The Covid-19 crisis has highlighted an untapped capacity for remote working. A confluence of technology advancements and necessity has created a post-Covid workforce of digital nomads, a trend that is fast gaining traction. MBO Partners estimates that 64 million Americans will become digital nomads over the next two or three years.
Digital nomads typically combine working remotely and travelling for various lengths of time on ‘workcations’. The shift towards remote work was already in motion across developed economies before the Covid-19 crisis hit. According to Glassdoor data, access to working from home in the US nearly doubled from 28% in 2011 to 54% in 2020. However, the pandemic saw the number of fully fledged digital nomads grow by 96% in 2020 compared with 2019 figures, from 3.2 million to 6.3 million, according to MBO Partners’ 2020 State of Independence in America report.
With access to talent often the primary consideration for companies making investment decisions, a geographically disparate workforce suddenly makes the equation more complex. GlobalData’s Future of the Office survey found that 78% of respondents believe technology will change the way people do their jobs in the next three years. Furthermore, 84% of employers are set to rapidly digitalise working processes, including a significant expansion of remote work – with the potential to move 44% of their workforce to operate remotely, according to another survey by the World Economic Forum.
Avalyn Kasahara, membership director at Future Strategy Club, says for this flexibility to truly work, massive investment into the business culture is required, in learning and development, employee engagement, talent management and succession planning. “Creating culture for a workforce who may never walk through your physical doors is a very tall order, that most currently fail at,” she adds.
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Physical proximity becomes even more important depending on a company’s stage of development, notes Tech Nation chief executive Gerard Grech. “The network effect from being geographically close is extremely important in the early days of an organisation to establish the mission, vision and company culture, while for a larger company, it is much easier to let people work remotely,” he says.
The Covid-19 pandemic may have shifted the stage at which a company starts recruiting across multiple regions. “It may now happen earlier in the company’s growth,” says Grech. However, despite the apparent ease of hiring across borders, tax and legal implications are not always fully understood. “The challenge for the next decade for governments will be place-based policies around talent,” adds Grech.
Digital nomads: corporate risk or net positive?
Having employees scattered all over the world will expose companies to tax and legal risk that they may not necessarily be aware of, according to Andrew Oury, partner at chartered accountancy firm Oury Clark. “Companies cannot keep up with the rate at which people are working from other locations and don’t fully grasp the concept that employing someone in a country exposes them to potentially having to pay tax and social security,” he says.
Why should someone working from a lower-cost location be paid London wages without London costs. Andrew Oury, Oury Clark
The UK is unusual in allowing foreign employers with no other presence in the country to forgo paying social security for individual employees. Oury notes that a foreign employer with an member of staff in Spain, for example, must pay 35% in addition to that employee’s salary to fulfil social security requirements.
In some jurisdictions it only takes a single employee to require a company to set up a subsidiary, to run a local payroll, and to be exposed to employment law, according to Oury. There is also the question of salary discrepancy. “Why should someone working from a lower-cost location be paid London wages without London costs,” he adds.
Companies are also lagging in acceptance of the trend. According to the World Economic Forum’s Future of Work study, business leaders remain uncertain about the productivity outcomes of the shift to remote or hybrid work. Overall, 78% of business leaders expect some negative impact of the current way of working on worker productivity, with 22% expecting a strong negative impact and only 15% believing that it will have no impact or a positive impact on productivity.
However, Kasahara says large companies should begin to embrace the rise of the digital nomad. “A lot of investment is put into attracting new permanent talent when retention is often no more than a few years,” she says, adding that investment would be better spent on attracting and retaining talented freelancers, through giving them access to the same benefits and perks as full-time employees.
“The benefit to companies would be having a freelance talent pool engaged at the point of need, who are also honing their skills elsewhere, which means bringing in the freshest practices and insight from around the world and is something that is near impossible from your permanent employees,” says Kasahara.
The future of FDI is about attracting talent
While companies struggle to keep up with the trend, global destinations, including Barbados, Dubai and Finland, are seizing the opportunity to attract digital nomads earning foreign currency above certain thresholds. For example, the Caribbean island of Montserrat has launched a new visa called the Montserrat Remote Workers Stamp, which allows stays of up to a year for workers earning $70,000 and above annually.
The future of FDI is not about attracting companies, it is about attracting talented individuals. Miska Hakala, Helsinki Business Hub
In 2020, Helsinki Business Hub launched the 90 Day Finn programme inviting selected entrants to receive a free 90-day relocation package for their entire family. Helsinki Business Hub CEO Miska Hakala says that more than 5,300 professionals expressed interest in living, working and potentially starting a business in the city. “I am expecting more of this type of approach in the future by other investment promotion agencies,” she says.
Hakala adds that these types of programmes reflect shifting priorities in attracting foreign direct investment. “The future of FDI is not about attracting companies, it is about attracting talented individuals,” she adds.
Financial downturns have historically been inflection points of workforce changes. Continued improvements in mobile and cloud computing technologies along with greater acceptance for the trend can only lead to greater levels of remote working. Digital nomadism has shifted from being an alternative lifestyle challenging the status quo to becoming much more mainstream. Whether the trend will continue to accelerate post-Covid is still unclear, however, and data is scarce. All companies should know for now is that this new way of working holds both potential risks and rewards.