Remote Workers: Tax And Employment Landmines For Companies To Navigate
The pandemic is ending, or at least there is light at the end of the tunnel as vaccines are being administered and employees are coming back to the office. Or are they? The “workplace” landscape has permanently changed in that remote work, at least in some form, is here to stay. Both employees and employers see the advantages of remote work – reduced overhead, expanded hiring pool, flexibility, no commute, improved morale, etc. – and are figuring out the details of remote work going forward, whether employees will work fully remotely or on a hybrid schedule. While workers and management are excited, human resources and tax/accounting departments are left to navigate new legal landmines, often landmines they did not even know exist. Changes are coming fast and furious and it feels as if we’ve been drinking from a regulatory firehose for the last 18 months.
What do workers and taxes have in common? Both are among the largest expenses for many employers, and among the greatest sources of liability if not properly managed. By ‘properly managed’, we mean not only compliance with applicable laws, but also collaboration among accounting and human resources professionals where compliance issues intersect. From the moment a worker walks in the door (even the proverbial “door” at home in a remote work scenario), there are legal consequences under tax and employment laws. And the location of a remote employee’s office door can play a major role in determining those legal consequences.
While employers are about to begin a new year of unprecedented challenges under a still new administration, this Alert highlights that the issues are not entirely new. What has changed is the lens through which employers must view them given the evolving workplace and way in which work now gets accomplished.
When an employee works from home, or from anywhere other than the employer’s facility or dedicated office space, especially when the remote work takes place in a state that is different from where the employer’s facility or office is located, a myriad of tax and employment issues arise:
- In what state (or even local jurisdiction) should income taxes be withheld and remitted?
- To what state should unemployment taxes be paid?
- Has the company created nexus, and thus potential new state tax return filing obligations, in a new jurisdiction?
- Does the company need to register to “do business” in the new state/locality?
- Does the new state have its own wage and hour law, and does it apply?
- Are different minimum wage or overtime requirements applicable? Are exempt employees still exempt under the new state’s law?
- When is the employee’s final paycheck due?
- Does the state or local government mandate paid sick, disability, family, or maternity leave and do those requirements apply?
- Do you have to consider the new state’s laws regarding employment-related agreements, such as severance agreements and restrictive covenants?
Tax Withholdings – Generally employers withhold and remit at the direction of the employee based on the information the employee provides on the W-4 and state equivalent form. However, the determination by the employee will depend largely upon in which state the employee will predominantly work. Employers should request updated withholding information from employees, especially if those employees are starting or continuing to work remotely.
Unemployment Taxes – There are various “tests” the states use to determine the proper jurisdiction for …….