What is a reserve payment?

A reserve payment is an amount collected by Remote to help safeguard against potential large or unexpected severance costs in the event an employee is terminated.

In many countries, employees are entitled to statutory severance payments and, in some cases, additional non-statutory entitlements. Reserve payments ensure that sufficient funds are available to cover these costs.

Reserves are an industry-standard practice and are either credited or refunded when an employee resigns or their contract is terminated and all associated termination costs have been settled.

If a reserve is paid and the onboarding is not finalized for any reason, the reserve will be fully credited or refunded—unless there is an open overdue balance on the account, in which case the reserve may be applied to that balance.

Note: Reserve payments are required only for Employer of Record (EOR) employees and Contractor of Record (COR) contractors. They are not applicable to Global Payroll (direct employee) or users of our Standard Contractor Management and Contractor Management Plus platforms

Why would a reserve be required?

Remote evaluates multiple factors when determining whether a reserve is necessary, including:

• The financial exposure associated with a client’s account
• The countries in which team members are hired
• A client’s decision to move from 14-day to 30-day invoice payment terms
• Non-standard employment contract terms, such as:
  • Extended notice periods
  • Guaranteed severance clauses
  • Seniority recognition
  • Non-compete provisions (in applicable jurisdictions)

Additionally, please be aware that consistent late payments may also lead to a request for a reserve payment.

Why was I issued additional reserves?

In some cases, reserves are added automatically when specific agreement terms increase potential termination costs.

Currently, reserves for extended notice period and seniority recognition will be applied automatically. Other employment terms may require additional review and could result in further reserve requirements.

Extended notice period

Labor laws in each country define a minimum notice period for ending an agreement. A reserve will be required where the contractual notice period is longer than the statutory minimum required in that country.

Example: The minimum notice period is one month, but you request a three-month notice period. In this case, an additional two-month reserve would be required.

Seniority recognition

A reserve will be automatically issued where two or more years of service is recognized.

As a general guideline:

• 2-4 years of recognized seniority, a reserve equal to 1-month reserve is required
• 4-5 years of recognized seniority, a reserve equal to 2-months is required
• More than 5 years of recognized seniority is subject to further review.

See also: 
When is a reserve refunded?
What is reserve payment in Contractor of Record?