Advicero Nexia
Home / Blog / Workation as a new form of remote working and its legal and tax implications

Workation as a new form of remote working and its legal and tax implications

With the pandemic, remote working has become widespread around the world and has also become well established in Poland. It completely changed the system of employee standards and remote working became a willing model for working. When the pandemic restrictions on travel were lifted, many employees decided to provide their work in the same from another country. This trend is becoming more and more popular among employees and employers are expanding their benefit offerings in this way and offering ‘workation’ to employees.

What is workation?

The new and growing trend of workation is actually a combination of remote working and holiday – as indicated by the combination of the words ‘work’ and ‘vcacation’. It is a flexible form of work that allows to carry out work responsibilities from anywhere possible without using up a holiday leave. This form of work, although distinguished by its form due to its ‘holidat location’, does not imply a limitation of the employee’s tasks – the employee should perform his work as agreed with the employer.

Undoubtedly, workation can be another quite important non-salary bonus. At the same time, it allows employees to maintain the so-called ‘work-life-balance’ – employees can enjoy warm and charming places outside working hours. Such a mode of work can also increase motivation to work, as well as increase an employee’s efficiency.

Although this form of work is becoming increasingly popular around the world, in Poland it is still not a quite popular model of working due to legal, tax, insurance and immigration risks. It is worth to mention, that in some countries this model of work has met with acceptance and the governments of other countries have decided to introduce special regulations, forms and visas for visitors working in this type of work.

Remote work in the Labour Code

As a result of more and more frequent situations of employees working remotely, it has been decided to regulate the issue of remote work more broadly in Poland and work has started on a project to implement certain amendments to the Labour Code (further: ‘the LC’). These changes will have their result soon, although employers and employees have been waiting almost three years for these changes. On 1st December 2022, the Polish Parliament approved the amendment to the LC – the Act of 1st December 2022 amending the Act – Labour Code and certain other acts (further: ‘the Amendment’), which introduces a definition of remote work and regulations related to this form of performing obligations.

The Amendment defines remote work as work that can be carried out totally or partly at a place indicated by the employee and agreed with the employer in each case, including at the employee’s home address, in particular by means of direct remote. Depending on the needs, it has been made possible for the employee to work remotely in special cases, such as a state of epidemics or when it is temporarily impossible to ensure safe and hygienic working conditions due to force majeure.

What is more, such form of performance of duties may also be provided occasionally, at the request of the employee,  which should be submitted on paper or electronically, up to a maximum of 24 days per calendar year. However, this applies to special circumstances and in the legitimate need of the employee (e.g. caring for a family member).

Workation and legal issues

Although remote working has finally been regulated in the LC and is increasingly becoming the ’employee norm’, workation is not regulated by law.

To some extent, we can use the definition and regulations of professional duties contained in the Amendment, but the provision of remote work outside Poland may additionally involve more risks, arising also for the employer. As indicated in the definition above, remote working is understood to as work carried out totally or partly at the place performed by the employee and agreed with the employer in each case. This wording can in principle be applied to the concept of workation. Consequently, if the employer agrees to allow the employee to travel and perform work at the same time, it is necessary to adjust all factors respecting the LC.

Importantly – with regard to the LC – workation does not constitute a leave of absence, as the employee continues to perform standard work – only the conditions for its provision change. Therefore, the provisions of Article 152 §1 of the LC will not apply to workation.

Nonetheless, both parties (employer and employee) will be subject to the remaining regulations of the LC in force in the ‘standard’ case, as well as those newly introduced changes from the Amendment. Thus, the employee will still be obliged to perform his duties diligently, in accordance with his agreement, and the employer will not be able to deny the right to the benefits, such as full-time leave or time off from work.

However, with regard to some kind of difficulties on the part of the employer, it should be highlighted that a change of place of work may result in changes in the centres of vital interests, as well as pssible compliance with the immigration law of the employee’s host country (including the possibility of requiring a work or residence permit). Therefore, it is necessary to keep track of potential changes in the facts and the activities that the employee performs.

Tax consequences and risks

Referring to the tax residence, in the case of unlimited tax liability, the employee will be obliged to settle for PIT purposes in the home country. In case of unexpected change of tax residence by an employee due to the fulfilment of several relevant factors, such as the number of days spent in a calendar year in a given country or the change in the centre of vital interests, it would be necessary to properly recognize the tax obligations of the taxpayer and the payer-employer in the country to which the tax residence has potentially been transferred. It is therefore necessary to monitor the number of days spent in a particular country and to inform the employer of significant changes.

Another risk to watch out for, is the possibility of the creation establishment for the employer and related CIT settlements that may arise for the employer company. If the tasks performed on the workation do not qualify as preparatory or auxiliary activities, there is a greater risk of permanent establishment for the employer.

Responsibilities related to workation

In order to avoid potential risks, it is important to monitor the factors that may cause the employee’s tax residence to change. In particular, it is important to pay attention to the conditions as to the number  of days of residence and to analyse whether the employee’s residence has changed during the performance of remote work abroad as a result of change in certain facts in relation to residence.

Each time, it is also worth analysing the provisions of the relevant double taxation treaties. What is more, that there are still countries with which Poland has not signed such agreements – then, in the case of remote work from such a country, the tax regulations in force in the country in question will apply (without the application of rules appropriate for determining tax residence – exceeding 183 days or having a centre of personal or economic interest, or for avoiding double taxation).

In the event that the work will take place in an EU country, social security issues should in principle be simpler, as there is  coordination of national social security systems within the EU. In principle, an employee working remotely from another Member State could be subject to the insurance rules of the country in which he is, in principle, permanently working. However, the employee should apply for an A1 certificate for this purpose, by which he confirms his social security legislation.

The employer additionally has to take into account the fact that, in connection with the workation, he may also obliged to comply with the regulations of that country, i.e. obligations to guarantee the employee employment conditions in accordance with the legislation of that country. This, in turn, raises a number of additional questions that would additionally need to be examined.

Issues related to possible employee accidents, health and safety and data security also remain important to verify. The employer is obliged to ensure safe and hygienic working conditions for employees performing remote work. In the form of the workation model, it is difficult and sometimes even impossible to analyse employee safety. A challenge for the employer may be a possible workplace accident in this form, which may lead to complex legal consequences.

Workation certainly offers many advantages for employees, but requires excellent organizational and time management skills. Employers deciding to introduce such a benefit should carefully consider all the implications, including tax, social security and legal implications, as well as their obligations. Such a scheme can certainly have a significant impact on the employer’s reputation, attract new potential employees and differentiate it in the labour market, but it should nevertheless be introduced in a well-considered manner and verified in terms of legal and tax obligations.