There’s a massive shift developing from the effects of the Covid-19 pandemic, and it’s affecting companies across the United States. No, it’s not the Great Resignation – although that’s been a key factor. We’re talking about the shift in perception of remote work.
Many companies didn’t think they’d ever be open to having remote employees. Now, even the most steadfast believers in face-to-face meetings are embracing the remote work lifestyle. Forbes reports that a projection from Ladders shows 25% of all professional jobs in North America becoming remote by the end of 2022.
Conservative holdouts are finding it more difficult than ever to demand employees work solely onsite. With the Great Resignation, the talent market is so tight that companies can’t write off employee demands for remote or hybrid positions and easily hire replacements. Not only are replacements hard to come by, but recruiting locally drastically limits the talent pool. This power that employees now have has allowed for more flexible arrangements. However, “with great power comes great responsibility” – although the increased responsibility is on the employers’ shoulders.
After closing up shop during the pandemic, companies found themselves with more remote workers “coming back” but also found that those workers did not necessarily live in the same places they did before the close. Some moved to be closer to family, while others moved just because they had the freedom to. And let’s not forget the 15.5 million people nationwide who consider themselves “digital nomads,” roaming the country and working from wherever they are.
Common Mistakes When Employing Remote Workers
Employing remote workers can be extremely complicated, with varying tax, insurance, and compliance rules in different states and even localities within those states. Here are some common mistakes employers make when setting up new employees or when current employees move to new locations.
Paying incorrect payroll tax for the employee’s location.
Do you know exactly where each of your workers lives? While it seems like they would be on top of informing you of an address change, you can’t count on it. It’s critical to remind employees periodically to update their address information.
The location of your employees is critical to staying compliant in many areas, but the one the employees care about most is payroll taxes. Each state has a threshold of how long an employee can live in a state before the appropriate payroll tax must be deducted. If processed incorrectly, the worker could end up owing a large amount come income tax season.
During the Covid-19 pandemic, some states created legislation permitting employees to be temporarily exempt from withholding requirements if they were not planning to remain in the state after the pandemic. Many of these orders have now expired, but some remain in effect and must be considered.
Not paying appropriate corporate taxes based on presence in other states.
Corporations pay taxes too, and even one remote employee in another state could have repercussions. A business nexus is a tax presence in a particular state and could apply to your remote workforce. Some states chose not to establish nexus based on employees working from home temporarily during the pandemic. Others were not so forgiving of the situation and require that taxes be paid by the employer.
“The establishment of a nexus in another state could affect the company’s income taxes and sales tax, among others. And you can’t forget about checking local tax requirements in specific cities or counties,” says Verbena Williams, Chief Financial Officer for Employment Enterprises, Inc. Beyond taxes, a corporation or limited liability company could be required to choose a registered agent and file an annual report when doing business in another state.
Ignoring the implications on workers’ compensation and other insurance requirements.
Companies are required to register for workers’ compensation in each state where an employee is working. If they don’t, the employer can face increased liability as well as penalties for noncompliance with state law. Anytime an employee is injured or ill on the job, the employer must be notified so that they can follow up with workers’ compensation providers. What’s more, courts have ruled that telecommuting employees must be provided with the same safe work environment that onsite employees have, and that it is the responsibility of the employer to provide it.
In addition, employers must pay unemployment insurance for each employee through their state’s unemployment insurance program. This means that if you have remote workers in nine states, you need to pay the insurance premiums in each of those nine states as well as your office location.
When an employee is terminated, they must be provided with documentation for applying for their state’s unemployment benefits. Some states have extra requirements for forms or documents that must be given to the employee upon termination. And for employers with more than 20 employees, terminated employees must be allowed the opportunity to continue their health insurance coverage according to Federal COBRA regulations. But some states have taken the Federal regulations even further; do you know if your remote workers live in any of those states?
Not having a system to keep current with (and post) wage and hour laws in each state or locality.
Because employees are subject to the laws of the state and locality where they are physically located, following all wage and hour laws for various remote employees can quickly become complex. For example, what county does the employee live in? What is the state law about paid leave for jury duty? How much sick leave is required to be provided to employees?
The list of considerations is long; here is a brief overview (but not an all-encompassing list):
- Minimum wage
- Rest, meal and lactation breaks
- Anti-harassment and anti-discrimination practices
- E-verify (Federal employment verification)
- Hiring a candidate with a criminal record
- Unpaid leave of absences
- Paid sick time
- Employment paperwork
- Drug testing
- Jury duty
- Employment benefits, including but not limited to, provision of health care
- Paycheck laws
Every employer must post both Federal and state wage and hour laws in a place that any employee can view. In many workplaces, this is a hard copy poster in a break room or near the restrooms. But how can you handle this “posting” for remote employees? And how many posters will you need to provide?
“At Employment Enterprises, we subscribe to a legal service that delivers updated labor posters as new laws are enacted,” says Colleen Clokus, Chief Operating Officer at Employment Enterprises. “These notices are then posted on our company website for employees to access at any time.”
Forgetting to make a plan to meet privacy law requirements and data integrity.
It’s natural for an employer to want to track their workers’ productivity when they’re working from home. Privacy laws may derail their plans, however. It’s legal for companies to monitor their software and protect intellectual property. But as the lines between work and home become increasingly blurred, more privacy and protection laws are being developed.
Cyberattacks can be more of a concern with remote employees as well. Mobile devices, wireless networks, and working in public spaces all could put sensitive data – both company and personal – at risk. Make sure you have policies and procedures in place for protection and educate your employees accordingly.
Double-taxing remote employees without reciprocity agreements.
States with close borders often have reciprocity agreements that allow employees to pay taxes only where they live, not where they work. But if a remote employee moves to a state without such an agreement, the employer must disentangle the web of appropriate taxation.
Typically, if employees live in one state but work in another, they’ll receive a credit from their state to offset the nonresident state tax liability. But that’s not always the case. Six states – Arkansas, Connecticut, Delaware, Nebraska, New York, and Pennsylvania – may require remote workers to pay both sets of taxes. These states follow “the convenience rule”: If an employee chooses to work in another state and is not based there by the employer’s requirement, they must pay income tax to the state where the job is based. In this case, the worker will be double taxed.
Candidates in the affected states should be notified by the company prior to accepting a position. This will help avoid employee backlash when they later find that they have to file income tax returns in multiple states.
Misclassifying remote workers as independent contractors.
“Some companies decide to just call remote workers independent contractors to save money on payroll taxes, says Amy Harkins, Senior Account Manager at Checks and Balances, Inc. (a subsidiary of Employment Enterprises, Inc.) “If you don’t consider all the factors used to classify workers, an IRS audit can quickly become a nightmare of misclassification fines and legal issues.”
Those factors include:
- The worker’s daily activities
- Whether the services provided are integral to the company’s business
- The amount of autonomy the worker has
- The financial relationship between the worker and the company
This list is not exclusive, and the process of classification is complex. To add to potential confusion, different states use different tests to determine employees from independent contractors. It’s best to consult an expert resource to avoid legal problems due to misclassification.
How to Stay Compliant When Employing Remote Workers
You need a plan for taking responsibility for all the regulations, insurance, and considerations involved with employing remote workers. Will you have an HR specialist solely devoted to managing these factors? This could involve hours of reading websites and newsletters focused on employment law in various states. You’d also need to come up with your own solutions to any regulatory changes and continuous monitoring for updates. Most companies don’t have the resources to remain compliant with a large remote workforce (and in some cases, not even a few remote employees).
You could develop relationships with various companies – an employment law team, a tax law expert, classification experts – all across different states. Or, you could merge all these services and use a workforce solutions company for your remote workers. These companies can deal with all aspects of employment, from HR administration to tax burdens.
An employer of record takes responsibility for all HR administration and assists with compliance, saving your company time and money. Employees continue to work onsite at your company location under your management, but legally work for the workforce solutions company.
The workforce solutions company can correctly determine a worker’s classification as an employee or an independent contractor for Federal and state employment tax purposes. The process adheres to strict guidelines and follows the common law rules as defined by the IRS to determine the distinction and definition of an independent contractor and a W-2 employee.
“With the rise in remote employees, we’ve had many new and even existing clients turn to this solution,” says Holly Anzano, Director of Client Services at Checks and Balances. “One of our sister company’s staffing clients began working with us more than seven years ago because of their expansion outside Virginia, where they weren’t licensed to do business.”
Anzano also notes that a workforce solutions company like Checks and Balances can save companies money by consolidating different tax and employment burdens in different states into one contract. “Burdens vary from state to state, and having one partner payroll your remote workers simplifies the process, saving time as well,” she says.
Remote opportunities are expected to continue to increase through 2023 and beyond. Protect your company’s reputation and bottom line with careful attention to these employment risks and burdens, and provide your remote employees with the security of knowing their employer has their best interests in mind.
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