Remote teams: A Sales Employee Might Just Trigger Risk of Permanent Establishment

For many companies hiring remote employees, rarely consider the actual role of the employee as a determining fact as to how they should be hired. But it is, critical, in fact. The difference between a software developer and a sales hire is substantial for the company. A sales hire is a profit-generating role and for that reason will likely trigger a risk of permanent establishment for the company in the employees country of residence. Therefore if you are hiring for a sales role, keep this in mind as it should impact which candidates you make an offer to.

There are ways to work around this so as to avoid any need to establish entities just to build out to the sales team, let’s take a look at this example:


Company A – A large company with 5,000 workers distributed globally.

They operate on a hybrid model with offices in Ireland, Spain, Germany, South Africa, the US & Canada.

They use a combination of hiring methods for their team, hiring as direct employees in each of the countries where they have an office base, as they have a subsidiary there.

They open up technical roles to remote – anywhere in the world so they can access the very best talent regardless of where they are based. For new hires who are not located in the subsidiary countries, they hire them directly within the EFTA region.

For those located outside the EFTA they hire them as freelancers, and as such they work agreement is different than for those who are full-time employees. We go into detail for these differences in our article Misclassification: What defines an employee?

For sales hire they restrict hiring to the countries where they have an office base. Although these sales representatives still work remotely. The profit generated through these sales representatives is associated with the corresponding subsidiary of the company, which the company would pay corporation tax on these earnings.

Solution: the sales hires are restricted to those countries where the company has a subsidiary, avoiding any additional risk of permanent establishment outside of their current jurisdictions.

This example demonstrates the critical link between the type of role a company is hiring for, and how the strategies should be adapted to fill that role, compliantly, and by minimising all risks associated with that role.

 

Most companies have scaled a remote team without access to information on how to do so compliantly. It has not been easy to access this information. Particularly considering the sheer number of countries that a distributed team might reside. That would generally entail  deep research into local legislation in each country where they have a remote team member based. A huge investment of time and resources that many companies simply don’t have. 

 

As more information is available now, companies are searching for ways to quickly remedy some of the approaches they have made in the past to grow their remote team. Although this is certainly a more challenging and risky way to build out a team. It is not impossible to resolve. But our advice would be to get assistance before hiring remote workers as to minimize the risks.

 

It is not just classification of employment that an employer needs to think about. But also the role of the employee that could trigger a permanent establish risk. 

 

Schedule a call with one of our advisors to discuss your specific situation.