TL;DR: Don't panic, but don't ignore it. An employee who relocates creates four quantifiable problems: payroll and withholding obligations that follow them to the new country, permanent establishment (PE) exposure for your company, local employment law attaching to them, and benefits that quietly stop covering them. None of these fix themselves, and the "183-day rule" does not protect you. The clean fixes are re-hiring them through an employer of record (EOR) in the new country or a genuine contractor conversion. Shor does the EOR path in 25+ markets at $299-449/month per employee.
The Slack message usually arrives after the flight has landed: "Hey, quick thing, I moved to Lisbon last month." Nobody committed a crime, but your US payroll is now paying someone whose work, tax residence, and legal protections live somewhere else. Here is what actually changed, and the four ways out.
First, how bad is it?
Triage before remediation. Establish two facts first:
Visiting or moved? A two-week workcation creates close to zero employer exposure in practice, although technically even one workday can create obligations in some places, according to payroll compliance guides. Someone who gave up their apartment and enrolled their kids in school has moved, and their tax residence will likely follow within months under local rules.
Weeks or indefinite? Under the OECD's (the Organisation for Economic Co-operation and Development's) November 2025 update to its Model Tax Convention commentary, a home office generally does not become a fixed place of business of the employer if the employee works from that country for less than 50% of their working time over any rolling 12-month period, per analyses by Ashurst and EY (as of late 2025). Someone who moved permanently is past the line.
If it is a genuine move with no return date, assume all four risks below are live. If it is time-boxed and short, the policy block at the end of this post is mostly what you need.
The four risks, quantified
1. Payroll and withholding obligations follow the employee. The most concrete and most commonly enforced risk. Many countries require an employer to register and withhold local income tax from day one, or shortly after, when work is physically performed there, even with no local entity, per Thomson Reuters' 2026 PE guide. Social security is separate and often stricter. Totalization agreements can keep a temporarily posted worker in their home system via a certificate of coverage, but the US has them with only around 30 countries, and they are built for employer-initiated assignments, not self-initiated moves (SSA overview). A self-relocated employee usually lands in the host country's social security system, with employer contributions due there. Confirm the country pair with your accountant.
2. Permanent establishment. The scary one in vendor marketing, and the one where the scaremongering outruns the enforcement. PE means the host country can treat part of your company as taxable there. The November 2025 OECD commentary update made this materially clearer: below the 50% working-time threshold, a home office generally is not a PE, and even above it there must be a commercial reason for the presence beyond the employee's personal convenience, a situation the OECD itself expects to be uncommon (Ashurst's analysis). One engineer writing code from an apartment they chose themselves is a weak PE case in most treaty countries. The realistic triggers are an employee who signs contracts or negotiates deals locally (dependent-agent PE), a senior executive, or revenue-generating activity aimed at that market, per Ogletree. Two caveats: the commentary is guidance, not binding law, and some jurisdictions, India among them, have reserved against the new tests. And staying under the PE line does not remove withholding obligations; crossing it adds corporate tax filings on top.
3. Local employment law attaches. Mandatory protections in the new country (termination rules, notice, severance, leave, working-time limits) typically start applying to someone genuinely based there, and a choice-of-law clause usually cannot waive them, as the American Bar Association notes. Practical translation: your at-will US employee may now effectively have European-style dismissal protection, and you will discover this at the worst possible moment, which is when you try to let them go.
4. Benefits and insurance quietly void. US group health plans and workers compensation policies typically have territorial limits, and standard workers comp generally does not extend to employees working abroad long term (Woodruff Sawyer, SFM). Your employee may believe they are insured; they may not be. Equity adds a slower burn: many countries tax equity income sourced to workdays spent there during the vesting period, so a mid-vest relocation can create trailing withholding in two countries at once (IRS practice unit, Safeguard Global). Loop in your equity plan administrator early.
Your four options
1. Stay and formalize through an EOR. An employer of record hires the person through its local entity in the new country, runs compliant local payroll and social contributions, and provides locally valid benefits, while they keep working for you day to day. This resolves risks 1, 3, and 4 outright and removes the payroll dimension of risk 2 (the PE analysis of what the employee actually does is still worth a one-time review with counsel). Onboarding through an established EOR typically takes days to a couple of weeks. Cost is the monthly fee ($299 to $699+ depending on provider and country) plus the local employer contributions you were not paying before. This is the default answer when the employee is staying and you want to keep them.
2. Convert to contractor. Cheaper and faster, and legitimate when the working relationship genuinely changes. The trap is converting the title without converting the reality: if they keep fixed hours, one client, and a manager, most countries will treat them as a misclassified employee, since the test is substance over form (Oyster's misclassification guide). Misclassification findings can mean back taxes, back contributions, and penalties. Use this when the role can honestly become independent, and paper it properly.
3. Time-boxed return. If the move is temporary, a written agreement that they return within a defined window (30 to 90 days is common) keeps you under most practical thresholds, especially the OECD's 50% working-time line. This costs nothing, but only works if the date is real and enforced.
4. End the employment. Sometimes the honest answer. If the country is one you cannot support and the employee will not return, a clean separation under the still-applicable rules beats an indefinite gray zone. Move quickly: the longer they are established abroad, the more likely local termination protections have attached.
The copy-paste policy
The cheapest fix for the next one of these is a policy that exists before the flight is booked. A starting point, to be reviewed by your counsel before adoption:
Remote work location policy (starting point, review with counsel)
- Notice. Employees must request written approval at least 30 days before working from any country other than their country of employment. Working abroad without approval is a policy violation.
- Approved countries. The company maintains a list of countries from which short-term work may be approved, based on tax, immigration, and insurance review. Other countries require case-by-case review.
- Time limit. Approved international remote work is capped at 30 days per country and 60 days total per rolling 12-month period. Longer stays require a formal relocation review.
- Escalation triggers. Any request involving client-facing work, contract negotiation, or executive functions abroad, or any stay projected to exceed the limits above, goes to finance and legal for tax and permanent establishment review before approval.
- Benefits caveat. Employees are told in writing that health insurance, workers compensation, and other benefits may not cover them outside their country of employment, and are responsible for confirming personal coverage.
- Relocation. A permanent or indefinite move is not covered by this policy and requires a separate agreement, which may include re-employment through a local entity or employer of record, a change to contractor status, or ending employment.
How Shor handles it
When a customer's employee turns out to be living in a country we support, we run the EOR re-hire: employment through our local entity in the new country, sequenced around a payroll cycle boundary so there is no pay gap, with local statutory contributions and benefits from day one. Pricing is $299-449/month per employee by country, itemized in the pricing calculator. Contractors are simpler: they can already work from anywhere we pay, at $19/month. The honest limit: we cover 25+ EOR markets, and if your employee moved outside them, we will say so instead of improvising. Statutory rules change and every country pair is different, so treat this post as orientation and confirm your specific situation with your accountant and counsel.
FAQ
Do digital nomad visas fix this for the employer? Mostly no. A nomad visa solves the employee's problem, which is immigration status and the right to live and work remotely from the country. It generally does not shield the employer from payroll withholding, social security, or PE exposure, and in some regimes those employer obligations exist from the first day of local work, per GTN. Treat the visa as an immigration document, not a tax opinion.
Does the 183-day rule protect my company? Not by itself. The 183-day rule in most double-tax treaties can exempt the employee's income from host-country income tax, and only if all of its conditions hold, including that the salary is not borne by a local entity or PE of the employer (activpayroll). It says nothing about employer registration duties, social security, or PE, and once the employee is genuinely resident abroad it usually stops helping at all.
What if my employee only wants to move for a few months? A genuinely time-boxed stay is the most manageable version of this. Keep it under the thresholds that matter (your policy limit, the treaty's 183 days, the OECD's 50% working-time line), get the return date in writing, check social security treatment for the country pair, and confirm their health and workers comp coverage travels. The risk is the "few months" that quietly becomes permanent, so put a review date on the calendar.
Can I just keep paying them on home-country payroll and let them sort out their own taxes? That conflates two different things. The employee filing their own host-country return does not discharge the employer's obligations: withholding registration, employer social contributions, and employment-law compliance sit with you, not them. Enforcement varies by country, but the exposure compounds monthly and surfaces at audits, funding diligence, or the employee's own tax filing. Formalize or time-box it instead.