A reserve payment is collected by Remote on a client’s behalf to safeguard against potential large or unexpected severance costs when an employee is terminated.
Typically, employees are entitled to statutory severance payments upon termination and/or other non-statutory payments, and these reserves help ensure that funds are available to cover such obligations.
Reserves are an industry standard and are credited or refunded when an employee resigns or their contract is terminated and any termination costs have been paid.
If a reserve is paid and an onboarding is not finalised for any reason, the reserve will be credited or refunded.
Reserves are required only for EOR employees and for Contractor of Record (COR) contractors. They are not needed for Global Payroll (direct) employees or for those using the Standard Contractor Management or Contractor Management Plus platform.
Why would a reserve be required?
Remote takes a number of factors into consideration when deciding on reserves, these include the financial exposure associated with an account and the countries employees are being hired in.
Additionally, reserves are required if
- a client elects to change from 14 day to 30 day invoice payments terms
- certain non-standard terms are included in an employee’s employment agreement, such as extended notice periods, guaranteed severances, seniority recognition, and non-competes in certain countries
See also:
When is a reserve refunded?
What is reserve payment in Contractor of Record?
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