Hybrid Work Strategy: Compliance | Deloitte US has been saved
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By Michael Clarke, Reem Janho, and Kalpita Ainapure
Many organizations are now recognizing that remote and hybrid work is here to stay and must be a part of their talent strategy in order to attract and retain high-caliber talent. Almost 70% of executives recently surveyed by Deloitte1 noted that they plan on implementing some kind of hybrid model or plan to remain fully virtual. Based on recent trends related to the “Great Reset” in the employment market, employees across all industries are expecting their employers to lean into a remote or hybrid work strategy.
As organizations adapt to this “new normal” of having on-site, hybrid, and remote workforces, it is critical that they understand the employment and tax compliance aspects of managing and retaining remote and hybrid workforces. In this article, we will discuss steps and considerations that organizations should understand as they look to develop sustainable remote and hybrid work strategies.
Set up a cross-functional governance structure
At many organizations, HR is the primary driver of remote and hybrid work strategy across the enterprise. While this is not uncommon, it is imperative that additional stakeholders, such as Legal, Tax, Compliance, HRIS, Payroll, and Finance, be included in the strategy development and implementation process to ensure that cross-functional considerations are being evaluated. When allowing employees to work in a remote or hybrid environment, there are specific employment regulatory and tax implications that organizations must understand to be able to compliantly administer and operationalize the program.
Define the “worker categories”
Next, it is important to define clear worker categories your organization will have when it comes to a remote work strategy. These worker categories should be developed by considering the following:
Identify your employee geographic footprint
During the pandemic, many organizations asked a majority of their workforce to work remotely without putting the appropriate guardrails in place to track or manage where the employees were located. This resulted in employees shifting cities, states, and even countries without informing or requesting permission from their employers.
Employee-initiated relocations without informing or prior approval from the employer poses a whole host of employment and tax issues for the organization. Regardless of where the employer is located, the employment regulations of the locations where they have remote employees are working from apply (e.g., wage and hours variations, workers’ compensation, remote work stipends, and leave of absence/time off differences). There are also tax compliance and operational implications to consider which include corporate tax obligations, payroll tax, and payroll registration and reporting requirements.
Given this, it is not only important to understand where employees are located as they work remotely, but employers must also maintain an ongoing knowledge of the governing rules and regulations of those locations. To avoid employment and tax risk exposure, employers can put the following strategies into place:
Develop a clear policy and tools for implementation
In order to develop a sustainable remote work program, organizations will need to set up appropriate program guardrails through a clear and comprehensive remote work policy that clarifies eligibility, geographic footprint limitations, approval requirements, and employee and manager expectations. The remote work policy will serve as the bedrock for the overall remote work program.
Organizations should also conduct a top-down review of interdependent policies and procedures to make certain that they adequately support the needs of their remote and hybrid employees. Many of these policies may have been developed pre-COVID and may be geared only toward an on-site workforce. The interdependent policies and procedures include:
These policies and procedures should be updated to include any guidance specific to the remote and hybrid workforce and should be referenced within the main remote work policy. In addition, to achieve this at scale it will also require technology that provides organizations with the ability to collect, process, and analyze a large amount of data and assess compliance risks real-time.
It is leading practices that organizations develop an agreement between the remote employee and the employer acknowledging that the remote/hybrid employee understands their expectations and confirms that they will abide by the remote work policy and the interdependent policies. The agreement should specify the employee’s remote work locations, work hours expectations, and on‑site work expectations. Organizations should also review and refresh job descriptions and employment contracts for current and new hire employees to clarify remote work expectations.
After developing a remote work policy and refreshing existing workforce policies, employers should communicate these policies to the workforce, and develop tools and training to support managers with program compliance. The training and tools for managers are critical in avoiding instances of employment discrimination as a result of unconscious bias.