Remote work has recently become a very popular form of working. The outbreak of the COVID-19 pandemic meant that many businesses have had to reorganise their working arrangements in a short time, sending staff home into compulsory remote work. As it turns out, many businesses are now considering this form of work for the long term, due to the potential for operational cost efficiencies. One interesting aspect of remote work is providing employees with company-issued equipment and the related tax settlement by the employer.
- Due to the COVID-19 pandemic remote work is likely to become a widespread working arrangement.
- Providing employees with work tools and supplies does not create income on their part, but personal use of company equipment may be problematic.
- Compensation paid to the employee for using their personal equipment for business purposes is free from taxation and social security contributions. The compensation should be equivalent to the expenditure incurred by the employee.
Remote work and taxes
COVID-19 legislation has introduced the possibility for the employer to instruct the employee to do the work specified in the employment contract, over a specific period, away from the regular location, i.e. to work remotely. Please note that remote work is not the same as telework, which has its own dedicated provisions in the Labour Code.
According to the provisions of COVID-19 law, the employer instructing an employee to work remotely is obliged to provide the employee with the tools and supplies needed for perform such work and to provide logistical arrangements for remote work. The employee may also use their own tools or supplies not provided by the employer subject to certain conditions, including ensuring respect and protection of confidential information and other legally protected information, including trade secrets.
You may ask whether the employer providing the employee with company-issued equipment for the purposes of remote work gives rise to the employee earning taxable income. The Personal Income Tax Act (PIT Act) does not contain special provisions in this regard, so it must be held that if the employee uses the equipment (laptop, phone, printer, or even desk or chair) for business purposes, there is no taxable income on their part.
Personal use of company-issued equipment remains problematic. In such a case, there is a risk of income arising on the part of the employee, so the issues related to personal use of company-issued equipment in the period when the employee is working remotely should be formalised with the employee.
If the employer does not provide company equipment to the employee, they should pay them for the use of personal tools and supplies, as well as for e.g. increased consumption of electricity. In this case, the provisions of the PIT Act stipulate that compensation paid to employees for using their own tools, supplies or equipment in their work is free from income tax. Importantly, one of the conditions for the exemption from taxation of the compensation is that its amount should be equivalent to the expenses incurred by the employee in relation to the use of personal equipment or electricity consumption. Paying compensation that is too high entails the risk that tax authorities may recognise the tax-free compensation as a form of remuneration for work.
The employer will be able to deduct the expenses incurred in order to provide employees with equipment for remote work and amounts of compensation from taxation in line with the general provisions.
Remote work and social security
The regulation on detailed rules for determining the basis of payment of social security contributions towards retirement and disability insurance introduces an exemption from social security contributions for compensation paid to the employee for using their own tools, supplies and equipment in remote work. The conditions for the exemption include the compensatory nature of the amounts paid, monetary form of compensation and the employee’s ownership of the equipment.
In conclusion, we are probably entering an era when remote work will be a widespread form of working, rather than an exception. So far, tax regulations contain only cursory provisions on remote work, due to its rare use. Perhaps, as remote work becomes more and more popular, the legislator will introduce new rules for the employer’s tax settlements regarding remote working orders.
AUTHOR: Aleksandra Trocińska, Senior Consultant, Tax advisory service