Your business needs a digital nomad policy
Unlike regular teleworkers, who tend to stay in one place or commute between their home and a vacation home or a relative’s home, digital nomads travel and explore while working. The authors’ research shows that the number of Americans describing themselves as digital nomads increased by 49% between 2019 and 2020, and that unlike in previous years, traditional job holders made up the majority of those workers in 2020. Despite the large and growing number Of these employees, few organizations have formal policies and programs for them. But jaded approaches may not be enough. Having digital nomads on the payroll can expose businesses to a wide variety of regulatory and legal risks. But the approach should not be purely defensive or informed solely by compliance concerns. The forces that both enable and encourage digital nomadism are here to stay.
In the months following the Covid-19 pandemic, the dramatic and rapid shift to remote working has perhaps been the most powerful trend impacting the way businesses operate. This has been a particular boon for a growing group of workers: the digital nomads. These are people who embrace a location independent, technology-based lifestyle that allows them to travel and work anywhere in the world connected to the internet.
Unlike regular teleworkers, who tend to stay in one place or commute between their home and a vacation home or a relative’s home, digital nomads travel and explore while working. They can be found in an RV in the Southwest Desert, an apartment in Santiago, Chile, or a cabin in Montana.
Over the past three years, Emergent Research and MBO Partners have collaborated on a large study on digital nomads. We found that the number of Americans describing themselves as digital nomads increased from 7.3 million in 2019 to 10.9 million in 2020, an increase of 49%. And the makeup of this cohort has changed. In previous years, the ranks of digital nomads were dominated by the self-employed: freelancers, independent contractors, and freelance workers. But the wave of nomads of 2020 was carried by people with traditional jobs. Detached from their offices, many employees decided to hit the road. In fact, the number of digital nomads with traditional jobs has grown from 3.2 million in 2019 to 6.3 million in 2020, an increase of 96%. Traditional job holders now constitute the majority of those who pursue this non-traditional professional lifestyle.
Our research also revealed that digital nomads are, on average, well educated, highly skilled and digitally savvy. Because they rely on digital and internet tools in their work, it’s no surprise that most of them are in high-demand, technology-driven occupations; major jobs include computer and computer programming, web design, creative fields, engineering, and digital and traditional marketing. Digital nomads report remarkably high levels of job satisfaction (90%) and income satisfaction (76%) and have more advanced professional and technical skills and more commitment to continuing education than other workers.
Despite the large and growing number of these employees, few organizations have formal policies and programs for them. To some extent, digital nomads are off the grid, both literally and figuratively. In most cases, they make arrangements with their immediate superiors, become nomadic under informal “don’t ask, don’t say” agreements, or travel without their organization’s knowledge.
But such jaded approaches may not be enough. The presence of digital nomads on the payroll can expose companies to various regulatory and legal risks. Nomads practice a form of geo-arbitrage: they often travel to low-cost areas while earning the prevailing wages in the high-cost areas where their businesses are located. The laws and regulations that apply to a person’s work are generally based on the jurisdiction where the work is performed, even if the employer is located elsewhere. As a result, digital nomads can easily and accidentally create a new “permanent establishment” for their employer in the state or country where they work. This exposes both the employer and the employee to the tax, regulatory and compliance rules and laws of the new jurisdiction. Additionally, since many digital nomads travel without their company’s knowledge, their employers may end up breaking labor laws and regulations without realizing it.
Businesses and their lawyers are beginning to recognize and manage these risks. Some use the stick approach, summoning employees on the go and remotely to the office. Morgan Stanley CEO James Gorman recently said, “If you want to get paid New York rates, you work in New York. None of that ‘I’m in Colorado and work in New York and get paid like I’m in New York.’ Sorry, that doesn’t work. Others use carrots, including full-time employment options from anywhere that include important business guarantees.
The Littler employment and compliance law firm released a report titled “What to do with the ‘global Covid nomads’ and other errant workers who telecommute from abroad for personal reasons”, Which covers both the risks associated with digital nomads and how policies and programs can significantly reduce them. These policies and programs vary by industry and company, but the first step is to identify your digital nomads and know where they are and where they are going. You can then write an agreement that defines the terms of the arrangement. It should clarify that the nomad is a teleworker whose place of work is and will remain in a location where the company currently operates. ”- places that are off-limits due to their compliance rules and regulations – can dramatically reduce the risk of the nomad encountering local legal, tax or compliance issues.
But the approach should not be purely defensive. The forces that enable and encourage digital nomadism are here to stay. Well educated and digitally savvy, digital nomads work in professions where talent shortages are common and attracting employees is a constant challenge. Successfully attracting, managing and retaining these employees will be a key part of any talent management strategy. Coherent and self-explanatory digital nomad programs make it easier to hire these in-demand workers and engage, reward and retain existing employees who want to travel. Programs may also include policies for hiring freelance nomads, who are less likely to create legal or regulatory problems because they are not traditional employees.
The digital nomad trend has garnered a lot of media attention and established a strong social media presence. Blogs, videos and Instagram accounts have created a sport spectacle inspired by images and stories of happy nomads (often with dogs) in beautiful and culturally vibrant locations. As a result, many workers aspire to be digital nomads themselves. When we asked American adults who aren’t digital nomads if they plan to become digital nomads in the next two or three years, 19 million said yes and another 45 said maybe.
Of course, people don’t always do what they say, especially when it comes to uprooting themselves and their families. Most of these people are unlikely to become digital nomads. But the numbers show that there is a strong and ambitious interest in working from anywhere, and the number of digital nomads will most likely continue to increase. Even as they work hard to reopen their offices, organizations must take into account the needs and prerogatives of those who want the freedom to move.