Articles | May 31, 2023
Fueled by the pandemic, the trend to “work from anywhere” drove some traditional job holders to become digital nomads — people who work remotely outside their home city, state and even country. While many telecommuters work from a home office, digital nomads are location-independent, embracing a technology-enabled lifestyle that allows them to travel and work from almost anywhere.
While this nomadic lifestyle is valued by some employees, employers should carefully consider the benefits and challenges associated with supporting digital nomads to avoid some serious unanticipated consequences.
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While gig work remains popular, being a digital nomad is becoming more common. In 2022, the total number of digital nomads more than doubled to 16.9 million, with the majority now comprised of traditional job holders. The share of digital nomads with a traditional job grew from 44 percent in 2019 to 66 percent in 2022. Most digital nomads (69 percent) plan to continue this lifestyle for at least the next two to three years.
In 2019, before the start of the pandemic, 7.3 million American workers described themselves as digital nomads, reports MBO Partners, a freelancer support platform. At that time, more than half (4.1 million) were independent workers, such as freelancers and independent contractors.
Digital nomads use technology to work remotely from anywhere in the world, often while traveling. Digital nomads can be independent workers or traditional employees.
Gig workers perform short-term or temporary work to complete a specific task or project. Gig workers are a type of independent worker, similar to contractors and freelancers.
Independent workers are often self-employed contractors or freelancers who are hired for a specific job or project.
Traditional employees are employed by a company or organization on a full- or part-time basis, typically with a set schedule.
Source: MBO Partners, 2022 State of Independence Study
Nearly half of digital nomads are millennials. Millennials are the most common generation working as digital nomads (47 percent), followed by Gen X (23 percent) and Gen Z (17 percent).
Certain jobs that breed digital nomads. Digital nomads tend to work in fields that are independent in nature, technical and often do not require a significant amount of engagement or connection with others. The most common area of work for digital nomads is information technology, including programmers, website developers and data analysts. Other areas in which digital nomads work include marketing, creative services, research and consulting.
Many countries welcome digital nomads. As tourism plummeted in 2020, countries began to actively attract digital nomads to boost their local economies. By February 2021, some 21 countries were offering digital nomad visas, encouraging nomads to live and work in their country. As of March 2023, more than 50 countries offer digital nomad visas.
These visas typically allow individuals to work remotely for a foreign-based employer or business outside their home country for up to 12 months and can often be extended for one or more years. To qualify for the visa, most countries require digital nomads to have a minimum level of income, private health insurance and evidence of remote work.
The pandemic created a massive work-from-home experiment. Organizations that could offer flexibility quickly loosened restrictions on where employees could work. After several years of allowing a range of in-person, remote and hybrid work models, many organizations are taking a closer look at both the costs and risks of allowing employees to work somewhere other than the traditional workplace.
To understand key issues surrounding the digital nomad movement, Segal analyzed media coverage of the trend over the last four years. Beginning in the summer of 2020, the volume of news coverage touting the benefits of a nomadic lifestyle began to grow. More workers embraced remote work, and the flexibility and travel opportunities that came with it. In the last year, concerns associated with managing and engaging remote teams are receiving more attention.
Source: Segal analysis, January 2019–April 2023
Digital nomads have considerable freedom to decide where and when to work. Workers choosing this lifestyle highly value travel and experiencing new places.
Another key advantage for many is the chance to save money by reducing living expenses. Geographic arbitrage — moving to a place where the cost of living is lower than your current home — is one of the financial advantages of being a digital nomad. In the U.S., this could mean moving from a location with a high cost of living, such as New York City or San Francisco, to a lower cost area, such as Boulder, CO or Charlotte, NC. Popular low-cost destinations outside the U.S. include Costa Rica, Mexico and Thailand.
From the employer’s perspective, remote and flexible work policies that support digital nomads can broaden the talent pool. These policies improve attraction and retention of a diverse workforce by increasing access to job opportunities and accommodating different lifestyles. Flexible work, such as digital nomadism, can help reduce turnover. A recent McKinsey survey found the desire for workplace flexibility is one of the top motivators for finding a new job. While flexible work options can vary by industry and role, industries going through digital transformations may find some workers demand this flexibility.
Employees who work from a location where their employer is not registered can expose both the employee and the organization to potentially costly legal, tax and immigration risks. Working remotely from a location without the appropriate work permit or beyond specific parameters could lead to taxes and fines. For some international employees, working from an unauthorized location may jeopardize their work visa or immigration status. Employment laws, including leave entitlements, and access to health insurance can also vary significantly by location and time period.
In addition to these risks, digital nomads may be more likely to use public Wi-Fi or other unsecured networks while traveling or working outside an employer location. This can raise data privacy concerns and expose organizations to cyber threats.
Ensuring security protections and adhering to legal and regulatory requirements can be especially difficult for organizations if employees don’t report where they are working to their employer. A 2021 survey from Topia, a global talent mobility company, found 66 percent of employees don’t tell their employer when they work outside their home state or country.
After reviewing the compliance risks and costs associated with allowing digital nomads, some organizations may decide the benefits are not worth the risks and develop policies that specify where digital nomads may work, if at all, and for how long. Other organizations may feel more comfortable with the risks associated with digital nomads in their workforce given the benefits of a diverse talent pool or retention of high-value employees.
Establishing a digital nomad policy begins with a review of the employer’s broad workforce strategy and any existing remote or hybrid work policies. The policy should then clearly define the employer’s principles and processes needed to guide decision-making and manage risk.
If digital nomads are permitted, the policy should include information on:
In addition, employers should articulate the behavioral expectations of the digital nomads, their managers, and other stakeholders to mitigate disruption in productivity, service delivery, collaboration and accountability. This will be vital to successfully maintain the connection necessary to build community and trust across a dispersed workforce.
The organization’s location also plays a role in establishing a digital nomad policy. Multinationals may be comfortable allowing an employee to pursue a digital nomad or remote work visa in countries where they have a legal presence but may have concerns about other locations. Similarly, organizations that operate in one primary location or region may take a more measured approach to limit flexible and remote work options. For those organizations seeking workers in highly competitive fields, creating the infrastructure to support digital nomads may be worth the investment and the risk associated with managing this population.
Issues to Consider when Establishing a Digital Nomad Policy |
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Eligibility
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Benefits
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Access and performance expectations
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Legal and tax concerns
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Locations and time period
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Privacy and security
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Work hours
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Like other flexible work options, enabling digital nomads can be a key talent attraction and retention strategy. Managing the risks associated with this talent opportunity is critical to success.
While this may be easier for organizations that already have the infrastructure in place to ensure compliance in different jurisdictions, other organizations can take advantage of this opportunity by establishing guidelines and investing in the appropriate tools and protections to ensure compliance.
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This page is for informational purposes only and does not constitute legal, tax or investment advice. You are encouraged to discuss the issues raised here with your legal, tax and other advisors before determining how the issues apply to your specific situations.
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