Introduction
The last two years have introduced new employment trends that have forced employers to evaluate the immediate and longer-term impact of the new employment trends and the degree to which they will change strategic goals and plans. An example of such is the remote working trend. With more employees working remotely in other countries, there are certain considerations employer can consider if they are willing to implement such a practice.
1. Terms of employment contract
It is necessary to review the existing terms of the employment contract to ensure compliance with the Employment Act, No. 11 of 2007 (the “Act”) and to check for provisions which might be impacted by the remote working arrangement e.g. the place of work clause.
Additionally, the Act requires that where an employee is to work outside Kenya for a period of more than one month then the employment contract should provide for:
- the period for which that employee is to work outside Kenya;
- the currency in which remuneration is to be paid while that employee is working outside Kenya;
- any additional remuneration payable to the employee, and any benefits due to the employee by reason of the employee working outside Kenya; and
- any terms and conditions relating to the employee's return to Kenya.
2. Permanent Establishment
A permanent establishment shall be considered as formed when a non-resident person conducts business activities in another tax jurisdiction over a given period leading to a taxable presence in that territory. This period in Kenya is 6 months or more. The longer an employee stays in a foreign country while working for a Kenyan employer, the higher the risk of such foreign entity to be found to have a permanent establishment.
Where a permanent establishment forms, the non-resident person shall have created a taxable presence in Kenya and therefore subject to tax on the proportionate income that will be accrued in or derived from the business activities carried on in Kenya. The payable taxes would be:
- corporate income tax;
- Pay As You Earn tax
- employment related statutory deduction such as NSSF, NHIS and NITA deductions;
- withholding tax requirements;
- VAT
For additional consultations on tax and permanent establishment, we can refer you to Viva Africa LLP, a tax advisor.
3. Jurisdiction
The employment contract should have a governing law and jurisdiction clause. The parties can choose the law governing the employment contract but there are often local labour laws that override the chosen governing law such as laws on social security contribution requirements, national health insurance fund contributions, minimum wage etc.
Additionally, a company without a business presence in Kenya may be required to have registered place of business in the country. This can be either through a branch office or a subsidiary. An alternative to this would be a international secondment agreement or an employer of record arrangement. These serve the same purpose as an employment contract, but different documents are involved.
4. Immigration
The foremost issue to be addressed by the parties is whether the employee involved is able to live and work in the foreign country. For a foreign national to work remotely from a host country, appropriate entry visas or a work permit requiring an employer to act as a sponsor may be necessary. If a visa, work permit, or residence permit is required, the employer should make sure these are obtained before the employee starts working remotely.
5. Data Protection
With the working from home and cross border working, employers will have to use other technologies to provide digital tools to monitor its employees on things like time tickets and emails and internal communications. Employers should ensure that any processing of the gathered information is carried out in accordance with the provisions of the local and host country’s data protection legislation. It is noteworthy that the data protection Act in Kenya also applies to foreign entities that process personal data of data subjects located in Kenya.
