Your Company Needs a Digital Nomad Policy

Unlike regular remote workers, who tend to stay in one place or shuttle back and forth between their home and a vacation retreat or a relative’s house, digital nomads travel and explore while working. The authors’ research shows that the number of Americans describing themselves as digital nomads rose by 49% between 2019 and 2020, and that unlike in previous years, traditional job holders made up a majority of these workers in 2020. Despite the large and growing number of these employees, few organizations have formal policies and programs for them. But blasé approaches may not be sufficient. Having digital nomads on the payroll can leave firms open to a wide variety of regulatory and legal risks. But the approach shouldn’t be purely defensive or informed only by compliance concerns. The forces that both enable and encourage digital nomadism are here to stay.

In the months since the Covid-19 pandemic hit, the dramatic and rapid shift to remote work has been perhaps the most potent trend impacting the way businesses operate. It’s been a particular boon to one growing group of workers: digital nomads. These are people who embrace a location-independent, technology-enabled lifestyle that allows them to travel and work anywhere in the internet-connected world.

Unlike regular remote workers, who tend to stay in one place or shuttle back and forth between their home and a vacation retreat or a relative’s house, digital nomads travel and explore while working. They may 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 an extensive digital nomad study. We found that the number of Americans describing themselves as digital nomads rose from 7.3 million in 2019 to 10.9 million in 2020 — an increase of 49%. And the composition of this cohort shifted. In previous years, the ranks of digital nomads were dominated by independent workers: freelancers, independent contractors, and the self-employed. But the 2020 nomad surge was driven by people with traditional jobs. Untethered from their offices, many employees decided to take to the road. In fact, the number of digital nomads with traditional jobs rose from 3.2 million in 2019 to 6.3 million in 2020 — a 96% increase. Traditional job holders now make up a majority of those pursuing this nontraditional work lifestyle.

Our research also found that digital nomads are, on average, well educated, highly skilled, and digitally savvy. Because they rely on digital tools and the internet in their work, it’s not surprising that most of them are in high-demand, tech-oriented occupations; the top jobs include computer programming and IT, 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 job and technical skills and more commitment to continued training than other workers do.

Despite the large and growing number of these employees, few organizations have formal policies and programs for them. To an extent, digital nomads are off the grid, literally and figuratively. In most cases, they work out arrangements with their immediate bosses, go nomadic under informal “don’t ask, don’t’ tell” agreements, or travel without their organization’s knowledge.

But such blasé approaches may not be sufficient. Having digital nomads on the payroll can leave firms open to a variety of regulatory and legal risks. Nomads are practicing a form of geoarbitrage — they often travel through low-cost areas while earning the wages prevailing in the high-cost areas where their companies 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’re working. That exposes both the employer and the employee to the new jurisdiction’s tax, regulatory, and compliance rules and laws. In addition, since many digital nomads travel without their firm’s knowledge, their employers may wind up breaking employment laws and regulations without any awareness that they are doing so.

Companies and their lawyers are starting to recognize and manage these risks. Some use the stick approach, summoning traveling and remote employees back 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 this ‘I’m in Colorado and working in New York and getting paid like I’m in New York.’ Sorry, that doesn’t work.” Others use carrots, including full-time work-from-anywhere employment options that include important safeguards for the company.

The labor and compliance law firm Littler released a report titled “What to do About ‘Global Covid Nomads’ and Other Wandering Workers Who Telecommute from Abroad for Personal Reasons,” which covers both the risks associated with digital nomads and how policies and programs can greatly reduce them. Those policies and programs will vary by industry and firm, but the first step is to identify your digital nomads and know where they are and where they’re traveling to. You can then draw up an agreement that defines the terms of the arrangement. It should specify that the nomad is a telecommuter whose place of employment is and will remain in a location the company currently operates in. Other terms, such as limiting the amount of time nomads can spend in any one location and listing “no-fly zones” — places that are off-limits because of their compliance rules and regulations — can greatly reduce the risk that the nomad will run afoul of local legal, tax, or compliance issues.

But the approach shouldn’t 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 appealing to, managing, and retaining these employees will be a key component of any talent strategy. Coherent, explicit digital nomad programs make it easier to hire these in-demand workers and engage, reward, and retain existing employees who wish to travel. The programs can also include policies for hiring freelance nomads, who are less likely to create legal or regulatory problems because they aren’t traditional employees.

The digital nomad trend has attracted a great deal of media attention and established a strong social media presence. Blogs, videos, and Instagram accounts have created a spectator sport inspired by pictures and stories of happy nomads (often with dogs) in beautiful and culturally vibrant places. As a result, many workers aspire to be digital nomads themselves. When we asked adult Americans who aren’t digital nomads if they plan to become one over the next two or three years, 19 million said yes and another 45 million said maybe.

Of course, people don’t always do what they say, especially when it would involve uprooting themselves and their families. Most of those people probably won’t become digital nomads. But the numbers show that there’s strong aspirational interest in working from anywhere, and the number of digital nomads will most likely continue to rise. Even as they work intently on reopening their offices, organizations must consider the needs and prerogatives of those who want the freedom to roam.

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