 20 percent surcharge on top of the standard hourly wage. Here, too, the following applies: If work lasts longer than 6 hours, a break of at least 15 minutes must be taken.
One thing is certain: the Workation-Trend will become increasingly popular among remote workers in the future. But it’s not just employees who like the model: Increased employee satisfaction, employer branding and the attractiveness of the company on the labor market is also an advantage for employers.
When planning a Workation, however, the legal requirements of the target and home country should be carefully considered so as not to get a nasty surprise later on. This effort will certainly contribute to the positive development of the company.