Worker Classification And Tax Collection

It’s not surprising that compliance with worker classification laws is a bigger deal in the freelance revolution. Why? Well, three factors drive this development. First, the globalization of work, and the impact of new work and collaboration technologies that make it possible to work from anywhere. As readers may know, 51 countries now have active and ongoing programs inviting “digital nomads” to sojourn in their country.

The second driver: countries need tax dollars, and proper classification is essential to tax collection. For example, Argentina annually exports almost 5 billion dollars in tech expertise through the work of over 200,000 freelancers living in Argentina but “gigging” for US companies. Third, advances in technology are beginning to make available new solutions offering indemnification quickly and more cost effectively, and gives companies more visibility over their freelancers and a better experience for the freelancer.

So, what’s the future of compliance, classification, EOR and AOR, and how is it impacting freelancers, marketplaces and the enterprises that hire them? To provide readers with the keenest, up to date, insights, we invited several global experts to weigh in: Cesar Jimenez, CEO of Mybasepay, Erik Vonk Executive Chair of People2.0, Runar Reistrup, CEO of YunoJuno, Morten Bruun, Managing Director of Worksome NA, and Connor Heaney, Managing Director of CXC Global EMEA.

1. Freelancers seem to be working more and more across national boundaries. What are you seeing? Are there specific categories of freelance work that are sourced more internationally?

Cesar Jimenez, CEO, Mybasepay: There's no doubt that we are seeing an increase in borderless work. Any task that can be done from a laptop has crossed borders. As talent markets shift in the US, the borderless options offer an increased talent pool to companies that know how to successfully navigate.

Erik Vonk, Executive Chairman, People2.0: Global mobility in freelancing is a leading indicator of much larger, fundamental development in the mobility of all workers and particularly freelancers. The pandemic accelerated workforce mobility for freelancers as the loss of job security has diminished worker loyalty to places of work, and the opening of country borders and unifications such as the European Union has fostered mobility.

Runar Reistrup, CEO, YunoJuno: Freelance developers have been working remotely for a long time: developer tools enabled effective distributed collaboration. With Figma and other improved collaboration tools for creative freelancers, freelancers in creative disciplines are finding it easier to collaborate effectively remotely and thus work moves with them across borders.

Morten Bruun, Managing Director, NA, Worksome: “Since the pandemic, cross border hires have jumped to +10% of the total. This is driven by freelancers not bound to their home market, and companies tapping into the global talent pool to fill skill gaps. The trend is strongest for software developers and creatives like graphic designers and copy writers. These job categories are increasingly at the center of the war for talent - so companies successfully looking across borders have widened their talent pool significantly.”

Connor Heaney, Managing Director CXC Global EMEA: “Yes, this trend certainly accelerated across the knowledge economy. The big growth areas are content creators, influencers, and entertainment related specialists. In CXC’s Labor trends report 2022, most of the companies we surveyed are engaging workers outside their borders or considering doing so.”

2. Cross border compliance is obviously important to countries for both legal and tax purposes. How do you imagine cross-border compliance evolving over time? What will we be seeing 5 or 10 years from now?

Cesar: It’s hard for one company to be everywhere all at once, so a trusted ecosystem of partners that compliantly engage local talent is the likely future for enterprises. The keyword is 'trusted'. In the future, these arrangements will be commonplace and essential.

Erik: We see greater freedom and choice for both freelancers and employers as the likely outcome. Workers want freedom to rebalance work, life and home, and the freedom to switch jobs and move to other jurisdictions. Employers want access to talented specialists, and on-demand workforce deployment.

Runar: Tax systems across borders will remain specific to each country and unique but we are seeing commonality in worker classification across countries. EU’s new proposed rules on “platform work" will regulate digital labor platforms and influence more homogenous worker classification rules across the EU if passed. Globally, mobile freelancers are increasingly sought after, bringing innovation and spending power to host counties. Countries will increasingly make themselves attractive to global nomads through different tax regimes.

Morten: We follow freelancing in 80 markets: 80 different sets of rules and regulations to navigate compliantly. The onset and increase of digital nomad visas, now available in over 50 countries, is further complication but also illustrative of the openness of countries to work tourists and nomads. So, it’s safe to say this complexity isn’t going away; in fact, it’s getting worse as countries tighten their grip to avoid misclassification. They don’t want to miss out on taxes. For example, the UK implemented IR35 and it’s here to stay. Spain launched new legislation on external worker classification. The complexity makes it impossible for companies to solve in house without taking on enormous risk.

Connor: Regulatory convergence is increasing and the biggest change with greatest impact will emerge from the EU on platform workers. This legislation is expected in the next 2 years. In addition, we expect OECD to focus on mobile and or remote workers that are providing services overseas. As government’s taxes diminish from a reduced permanent employee tax base, we expect anti-tax-avoidance measures to be stepped up globally.

3. What does this evolution mean in future for individual freelancers, freelance marketplaces, and for proprietary freelance platforms like Deloitte Pixel or PwC talent exchange?

Erik: We expect a significant global rise in international, flexible, on demand and remote work arrangements in technology, software development, data analysis, engineering, medical sciences, and general digital skills. In addition, more traditional segments such as finance, accounting and legal continue to grow in international movements of workers.

Runar: We think the increased focus on worker classification and compliance - as exemplified by EU’s new “platform work” rules - signal an end to the era where freelance platforms, whether public or proprietary, can ignore local worker and tax compliance rules in the countries where they operate.

Morten: The future of the freelance talent space will be characterized by aggregation and driven by two trends. First, the push for direct sourcing. Companies are looking to build proprietary talent pools. Second, more freelance marketplaces are specializing, with new entrants focused on certain skills, industries, or geographies. Together, these trends leave companies with a highly fragmented ecosystem that complicates talent access and leads to more manual work and increased compliance risks. Historically, this has been solved by incumbent, non-tech players in the staffing and payroll industries. In the future, innovative companies will use technology to aggregate multiple talent sources. Our prediction: the future will be dominated by platforms that make it easier to manage external talent across teams, all in one place - from hiring to compliance to payments.

Connor: The EU Directive is likely to have an immediate and significant impact on both marketplaces and freelancers. It could disrupt commercial talent marketplaces as freelancers are presumed as employees. It may also reduce freelancer choice and independence. As the regulatory environment becomes more complex and enforcement mechanisms are rolled out, we expect continued growth for EOR/AOR platforms as corporations seek to de risk the engagement of Freelancers.

Viva la revolution!