Remote work meets vacation: what employers need to know about ‘workation’

What is workation under German employment law?

From German employment law perspective, workation is strictly speaking a form of mobile or agile work. In contrast to remote work where employees usually work from their own home and therefore have a fixed place of work, mobile work is neither location-bound nor workplace-bound.

Are employees entitled to workation in Germany?

There is no legal entitlement to workation under German law. This means that employees are not allowed to perform work activities in foreign countries before, during or after their vacation without the approval of their employer. Under German law, the right to determine the employee’s place of work principally lies with the employer. Moreover, the employee’s place of work is often explicitly defined in the employment agreement. If such regulation exists, changes require mutual agreement, meaning the employer and employee must be in agreement.

Employers are nevertheless allowed to offer workation to their employees, but solely at their discretion. Even where the employee has already agreed mobile/agile work with their employer, including the right to choose freely where that work should be performed, this will not usually include the right to work in a different country. It usually only means that the employee is free to choose their place of work within Germany. Working from abroad without the employer’s approval may violate the employment contract and result in far-reaching consequences such as a warning or even dismissal.

How can employers offer workation to employees?

Workation is a good way for employers to be attractive, especially to a younger generation which has an increasing desire for flexible work. Due to the lack of legal provisions under German law, it is advisable to conclude a detailed agreement supplementing or amending the employee’s employment contract and defining the conditions of the planned workation. In particular, such agreements may seek to regulate the work location, the duration of the arrangement, the distribution of working hours and respective availabilities, reimbursement of costs as well as tax and social security aspects. It might also make sense to set up a policy or other guideline where general principles of workation can be defined in more detail and applied to all employees.

What needs to be considered from a German tax law perspective?

From a tax law perspective, there are particularly two main questions to be clarified: is there a change in the employer’s obligation to deduct income tax; and is there a risk of establishing a permanent establishment in the foreign country if an employee works from abroad?

As a general rule, an employee continues to be subject to taxation in Germany if the employee who is principally resident in Germany and employed with a German employer does not spend more than 183 days abroad. Short-term activities in a foreign country generally have no effect on the employer's obligation to withhold income tax. Therefore, for typical workation stays abroad, there is no change in taxation. However, the longer the stay in the foreign country, the closer one should look.

It is also important for employers to avoid the tax risk of establishing a permanent establishment abroad, which would result in corresponding tax obligations in the respective foreign country. Where an employee regularly works from abroad, there is an increased risk involved so special attention should be paid by the employer. A detailed examination must always be conclusively clarified in each individual case before the employee’s workation starts, taking into account the respective foreign tax law and relevant double taxation agreements, if any.

What needs to be considered regarding social security law?

What social security law applies principally depends, among other things, on the place where work activities are performed (the so-called territoriality principle – Territoritalitätsprinzip). In a workation scenario, the social security law of the foreign country where the employee performs work activities could therefore apply and the employer would be obliged to pay social security contributions in the foreign country in which the employee is staying.

However, the territoriality principle does not apply without exception. Within the EU, EEA and Switzerland, EU law stipulates that there is the possibility of concluding an exemption agreement in line with article 16 of the EU regulation on the coordination of social security systems – but this is hardly relevant in practice. Additional regulations in article 13 deal with a scenario in which employees usually carry out work in two or more EU member states, but this is not suitable for multiple, shorter, occasional work periods as is the case with workation. While EU law states that, for postings, the social security law of the employee’s home country remains applicable, a posting principally requires that the employer instructs the employee to work from abroad whereas workation is in the employee’s interest and is granted by the employer solely due to the request of the employee so that this regulation does most likely not apply.

Requests for pragmatic solutions have been raised. Currently, German authorities act on the basis that it is irrelevant that the initiative for workation comes from the employee and is predominantly in their interest. For the posting rules to apply and German social security law to remain applicable, it is sufficient that during temporary work abroad:

• the employer is aware of the arrangement and agrees to it;
• the employer accepts and continues to remunerate the work performed abroad; and
• a posting certificate is applied for at the competent German authorities.

That said, it is important to note that the view of the German authorities is not legally binding. At this point it cannot be predicted if, when and how the German government will implement regulations to enable mobile work including workation, at least throughout the EU, without any problems – although respective plans can be found in the coalition agreement of the German governing parties.

If workation is planned in a third country outside the EU, a work or residence permit may be required from an immigration law perspective before work activities can be carried out in that country.

Are there further registration obligations?

In most EU and EEA countries there is an official registration process for the posting of employees within the meaning of the EU posting directive. From the German perspective, it is rather unlikely that a workation will be considered a posting in the sense of the EU posting directive or the national German Posting Act (Arbeitnehmerentsendegesetz); however, this interpretation cannot be totally excluded. In Germany, the registration obligations only apply to employee posting in certain sectors, which are designated in the Posting Act. However, in our experience, authorities in other countries make no difference between workation and regular employee posting, so employers should also check the legal situation at the destination in this regard.

Does the UK welcome ‘workation’?

The UK is lagging behind some other jurisdictions when it comes to workation or the longer-term combination of travel and work sometimes referred to as ‘digital nomadism’.

Where UK-based employees will be workationing in another jurisdiction, they must be mindful of the immigration and other requirements abroad. There must also be no complacency from those hoping to complete a workation in the UK.

Visitors to the UK are generally not required to apply for separate visas depending on their purpose of visit. It is acceptable for someone attending a business meeting to combine this with a social visit, for example. As a result, workationing in its purest form is not problematic.

However, the UK visitor rules are reliant on core ‘permitted activities’. These include general tourism and socialising as well as specified business tasks. To comply with UK immigration control, the key requirement for a visit is for the primary purpose to be one of those permitted activities.

Remote working in the UK is not a permitted activity on its own. While it is not expressly prohibited under visitor rules, government guidance is clear that the main purpose of a visit should be something else. Border officers are directed to be especially mindful of travelers spending a large proportion of their time in the UK, and to ensure that visitors are genuinely employed overseas and are not seeking to work here.

While a couple of days holiday tacked onto the end of a business trip is acceptable, it is easy to see how quickly the lines become blurred for a traveler hoping to combine periods of remote work with UK residence. Our immigration rules offer no easy solutions as we have no visa category directed at remote or agile workers, nor any category for the independently wealthy, or a straightforward option for the self-employed. Workation needs to be approached with some caution. It is essential that travelers understand what they can and cannot do within the terms of their visa (or visa-free entry) to avoid illegal working or other rule breaking.  

Tax, social security and other considerations

From a tax perspective, the issues are broadly similar to those which arise in Germany. For income tax purposes, UK-based employees will remain UK tax resident notwithstanding periods of workation, assuming that the majority of the year is spent in the UK. As regards overseas employees visiting the UK, workations which do not total more than 60 days across the year should not trigger UK income tax withholding, assuming the individual is employed by and working ‘for’ an overseas employer. However, caution is needed if there is a wider pattern of visits to the UK, for example for work purposes, as that could affect the analysis.

Again, the other key tax consideration is permanent establishment risk. This can be a complex area but, for ‘inbound’ employees, the risk will be higher in the case of more senior employees and where the individual has authority to agree/enter into contracts on behalf of the employer. The risk for a sales director will therefore tend to be greater than for someone in the internal IT function, for example, and could arise even over a relatively short period of UK work – though the longer the period, the greater the risk may be. The other key question is whether there may be deemed to be a fixed place of business. This is unlikely to arise for employees temporarily working from a home office on a workation, but potentially could do if there is a longer term pattern – for example because they have a second home in the UK which they work from more regularly than just a one-off trip. Permanent establishment risk should, therefore, always be considered, except perhaps in the context of short, one off workations by junior employees.

UK social security contributions (National Insurance contributions or NICs) are governed by a different regime. Broadly, it is unlikely that a NICs liability would arise in consequence of a workation in the UK, because the regime applying to intra-EU assignments - which effectively still includes the UK for these purposes - and agreements with key countries such as the US provide for continued coverage in the ‘home’ state. As in Germany, it is not entirely clear whether this strictly applies in the case of workations, but it is generally understood that it would do, and we understand that the UK tax authorities may shortly issue some guidance on the subject. The same generally applies for UK employees travelling abroad (i.e. UK coverage would continue), although practice may vary to some extent across different jurisdictions. For employees visiting from other countries, an exemption usually applies for short stays in the UK, assuming that the employer is not UK-based and the employee has no material UK connections. Again, however, for longer workations or if the workation forms part of a wider pattern of visits, the position may need to be re-assessed.

Employers should also be mindful of the UK share plans tax perspective. A workation may result in differing tax treatment of a share option/award, with some of the tax being payable in the overseas jurisdiction in which the employee had their workation(s), negating the benefit of participating in a UK tax advantage share incentive arrangement.

What is workation under Spanish employment law?

The term workation is not regulated in Spanish legislation and lacks any specific definition.

That said, the Spanish authorities have endorsed the vision set out by the European Union Administrative Commission for the coordination of social security systems in its guidance note on telework, where any interpretation of article 12 (EC) 883/2004 must be flexible. Employees on workation should therefore be regarded as posted employees, regardless of the fact the posting itself benefits the employers or the employees individually.

Are employees entitled to workation in Spain?

As aforementioned, this special situation is not regulated in the Spanish legislation. Because of this, if employees want to perform workation from Spain, the arrangement must take place as a posting, complying with the legal requirements for that, until any specific regulation takes place.

What should Spanish employers do when offering workation?

Offering workation to employees can be a good way of opening up new ways of remote working. However, the country from where the employee desires to enjoy their workation and the nationality of the employee must be taken into account in order to comply with immigration laws. Furthermore, we highly recommend entering into a detailed written agreement with the employee defining the terms and conditions of the workation, regulating aspects as duration, working hours, availability, social security aspects and mandatory actions that the employee might need to take in the destination country, depending on the local regulations.

What needs to be considered from a Spanish tax law perspective?

From a tax law perspective, two main details must be taken into account: the employer’s obligation regarding withholding tax, and the risk of creating a permanent establishment (PE) in Spain or, for a Spanish employer, in another country.

When an employee of a foreign company comes to Spain for a period of workcation, the company will not have any withholding tax obligations regarding an employee that stays in Spain for a period, even if the employee is considered to be tax resident in Spain. For the individual employee, depending on their situation and the length of their stay, they might be considered tax resident in Spain and, therefore, be obliged to pay taxes under Spanish law.

Creating a PE in Spain or in a foreign country will result in corresponding tax obligations in the respective country. It is therefore important for the company to avoid creating a PE in the country where the employee intends to stay during their workcation period after carrying out a detailed examination of each situation. That said, this risk is most likely to arise in case of regular work activities from abroad in the same country.

What needs to be considered from Spanish social security law perspective?

In Spain, as a general rule, the employee must be subject to the social security obligations of where they are providing services.

Where an employee from overseas is having a workation in Spain, that employee will be providing services from Spain. Their employer must therefore comply with the social security obligations in Spain, including required registration steps.

The only means of allowing an employee to maintain their social security contributions in their residence country is for the workation to be classed as a posting, which is only possible for employees from an EU member state. Posting involves certain obligations, including notifying the labour authority in advance that the employee is going to provide services in Spain as well as providing an A1 certificate. This certificate issued by the social security department of the member state of origin is compulsory and constitutes the appropriate means of proof of belonging to that particular country in relation to the social security obligation. The local social security authority need only check that the employee is in possession of this A1 certificate.

Are there further registration obligations?

If the workation is done as a posting, it would be mandatory to notify the labour authority of the autonomous community of destination. Each autonomous community has a different procedure.

The employee should also obtain and carry a European Health Insurance Card to be eligible to receive public healthcare assistance in Spain. This is not mandatory since the employee may have private health insurance and would, in any case, still be eligible to emergency assistance from the public system, but is required in order to obtain long-term public health assistance.

Note that although the European Commission has published a note indicating that international remote working should, from an administrative perspective, be treated as a posting, there is no an official regulation which establishes a minimum legal framework, the requirements or even the procedure to this. 

In Singapore, workation is not a commonly used term and is usually referred to as “working remotely overseas”. This is quite a broad concept which can cover a range of situations such as ad-hoc arrangements whereby an employee who is overseas on annual leave is required to do some work, or even a longer-term arrangement whereby an employee may work remotely overseas for a few months at a stretch. The points below refer to the latter situation, and specifically touch on the potential implications that are applicable to employees of Singapore companies who decide to work remotely overseas.

In this regard, in the Singapore workplace, working remotely overseas appears to be more common in the information technology and other digital services sectors and is not something that is widely practised outside of these sectors.

Are employees entitled to workation in Singapore?

Currently, employees do not have an express legal entitlement under Singapore law to work remotely, whether in Singapore or overseas. Any right to flexible work arrangements must usually be mutually agreed between the employer and the employee.

The Tripartite Advisory on Flexible Work Arrangements sets out recommendations that employers are encouraged to follow regarding adopting flexible work arrangements, although compliance is strictly on a voluntary basis.

Employees requesting work flexibility should do so in writing, and employers should fairly and objectively assess the employee’s requests. If the request is rejected, a reasonable explanation should be given. However, if the arrangements create additional costs for the employer, it is ultimately up to the employer’s discretion as to whether they wish to invest the relevant resources and approve the employee’s request.

Workplace health and safety

Workplace health and safety is also something that needs to be taken into account by an employer when considering whether to approve a workation arrangement. Notably, under the Workplace Safety and Health Act 2006 of Singapore (WSHA), an employer must take reasonable measures to ensure employee health and safety at a workplace. A workplace is defined as “any premises where a person is at work or is to work, or customarily works, and includes a factory”. While WSHA does not expressly consider if a place from which an employee works remotely would come under the definition of “workplace”, with the rise in remote working arrangements, it is widely accepted that this is likely to be the case.

Accordingly, the general health and safety requirements set out in the WSHA would potentially apply even when an employee is working remotely overseas. Furthermore, an employer is still responsible for work-injury compensation if the employee is injured while working remotely, provided that the employee becomes injured or contracts a disease as a result of undertaking work duties, and fulfils other statutory criteria.

What needs to be considered from the Singapore tax law perspective?

When an employee works from another country, they will be receiving salary from a company based in a country different from that in which they are residing, and this can create tax residency implications. Generally, Singapore citizens or Singapore permanent residents who only temporarily reside in another country will still be considered tax residents in Singapore. Foreigners employed in Singapore will come under Singapore’s tax jurisdiction if they stay or work there a minimum of 183 days within a period straddling two consecutive calendar years.

Employees who work abroad may thus encounter the issue of double taxation if they are considered to be a tax resident in the country they are working from due to them carrying out income-producing activities within the jurisdiction, whilst simultaneously being a tax resident in Singapore.

Thankfully, Singapore has in place multiple double tax treaties and Double Tax Agreements (DTAs) with various other countries. This allows the tax authorities to exchange information with that of other contracting countries, and where applicable, allows an employee to claim for relief for taxes paid overseas. Provided that the necessary criteria are met, any tax resident in Singapore is entitled to benefit from the application of an applicable DTA, and employees can submit a Certificate of Residence to the foreign authorities to prove their Singapore tax residency and claim tax relief.

Other obligations

In Singapore, Central Provident Fund (CPF) contributions are payable for Singapore citizens and Singapore permanent residents who are working in Singapore under a contract of service. Under the CPF scheme, employers are required to make contributions at the statutory rate. For employees who choose to work remotely in the short term, CPF contributions are still payable by employers. Working remotely long term may however impact on employer’s CPF contributions, as CPF contributions are usually not payable for overseas employment on a long term basis, in instances such as secondment. Employers should therefore conduct a proper assessment of their CPF obligations prior to any long term overseas remote work stint.

Lastly, employees working remotely may have to review their health insurance plans. Many company-covered insurance plans usually include limitations on overseas claims, with a reduced scope on the type of injury or accidents in which insurance is claimable, as well as a reduction in the claim amount available.

The workation concept is very new, and is therefore not yet regulated by French law. A growing number of companies are faced with employees wanting to work remotely from their all-inclusive hotel under the sun, without being fully aware of the challenges this may raise.

Can an employee freely choose their remote working location?

The Covid-19 crisis has revealed the desire of the younger generation for more freedom in their daily working conditions. The development of remote working has been accelerated, with the conclusion of new collective agreements and company-level guidelines.

To date, the discussion has generally focused more on the number of remote working days, the procedure to set them and on the reversibility of remote working. However, with the emergence of workation, control of work location is now entering the discussion.

A remote working employee’s work location is often set by default as the “employee’s home”, or not stipulated in the remote working agreement at all. Where this is the case, and the remote working agreement does not contain any clause preventing it, the employee has the right to work from another country.

Therefore, an employer who has not explicitly agreed the work location of a remote working employee risks that employee deciding to move away from the office, without the possibility of imposing a return to a closer location. For this reason, clarifying the location of work in the agreement is as important for the employer as, for example, clarifying the number of remote working days. 

What are the French Labour Law implications?

Having an employee work from their vacation place has numerous implications under the French Labor Law. Issues that have been raised by French companies include, but are not limited to:

Working time:

workation increases the porosity of the boundary between working time and rest time. First of all, with regard to overtime, which may be worked without the employer's consent or even knowledge. Secondly, remote working employees are particularly exposed to the risks of burnout or overwork. In addition to being illegal and opening the company to a risk of litigation, employees working during break times or vacations will be less effective on the long run and may end up on sick leave.

As such, it is essential to have a clear policy and strict rules on the right to disconnect and on the monitoring of working time. 

Professional expenses:

The distance from the office raises the delicate issue of reimbursement of business expenses, which is compulsory under French law. An employee working from abroad could claim reimbursement of higher expenses including internet connection, telephone costs and even travel expenses when the employer needs that employee to visit a client or a particular location.

Whether an employer is required to pay such expenses is a point on which the case law is still evolving. For example, the Paris Court of Appeal has ruled that when the move abroad is the result of the employee's choice, the employee cannot request reimbursement of such expenses. However, other courts have concluded that if the employer requires the employee to travel, then expenses incurred must be reimbursed.

Consequently, it is important to take advice on the reimbursement of employee expenses, particularly around the relevant URSSAF (Organisations for the Collection of Social Security and Family Benefit Contributions) regime.

General obligation of safety:

The physical distance between the employee's workplace and the employer does not relieve the employer of the general safety obligation. The employer is required to ensure the physical and mental safety of employees, regardless of whether they work in the office or several thousand kilometres away.

To mitigate the risk to the employer in case of accident, care should be taken when drafting the remote working agreement. The employer may also require the employee to provide a certificate of conformity in respect of their working facilities.

What are the Social Security Law implications?

Remote working from a foreign country can affect the employee’s social security affiliation. As cross borders remote working is a very recent development, there are as yet no French regulations in place. However, the European Commission has published some guidelines on cross-border working within the EU, to which we can refer.

According to the guidelines, French employees working in another EU member state will stay affiliated to the French social security system as long as they perform a substantial part of their activity in France (meaning if they spend at least 25% of their working time in France). Otherwise, social security contributions would be due in the other member state and the employee would be affiliated to that state’s scheme, instead of that of France.

If the employee does not perform a substantial part of their activity in the member state of residence, the legislation of the member state in which the registered office or place of business of the employer is situated applies. When remote working from a country outside the EU, the affiliation rules regarding social security would depend on the existence of a bilateral agreement between France/the EU and that third country.

How to regulate workation while remaining attractive as an employer?

The challenges raised by the workation trend do not mean that this practice should be ended, especially if it gives the company a genuine selling point. Instead, the practice should be regulated at company level, to ensure consistency of approach.

Best practice would be to implement a company-wide agreement or charter setting out a clear policy on remote working. This could include setting a distance limit to the working place, whether expressed in terms of geographical distance or travel time to the usual work location. For example, the company could opt to not permit work from another country or to limit this possibility to EU states, with a time limitation of 75% of the employee’s working time.