Co-author: Kaili Kallastu, tax adviser in Grant Thornton Baltic
Allowing employees to work location-independently is one way of engaging good specialists on today’s labour market. On one hand, it’s a flexible and appealing option for both employee and employer, but it also runs risks. Thus, before entering into a remote work agreement, it’s worth thinking about the rights and responsibilities entailed and whether the employer is ready and capable of hedging all of the risks.
The agreements should be formulated in writing, to avoid later disputes, and they can be used in future for resolving potential disputes. In an increasingly international labour market, taxation aspects shouldn’t be neglected, either. The rules can be very different from one country to the next.
Why did the option for remote work arise?
Secure flexibility is the concept that was taken into account in the draft Employment Contracts Act. That means that the rules on employment relations must enable the parties to shape the employment relationship that takes into account the needs and interests of the parties to the contract in the best possible manner. The employer is interested in getting quality work in as short a time as possible. The employee is interested, among other things, in working in a place where they feel comfortable. Often that place won’t be in the office. And that is why we are talking about location-independent work, the format for organising and/or performing work, where work is performed regularly outside the employer’s premises.
Remote work allows the way work is organised to be modernised, helping to increase companies’ productivity and competitiveness. In addition, remote work broadens rural dwellers’ opportunities on the job market and helps to save on transport costs i.e. remote work has an environmentally friendly impact. It also creates ways of engaging disabled people, which in turn increases the range of people in total employment. Remote work helps employees to better reconcile work and family life, thereby motivating the employee to do higher quality work.
Uniting work and family life need not always be the most efficient option. It does seem appealing for an employee to set their own hours and plan their activities independently. But there is also a danger that the boundary between private and professional life will become blurred. As a negative impact, the person gets caught up in work as it is a natural part of their home life. From the employer’s point of view, it is also important to make sure that the employee is not bothered with work issues when they are off the clock, as it were.
Remote workers sometimes get forgotten
An employee that allows its workers to work location-independently has to think carefully about how the out of office employees can be part of the team. There is a real risk that remote workers will be forgotten. So it is good if employers give thought to arranging face-to-face meetings as well. It’s hard to say whether the meetings should be daily, weekly or more infrequent. That depends on both the employer and the employee’s particularities and needs. Nor can shared leisure time activities be considered insignificant.
But it pays to remember that all employees must be treated equally. As remote workers are not supervised in person every day by the employer, there is a risk that they will be offered fewer possibilities for self-development. Remote workers must have the same access to training and programmes.
The employer is responsible for ensuring occupational healthcare and safety
Occupational health and safety are a major concern in relation to remote work. One of the principles of the secure flexibility mentioned above is the fact that occupational safety must be ensured when enabling flexibility. Due to the principle of equal treatment, concessions cannot be made with regard to remote workers when fulfilling occupational safety requirements. According to Article 5 of Council directive 89/391/EEC, the employer is required to ensure the employees’ safety and health in all aspects related to work. In reality legislation in force does not govern the performance of these obligations – it is a grey area that will definitely require attention from legislators.
Many occupational health requirements must be fulfilled before the employee can start work. An occupational safety related risk assessment must be conducted, for one thing. In addition, the employer is obliged to provide the necessary equipment for safe work. Employees must be provided with occupational health training both when they are hired and whenever new equipment and technologies are introduced and if the working conditions have changed. It is next to impossible for employers to keep up to date with all changes taking place in the employee’s home, and among other things the right of the employee to privacy and the inviolability of their home must be considered. Here cooperation and communication between the parties are important, so that the employee would notify the employer of such changes.
The employer must provide the employee with appropriate equipment for performing the work (computer, desk etc.). In addition, the employer is obliged to ensure that the employee’s working conditions are suitable and up to code. For example, the detailed requirements for work with display screen equipment are set out in an annex to Council Directive 90/270/EEC, which sets out separate requirements for space, lighting, noise levels and other factors.
Who is responsible for making the remote worker’s home suitable for work?
Setting up a workstation that is outside the employer’s place of business and which meets the occupational safety requirements may mean noteworthy expenses. Who should pay for them – the employee or employer? The Supreme Court has ruled that the employer must compensate the employee for reasonable expenses that the employee has borne in performing duties of employment which the employee could have expected to deem necessary based on the circumstances. Expenses that are necessary for performing duties of employment – without which the duty could not be performed or the quality would suffer substantially – are considered reasonable. Thus, to forestall possible dispute, it is advisable to agree in advance on what both parties view as reasonable, including to regulate the procedure for compensation.
To be excused of responsibility, the employer must substantiate that it was not at fault in causing the damage and that it has taken all reasonable actions for ensuring safe working conditions. If the employer has done its utmost to notify the employee and the employee has not followed the rules established by the employer, the employer is to be considered to have done its duty. Even so, this interpretation does not have an ironclad legal justification, considering that under subsection 14 (4) of the Occupational Health and Safety Act, the employer is not released from liability if the employee violates its obligations.
Based on the above, if the employee is in breach of the obligations specified in subsection 14 (1) of the aforementioned Act, the employee is liable for the consequence, because under the valid regulations, the employee is obliged to ensure a safe working environment. If the employee has failed to follow the employer’s instructions and is in breach of the obligations set forth in the employment contract or internal work procedures, the employer is entitled to cancel the employment contract due to non-performance; however, this does not release the employer of responsibility to establish a safe working environment.
Taxation issues outside of Estonia may get complicated
There are no significant exceptions in terms of taxation of remote workers. Earnings are taxed in accordance with general rules. Attention should be paid to the fact that the actual place where the work is performed should be agreed in the contract – i.e. it should specify the option of working remotely. On one hand, this is important when it comes to taxation of earnings, but also for compensating expenditures.
As a rule, remuneration is taxed in accordance with the laws of the location where the work is performed. If the worker works in Estonia, there are no problems: remuneration is taxed in accordance with Estonian law. But if the employee is based in another country, it should be asked whether the remuneration paid to the employee should be paid according to the other country’s laws. The tax rules may be very different from one country to the next, starting with what is considered to be remuneration and which taxes and other levies must been paid on it. Often the employer is also required to register as a taxable person in the foreign country.
The declaration and payment of taxes also varies by country. Whereas in Estonia, all taxes on earnings must be declared to the Tax and Customs Board, Spain delegates income tax and social security tax payments to different authorities. European Union countries generally allow tax returns to be filed electronically, but that does not always mean that they can be completed electronically. The electronic filing of tax returns may mean that they have to be uploaded as pdfs, and the forms are not always in English.
Specify in the contract where the work will be performed
Specifying the location of the workplace in the employment contract is also important for compensating expenses. For example, in a situation where the employment contract specifies the employer’s location as the workplace but the employee is actually in a home office 30 km away, coming to the employer’s place of business is considered a home-to-work commute. That means that if the distance is less than 50 km and the employer wishes to compensate the employee’s travel expenses (use of personal car), the employer must prove that covering that distance in any other manner will cause unreasonable time and/or financial expenditure for the employee. If the contract specifies the employee’s place of residence as the workplace, coming in to the employer’s place of business is considered business travel, and the related transport expenses are subject to compensation no matter what the distance.
Confusion may also be caused by the employer bearing expenditures related to the actual workplace. If the employment contract specifies that the workplace is the employer’s place of business, the tax authority will likely be curious as to why expenditures were made on the employee’s place of residence and work equipment installed there. This brings up a tax risk related to potential fringe benefits. Specifying the employee’s home as the workplace would significantly lessen this risk.
Thus, taxation questions are not insignificant when it comes to remote work. Above all, tax issues should be approached from the aspect of compensating expenditures so as to prevent fringe benefit tax risks from arising. If a remote worker performs duties of employment abroad permanently, the local tax rules should definitely be followed.
T. Treier, employer. Käärats, S. Suder et al. Seletuskiri töölepingu seaduse eelnõu juurde. (Explanatory notes to the draft Employment Contracts Act) Tallinn: Ministry of Social Affairs 2008, p. 2.
Framework agreements between social partners at the European Union level. Tallinn: Ilo 2009, p. 47, art 1. Online: https://www.sm.ee/sites/default/files/content-editors/eesmargid_ja_tegevused/Too/Tookeskkond/el_sotsiaalpartnerite_raamkokkulepete_kogumik.pdf (19.09.2019).
 Eesti Ametiühingute Keskliit, Tööandjate Keskliit. Kaugtöö kokkulepe. (Agreement on remote work between the Central Association of Trade Unions and the Employers’ Confederation and the Tallinn 2017, p. 1. online: https://www.tooelu.ee/et/Tooandjale/Tookeskkond/Tookeskkonna-korraldus/Kaugtoo (23.09.2019).
 Article 5 of Council Directive 89/391/EEC.
RKTKo 07.03.2012, 3-2-1-175-11, p 21.
K. Künnapas. Kaugtöö aktuaalseid probleeme. (Salient problems of remote work) – Juridica 2014/4, p. 285.