International payroll and the future of work

An evidence-based look at the 'Great Resignation' and 'Great Migration' theories and how they may impact Employers of Record and businesses with International Payroll

The first job any of us ever experience is usually something in the local area. A shop, a restaurant, a bar – we choose them because we can walk, cycle or get public transport there. All the wages are the same, the benefits are the same, and one job rarely advance our future careers more than another.

In other words, proximity is the key.

As we grow older, these priorities shift. They shift enough that Hollywood script writers can use the ‘move to a new city for a different job’ as a character’s motivation and it be relatable to enough to hit home to a wide audience. But we rarely do it ourselves.

In fact, proximity remains a key factor in choosing a job. The question on every international payroll provider and Employer of Records lips right now is whether that’s still the case in the post-Covid landscape and what long-term impacts, if any, it will have on their business. With attention grabbing stories about ‘The Great Resignation’ and even the ‘Great Migration’ now widespread, we thought we’d look at the statistics behind the headlines.

The numbers aren’t adding up for the Great Resignation theory

A lot has been written about the ‘The Great Resignation’, with some commentators picking up on statistical trends and extrapolating them out into seismic shifts in society. Is it true, though? Are people leaving their jobs in record numbers?

The quick answer is that we don’t really know, but probably not.

We have seen a few record-breaking months in terms of the number of resignations, but there are dozens of plausible theories to why these spikes are occurring. Some say it’s due to pent-up resignations from before the pandemic, others highlight the fact that quit rates generally rise as an economy recovers and people look for better options, while others point to the fact that a bigger percentage of the resignations than normal are from senior people (understandably) leaving the workforce a little earlier than expected.

When we zoom out, we actually see that the record number of resignations in the US, recorded in August 2021, is very similar to the rate we saw in August 2019 – months before the pandemic. As we can see in this chart, Labor Department statistic show that resignations are not that much higher than two years ago, pre-pandemic.

But what if people are about to quit their jobs? Maybe the great resignation is just around the corner?

Well, a PWC survey showed the 65% of people were thinking about leaving their jobs in August 2021. This sounds scary until you read similar surveys in 2019 that generate the same answer; for example, Forbes citing a major study that put the figure at 64% that year.   

This is not to say something is happening in the workforce that will lead to lasting change, it’s just that it’s not as dramatic as headline writers have made it out to be. So, for now, we can probably assign the ‘Great Resignation’ to the myth end of the spectrum rather than a prevailing reality.  

The Great Migration post-Covid - is it real?

Let’s now look at the theory that people are going to leave their home and move to an area with a lower cost of living – also known as ‘the Great Migration’ – now that remote working is possible. It makes perfect sense, and many of us have had the same thought in the last two years, but do the statistics bear it out?

An analysis done on U-Haul truck rental prices in the US gives an interesting insight into what’s going on. U-Haul implements dynamic pricing based on demand, so when prices go up, it means more people are using the service (for example, moving home).

By comparing prices of renting a truck leaving a city, versus renting a truck into the city, it was found that while there did seem to be a trend of people leaving the city, it was a continuation of one that was happening before the pandemic. Indeed, the rate had gone down compared to 2018; not surprising when we consider the uncertainty people are living under.

What’s more, the cities where it was happening most were places where the cost of living has become famously high, such as San Francisco.

It’s been said countless times and in relation to many areas of life and work, but the pandemic didn’t create trends, it accelerated them. This trend of leaving cities was already happening and is probably more likely to be caused by the high cost of living forcing people away rather than due to people realizing they can work remotely.

However, these trends, small as they are in percentage terms, can act like compound interest over time, causing genuine societal shifts as they accumulate - and major shifts in how we deliver international payroll. For one thing, people follow people, so if those early adventurers report back to their city dwelling chums that all is rosy in their country garden, we may see the trend grow.

For now, though, we can also assign the ‘Great Migration’ into the myth rather than reality bucket.

The real change is in hiring practices

There does seem to be one truly revolutionary thing happening in the job market, however, and it’s not coming from the general workforce; it’s coming from the employers.

The rate of people being hired remotely, and with remote work embedded in their contracts (which will go beyond the pandemic) has risen significantly, particularly when it comes to white-collar workers.

Statistics gathered from Indeed and ZipRecruiter (published in March 2021 – one year after remote working became the norm) contain some interesting nuggets:

• Postings were twice as likely to mention ‘remote’ compared to those before the pandemic.
• By February 2021, nearly 7% of job listings were remote compared to 2.9% in January 2020.
• These listings are heavily weighted towards white collar workers. For example, more than 20% of tech jobs referenced remote work in the second half of 2020, while only 1% of beauty, wellness and food preparation jobs did.

In the UK, you find similar trends. Reed Recruitment published figures that showed that, prior to the pandemic, only 1% of job vacancies advertised remote working, and this has risen to 5% in 2021. They also found that people are twice as likely to apply for a job if it’s advertised as remote.

When we look at an economy like Ireland, which is tech and service heavy, research has shown that the top three industries offering remote working opportunities are Software & IT Services (21%), Corporate Services (19%), and Financial Services (10%). Overall, the number of remote jobs being advertised in the 3^rd quarter of 2021 rose to 15% compared to 5% in the same period last year.

It’s reasonably safe to assume, taking these figures into account, that after the pandemic there will be a lot more remote workers than before requiring international payroll services, and companies will be more willing to hire from outside their local jurisdiction.

Habits are a hard thing to break.

The impact on International Payroll and Employers of Record

What will these new remote working habits mean for businesses with International Payroll and Employers or Record? After all, paying a person working from home is the same as if they commuted to the office every day, as long as they stay in the same tax jurisdiction.

It only really becomes a new paradigm if 1) employers begin looking further abroad when hiring people and 2) their current employees begin to see moving to a different jurisdiction as a real choice that will improve their lives.

If these two trends come to pass, then employers – and, by extension, employers of record – will need to expand their global footprint to new territories and currencies to keep up with the demand.

If an employer contacts an Employer of Record and asks if they can onboard someone in Portugal, then it’s important for that Employer of Record to already be set-up in Portugal. Otherwise, the hire may be lost due to the time it takes to set-up in that territory, or the client could be lost to another EOR who does have a footprint there.

Is there evidence that this is happening yet? One study of HR managers found that 73% of them saw a surge in the availability of international talent due to the pandemic, so the first steps are being taken – they’re now looking further abroad.

It will be interesting to see over the next few years what the response from employees are. Survey after survey says employees want more flexible working practices, and the anecdotal evidence suggests that Employers of Record need to be ready for the change.

Will people start turning off ‘location’ as a parameter when searching a jobs site? Will young people begin renting in foreign countries while they save for a permanent home?

If this all does come to pass, it might even be time for those Hollywood scriptwriters to start working on some new ideas.

Go here to download our on-demand webinar, 'Deliver International Payroll for more on the future of international payroll. For more on how TransferMate can help you deliver international payroll efficiently, accurately, and on-time, click here or contact us directly.