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A Quick Guide to Remote Work Allowances, Stipends & Tax Relief

Remote Work Allowance

Ever since the COVID-19 pandemic changed the way we all live our lives, people all around the world have continued to work from home. 

Although it’s true that most have settled in and done their best to embrace this “new normal in working”, it’s rarely a perfect situation—awkward video calls, slap-up dining room offices, and bored children running wild around the home are challenges that many are having to deal with. 

While the pandemic is unlikely to mark the end of the office forever, it does look as if we’ll be working from our homes for a while longer yet. 

Given that companies have realized that it’s possible to operate remotely and, in fact, that there are many benefits to it, some workers may find themselves working remotely a lot more often, perhaps even permanently

With all the disruption and uncertainty that has come over the last year, much of the focus has (quite rightly) been on the practicalities of creating a remote-friendly working environment. But there’s a bigger economic picture to it all, and it’s starting to gain more attention as companies think about their long-term plans, leading to questions like “Who’s responsible for funding the move to remote working?” and “Do I need to provide my employees with a remote work allowance?”

In this brief guide, we’re going to cover remote working allowances for employees, what they are, how they work, and why this is increasingly becoming an important part of employee benefits administration. We’ll also touch on work-from-home tax relief and deduction schemes and explain how they differ.  

Who Should Pay for a Home Office? 

That is the question. 

Under normal circumstances, it’s the employer who foots the bill for employee workspaces. Renting an office building, furnishing it with desks, kitting it out with computers, and adding in other comfort facilities are all normal business expenses.  

There’s no exception to this when employees are working from home. They still need to be comfortable, sheltered, have access to the Internet, and the equipment necessary to do their jobs. In the long run, they also need a comfortable setup (this doesn’t include dining tables!) such as ergonomic chairs and desks to truly thrive. 

With companies now saving huge amounts of money on office space and upkeep and workers spending more on utilities and equipment, shouldn’t the costs be covered by employers? 

Assuming the company is not willing to adjust remote work salaries upwards, this is where a remote work allowance comes in. 

What is a Remote Work Allowance? 

A remote work allowance, or remote work stipend, is a monetary sum paid to employees. It’s designed to help workers cover their expenses while working remotely. 

The term ‘remote work allowance’ can also be used to refer to tax deductions that remote employees can claim, but we’ll cover this in more detail later. For now, we’re focusing entirely on remote work allowances in the context of monetary sums paid to workers by employers.

The Hidden Costs of Remote Work

When you look at the cost of remote work, you may be led to think that it’d be much less than it costs your workers to head to the office each day. 

After all, remote workers don’t have to pay for transport or refuel their cars as often, and they can wear what they want (when not on video, of course!). 

This isn’t quite the case, however. Productive remote work is influenced by several factors that start to pile up the pennies. Laptops and phones, extra monitors, high-speed Internet, desks and comfy chairs, a sustainable working environment, and utility bills are all examples of potential costs.

You also need to factor in the loss of perks and the soft expenses that come with them, such as company-bought lunches, snacks, and coffee. Over time, it all adds up. 

These and other expenses are exactly what remote work stipends and allowances are designed to cover.

What Are Remote Work Stipends For? 

Remote work allowances can be used for a multitude of reasons. What is and isn’t allowed is a matter for individual company policy. 

Typically, remote work stipends are used to fund new office equipment, such as desks, ergonomically designed chairs, and extra monitors. They can also be used to cover costs like food, coffee, or anything else that an employee needs to stay comfortable and productive while working remotely, such as a faster Internet connection or a coworking space membership. 

A remote work stipend can be paid monthly alongside salary, quarterly, given as a one-time payment, or as a reimbursement for costs incurred by employees and then claimed for. 

Do Employers Need to Offer Remote Work Allowances? 

Strictly speaking, no. A remote work allowance is not like compulsory ‘13th month pay‘: You don’t need to offer a remote work allowance. But you’d be foolish not to, especially now that the attitude to remote work has changed so dramatically.  According to OwlLabs, however, only 20-25% of companies pay or share the cost of remote working expenses like furniture, equipment, and utilities. 

Rather than pocketing the money saved when employees go remote, ethical companies understand that their best assets are their people—and it’s in their interests to invest in and look after them. 

Similarly, compensation for legitimate work-related expenses is not something that employees should have to surrender for the “privilege” of working from home; they’re entitled to it. Remote working benefits companies just as much as it benefits employees and it shouldn’t be viewed as an employee perk. 

While workers shouldn’t be given a remote work stipend for everything—i.e., allowances for non-essential work equipment or lunch every day—certain operational costs absolutely should be covered. 

It is worth pointing out that, while remote work allowances are not compulsory, in some countries, such as Spain, it is compulsory to reimburse remote employees for their work-related expenses (whether through a remote work allowance or another method). 

Examples of Remote Work Allowances Offered by Real Companies

Since the pandemic saw millions of workers suddenly thrust into home-based remote working, remote work allowances have become more common. 

Twitter, which now allows employees to work from home permanently if they opt to, provides a $1,000 remote work allowance. As does Facebook (to full-time employees; not contractors), and Google

In fact, stipends, which have been described as “The tech industry’s new perk” are offered by most big tech firms. Some even provide stipends for specific costs, such as Basecamp which offers the following remote work allowances for their team members:

  • A $100/month coworking space stipend
  • A $100/month fitness allowance
  • A $100/month massage allowance
  • A $1,000/year continuing education allowance
  • A $1,000/year matching charitable gifts stipend

Three Benefits of Offering a Remote Work Stipend to Your Employees

Just as companies can benefit from remote work, they can also benefit from offering remote work stipends. 

Here are three that stand out:

  • 1. Workforces Become More Aligned with Core Values
  • Offering a remote work allowance is a great way to align your workforce with your company’s core values. This is because the allowances and stipends you offer can be easily linked back to what these values are. For example, if your company prioritizes employee education and up-skilling, stipends can be designed to promote this. 

    Remote work allowances also improve the relationships between employers and teams because they inherently create trust. When workers are given more autonomy and the free will to use their stipend as they see fit, richer connections develop. 

  • 2. A Better Culture Emerges
  • Companies that support remote work with measures like remote work allowances tend to benefit from stronger and more positive corporate cultures. 

    This consequently leads to more engagement and higher levels of efficiency from employees, both of which are more important now during the pandemic than ever before. You’re also more likely to maintain employees in the long-term and attract the best talent with a positive culture that looks after your employees and screams “This is an awesome place to work!” 

  • 3. Workers Get What They Need
  • Instead of receiving pre-determined perks, a remote work allowance allows an employee to spend the money on what they need. 

    This ensures that a remote work stipend and any perks don’t go unused, which is good value for money for the company and much better for the worker. It also means companies don’t risk wasting time on setting up a specific program, perk, or initiative that might not be fully utilized.

Remote Work Allowances vs Tax Relief & Deductions: Are They the Same?

So far, we’ve looked at remote work allowances and remote work stipends as financial payments that are by companies directly to workers.

However, the terms remote work allowance and stipend are also commonly used to refer to the tax deductions and refunds that remote workers are sometimes entitled to claim depending on where they live.

What is Remote Work Tax Relief?

Many people don’t realize that they can claim tax relief for working from home and miss out on valid tax deductions.

Essentially, remote work tax relief means that you’ll either pay less tax to account for any money you’ve spent on specific things (i.e., utilities and equipment), or get a refund for the amount of tax you’ve paid on these specific things.

Where is it Available?

The situation is different depending on where you’re based.

In the United Kingdom, for example, remote workers can claim £6 per week in tax relief for household costs. This is designed to cover things like increased utility bills, business call costs, and Internet bills. Remote workers can also claim tax relief on equipment that they’ve bought.

Meanwhile, in Belgium, remote workers can receive a tax-free remote work allowance directly from employers. At the time of writing, this is just under €130.

The rules vary a lot between different countries. Generally speaking, remote workers can claim tax relief or deductions for things like utilities, Internet bills, cost of equipment, furniture, and even rent.

It’s important to research the situation in your own country to make sure that you sit on the right side of the law. In New Zealand for example, only self-employed people can claim remote work allowances in the form of tax deductions. This remains the case even during the COVID-19 pandemic. Similar rules apply in the United States.

How is it Calculated?

Again, this depends on where you’re claiming from and what’s being claimed for. Your status may also impact your claim, such as whether you’re self-employed or an employee working remotely.

As we’ve seen, remote employees in the UK can claim £6 per week for remote work without the need for any evidence to be kept. In contrast, Australians can make use of three calculation methods to work out tax relief entitlements and must keep records.

Who Can Claim for It?

Wherever a tax-related remote work allowance is available to employees, the main requirement is that their home needs to be their main place of work. What “main place of work” means, again, varies. In some countries, this is 50%+ of work time spent in the home, whereas in Belgium you only need to work from home for five days each month.

In the UK and Australia, for example, you can only claim tax relief as a non-self-employed employee if you’ve been forced to work from home due to the COVID-19 pandemic. In both countries, temporary working from home due to the pandemic qualifies employees for tax relief.

Other restrictions or rules may apply. Again, it’s important to research the specific rules for your tax domicile.

How do I Apply for Remote Working Tax Relief?

Remote workers generally apply for remote work tax relief as individuals when they file their annual taxes. The exact forms that need to be filled out and the information that needs to be provided will depend heavily on your tax authority.

Generally, companies won’t get involved here unless the companies themselves are paying out remote work allowances as a substitute for tax relief.

How a Global PEO Can Help You Manage Remote Work Stipends

For many companies, the transition to remote work has been and continues to be a major pain point. Thus, seeking the help of a global professional employer organization could ease the burden.

Horizons’ in-house consultants and global PEO operations can help you get a grip of the administrative side of managing international organizations, including providing a remote work stipend to your employees that complies with local tax laws where this is required.

Frequently asked questions

Historically, this would be taxable in most jurisdictions as another form of employee income. However, as a result of the Covid-19 pandemic, many tax authorities temporarily made the remote work allowance tax-free up to a certain limit (e.g., up to $20 per week in New Zealand and up to £6 per week in the UK). 

Note, that this is distinct from any tax relief otherwise available for employees who have to pay for their own working from home expenses (see discussion above). 

Some choose to do so, but it is usually not a requirement. Where a remote work employee does not receive payment, they may be able to deduct a work-related component of internet usage from their income taxes (check the tax rules in your jurisdiction to be sure).