Workation. How to workation correctly?

Workation is becoming increasingly popular as a way to combine work and leisure by performing work functions in exotic or unusual locations. This can be a great way to diversify daily work routines and strengthen team relationships.

It should be noted, however, that workation, as a type of vacation, is not legally regulated, so employers find it difficult to decide how to properly establish their duration.

On the one hand, workation, taking into account the remote work requirements set out in Article 52 of the Labour Code of the Republic of Lithuania, may be regulated as one of the forms of remote work, as Article 52 (1) states that during remote work, the employee regularly performs work functions assigned to him/her or part of them, for all or part of the working time, in a place other than the workplace, using information and electronic communication technologies (telework). This essentially corresponds to the definition of “workation”.

On the other hand, workation is similar in nature to business trips, as Article 107 (1) (d) of the Labour Code provides that a business trip for an employee is the performance of his or her work duties in a place other than the permanent workplace.

The important distinguishing feature is the employee’s choice. In the case of a business trip, the employee goes to another place at the employer’s request, as the employer needs the employee to work in a place other than the permanent workplace during the business trip. Refusal by an employee in this case could be considered a gross violation of the employee’s work duties if such refusal is not properly justified. This could provide a basis for terminating the employment contract on the employer’s initiative due to the employee’s fault under Article 58 of the Labour Code.

In the case of workation, the performance of work functions in a place other than the permanent workplace is not determined by the employer’s request, as remote work, according to Article 52 (2) (d) of the Labor Code, is carried out either at the employee’s request or by mutual agreement between the employee and the employer.

In summary, workation should be considered as a type of remote work rather than a business trip.

After establishing that “workation” is a form of remote work, it is important to consider the following aspects of Article 52 of the Labour Code:

1. In certain cases, the employer is required to allow the employee to work remotely for at least one-fifth of their work time. These cases include pregnant employees, those who have recently given birth or are breastfeeding, employees raising children up to three years of age, those raising a child up to 14 years old or a disabled child up to 18 years old, unless it would cause significant costs due to production requirements or work organization.
2. When allowing remote work, the employer must establish in writing the requirements for the workplace (it is recommended to prepare the risk assessment form, which could be filled out by the employee) provide the necessary tools and equipment, establish rules for the use of these tools, and designate a department, division or responsible person to whom the employee must report for their work.
3. If the employee incurs additional expenses related to their work, such as purchasing and using work equipment, these expenses must be compensated. The amount and conditions of the compensation are determined by agreement between the employer and the employee.
4. The time worked by the employee remotely is calculated by the employer according to their established procedure. The employee may schedule their own working hours within certain limits, without violating the maximum and minimum working time requirements.
5. Remote work does not affect the calculation of seniority, promotion to higher positions, or restrictions on professional development. The employer’s implementation of remote work must not violate the employee’s data protection or privacy rights.
6. The employer shall provide opportunities for remote employees to communicate and collaborate with other employees and representatives of the employer, and to receive information from the employer.

When an employee carries out work functions in a foreign country, it is important to consider the potential tax risks for both the employer (company) and the employee. The employer may be obliged to register as a taxpayer in the foreign country and pay personal income tax and social security contributions there.

In addition, if the employee does not carry out auxiliary or preparatory activities in the foreign country, and for example, negotiates prices, discounts, concludes contracts with clients, the company may be considered as having a permanent establishment in the foreign country and may be liable to pay corporate income tax in that foreign country.

A permanent establishment will not be created if the company carries out activity for less than 6 months in the foreign country, but in each case, we recommend evaluating the terms of the Double tax treaty (DTA), if such an agreement is concluded.

Personal income tax may be payable if the employee stays in the foreign country for more than 183 days in a year. However, even in this case, it is necessary to review the provisions of the DTA as they may impose additional conditions. For example, in many cases, no liability to pay personal income tax will not arise if the employee spends less than 183 days in the foreign country and the employer does not have a branch or a permanent establishment in that foreign country. However, if the company has a permanent establishment in that foreign country, there will be a liability to pay personal income tax from the start of the activity in the foreign country.

If the employee travels to a country with which there is no DTA concluded, the liability to pay personal income tax may arise from the first day. Therefore, it is highly recommended to evaluate all tax liabilities in a foreign country before the departure of the employee.

When the employee is going on workation, it is also important to assess whether the company will have to register as social security payer in that foreign country.

To ensure that work requirements are not violated during the work vacation, it is recommended that the company prepares remote work rules or clearly agrees with the employee in writing on these circumstances:

1. The name of the country or list of countries where the employer allows/prohibits work (if any). For example, it may not be allowed to travel to those countries with which there is no DTA;
2. The maximum uninterrupted duration and maximum number of days per year for remote work/work vacation (not exceeding 183 days);
3. The procedures for applying for and terminating remote work/workation;
4. The requirements for the workplace;
5. The requirements for occupational health and safety;
6. The work equipment provided by the employer;
7. Rules for the distribution of working time, procedures for billing for completed work;
8. Other important conditions;