What is a reserve payment?

A reserve payment is an amount collected by Remote to help safeguard against potential large or unexpected severance costs if a team member's employment or engagement ends.

In many countries, labor laws require employers to pay statutory severance. Depending on the agreement, there may also be additional contractual obligations. Reserve payments help ensure funds are available to cover these costs if they arise.

Reserves are an industry-standard practice. Once a team member resigns or their agreement ends and all termination-related costs have been settled, any remaining reserve balance will be credited or refunded.

If a reserve payment has been made but onboarding is not completed, the full reserve will be credited or refunded. If your account has an overdue balance, Remote may first apply the reserve toward that outstanding amount.

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 several factors when determining whether a reserve payment is needed. These may include:

• 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, non-solicitation, or non-interference clauses
• Consistent late invoice payments may also result in a reserve payment requirement

Why was I asked to pay an additional reserve?

Some employment agreement terms increase the potential cost of ending an agreement. In these cases, additional reserves may be required.

Currently, reserves are automatically applied for:

• Extended notice periods
• Seniority recognition
• Non-compete, non-solicitation, or non-interference clauses

Other agreement terms may require additional review and could result in additional reserve requirements.

Extended notice period

Labor laws in each country define a minimum notice period for ending an agreement. If the notice period in the agreement is longer than the statutory minimum, an additional reserve will be required for the difference.

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?