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Christine: Hello everyone and welcome to today’s episode of Mobility Via Podcast, a KPMG tax radio podcast. I’m Christine Kachinsky, a partner at KPMG, and our Life Science Industry Tax Leader. Joining me today are my colleagues, Kshipra Thareja, a managing director, and David Mayes, a principal, both in our Global Mobility Tax Practice. Kshipra and Dave, thanks so much for joining. Today we’re going to talk about remote working, and some of the questions and tax issues that we’re seeing across the life science industry.
So Dave and Kshipra, I know you guys have both been spending a bunch of time helping companies with these issues, so really excited to get your insights today. We’ve seen the headlines about companies encouraging and expecting people to be back in the office. But things are still shifting, especially with the Delta variant, updated CDC guidance, and for a lot of employees, returning to the office might mean a hybrid arrangement, with some days in the office and some days remote. So why don’t we start with first question. What are some of the tax issues and other considerations that you’re seeing around remote and hybrid work?
Kshipra: Thank you Chris for that question. So currently there are a number of issues that companies have to deal with on tackling their remote work population. These issues range from individual income tax, state taxes, corporate taxes, transfer pricing matters, employment and payroll taxes, indirect taxes, CDs, as well as a large number of regulatory and licensing issues including data privacy and cyber. I’m just tired of saying that, but companies have to actually deal with all of those issues.
We’re finding that by these issues are similar for smaller and large companies, but it’s where the practical challenges that bring the differences. That’s where we are seeing the scale and the size of the organization as well as their presence across the globe as well as whether the US can have a huge impact. Dave?
David: You know, so it really depends on the size of the organization and some of the tax issues that they’re addressing and their approach to addressing some of those tax issues. So for a lot of the smaller and midsized organizations that maybe historically only had a footprint in a certain handful of states, we’re finding that as their employees are now distributed across a number of states, they’re having to comply with payroll reporting and withholding obligations, with potential state nexus issues, and it’s really just increased their compliance obligations beyond what they’ve experienced historically.
Some of these organizations are also finding that they’re being asked by employees to support flexible worker arrangements in other countries, and so they’re having to navigate the potential exposure to creating permanent establishment in those jurisdictions. And along with that can come payroll and reporting obligations in countries that they haven’t historically had to operationalize.
Christine: So we’re all aware of the existing war for talent, and we see this across life sciences, we see this within our own professional services organization, and because of this, companies are really being forced to lean into increased flexibility to both retain and attract their key employees.
So as part of the flexibility we know that some folks are asking to work remote for long periods of time. And in this industry in particular, it might be easier for companies to be more flexible as it relates to say the corporate function versus say the scientists and those supporting the scientists in the R&D lab. So how do these considerations factor in when setting policy and the associated guidelines?
David: Yes, that’s a great question Chris. One of the things that we’ve seen, as organizations are trying to develop their flexible work policies, that they’re really starting with one, defining what flexibility means to them, and for a lot of life science organizations they’re following the three buckets of employees. That’s those that can work fully remote, those that need to be in the office, and those that they’re going to fall somewhere in the middle and have the ability to work in a hybrid arrangement, where they’re working X number of days from home, and X number of days in the office or in the lab.
Once the organization kind of defines what those categories of flexibility mean to them, then they’re looking to apply that to the different subsets of their population. So they’re identifying job families and roles that fit into each one of those categories. And then they develop that and build that into their policy. So there’s kind of clear expectation and delineation amongst their workforce.
I’ll say the pendulum is continuing to swing as organizations are trying to figure out how flexible they’re going to be, both today and in the future, and that has still been shifting quite a bit, I’ll say. Partly as a result of delays in returning to the office because of Delta, partly because of, as you mentioned, that war for talent, where competing organizations, and maybe not necessarily in life sciences, but in other industries completely, were competing for the same talent. And so that’s shifting some of the views on flexibility for our life sciences clients to provide additional work arrangements and additional flexibility to their employees.
What has certainly come up as organizations are developing those policies, is they’re putting clear guard rails in place around who can work flexibly, where they can work from, and for how long. And that helps to mitigate all of the risk issues and the tax issues that Kshipra mentioned a little bit earlier.
Christine: So that’s very helpful. And I think interesting, because the tax department, while setting policy is helpful, without having hard and fast rules it’s very difficult to administer, right? I know one of the folks that I talk to within the industry talked about the fact that they get between five and 15 calls a day dealing with the policy and the guardrails, and trying to interpret what that means to different situations. So from a practical perspective, certainly see this creating a lot of challenges.
So with that, what else are we seeing in the market in terms of companies reacting to this situation and some things that folks should be aware of?
Kshipra: Chris, that’s an excellent question, because we talk to a broad spectrum of clients, all sizes, all industries. And we are finding while they’re again, the issues are common, there is no one size that fits all. There is no one way that you can kind of approach this problem and solve for everybody. It’s really dependent on the organization, on the culture, the way they manage the people, the way they manage the operations.
But if you were to put a framework around how you go about addressing remote work issues, it can be viewed from three lenses. One, looking at it from a people perspective. Who are the people? What kind of job do they do? Where do they want to do it from? And where is it possible for them to do it from. Second is from a policy point of view, what is it that we want our company policy to be? How do we define flexibility? What does hybrid mean for us? How does that impact somebody’s conversation? What does expense policies look like, etc.? And how would we support say remote work equipment amongst other items that comes in the policy development that then very keenly align to the tax point of view, the HR point of view, as well as the operations.
To bring the people and the policy application together is the glue which is the technology that we are finding. Technology really is at the helm of things, which is helping companies operationalize all the policies that they are putting together. Earlier we would find that cross-border working arrangements were limited to a handful of employees in the company. Now it’s very basic. It’s in the entire organization. And companies need that technology that is scalable and will sustain the operations on a grander scale than it was previously. So we are finding technology applications really being at the forefront end of solving this key problem today.
David: To me that’s very Kshipra. And what we’re hearing from our clients is they’re looking to leverage the investments they’ve made in the technology infrastructure around their HRIS systems, payroll, some of their low code work/flow tools, and service and management tools, to help them solve the remote work challenges. And it really, the technology components can be broken down to a few key steps and a few key areas that organizations are looking to solve.
The first is just knowing where your employees are, you know, looking to leverage technology, to identify the locations of work arrangements, and to provide a way for employees to request their flexible work arrangements. Once that request has been received, and that information has been gathered, then put it through the lens of analyzing that information, and make sure that the flexibility that’s being requested fits within the guardrails of the policy that’s been designed. Very often, because the next component is some sort of an approval process, so technology to support manager approval, HR approval, perhaps golden mobility approval, on those flexible work requests.
Then of course comes the operationalizing of that employee movement. And organizations are looking to upgrade their payroll systems to be able to automate some of the reporting and withholding obligations that are being triggered in different states and in different country jurisdictions. And then finally, you know, any good process needs some reporting and monitoring to make sure that the business is getting the insights they need, the operations team is able to have this ability and to where people are looking to move, etc.
So, the key again is having the technology that is bringing all of those key work streams together to help to minimize the additional employee effort that may be required to operationalize remote work policies.
Christine: That’s very helpful and interesting. And thinking about that, many companies do have some sort of business travel related technology that they may have looked at already, or may even have in place, but if we think about it, we have a broader population here than simply business travelers. The remote work concept really adds another layer of complexity there. And certainly one that may require new technology or modifications to systems and processes that already exist.
So, let’s turn to some practical pointers. So as a life science company is contemplating coming back to work in maybe a remote or a hybrid fashion, what are some of the practical set ups that our listeners can take in order to best navigate the coming months?
David: Most of our clients have started to create a return to work committee, or a future of work committee, that brings together stakeholders across the organization to define those policies, and put the processes in place to support a distributive workforce. So our recommendation is to make sure that there are representation from each of the different key stakeholder groups, from HR to tax to legal to payroll. Make sure that your voice is being heard in those committees. That is the first actionable, practical step that we’re asking our clients to take.
Kshipra: And on top of that, so once you have the working group and the steering committee set up for future of work, then you take that forward and start to look at the inventory of where your people are, what are the current gaps and policies that may exist, as well as what processes and systems you might need. So it’s really, like Dave said, it’s a cross functional effort from understanding what you want your philosophy to be, and then going on to how do you operationalize it, working in tandem with the cross section of functional stakeholders.
Christine: That sounds like really good practical advice, Dave and Kshipra. Thanks so much for sharing your insights today. This was a great discussion. Super helpful to have you take us through these topics. And to our audience, thanks so much for joining us. This is Christine Kachinsky, and on behalf of KPMG’s Life Sciences Tax Practice, we very much look forward to talking again soon.
Join us again next month for our next installment of Mobility Via Podcast. And in the meantime you can check out our previous podcasts or connect with us directly via email at US-taxwatch@KPMG.com. Thank you again for listening. Have a great day.
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