By Sean Trotman, Reem Janho, Kalpita Ainapure, and Trent Curtis
More than two years ago the Coronavirus pandemic accelerated the Future of Work by forcing organizations to allow employees to work from home. Due to the immediate nature of this transition, remote work strategy was reactionary and often implemented without appropriate guardrails in place. Now that we see a return to normal environment–with the pandemic coming to a close – many organizations have retained a remote/hybrid work strategy.
Some organizations have adopted a true “Work From Anywhere” (WFA) strategy that allows employees to work fully remotely from anywhere in the United States, or even internationally for short periods of time. Whether an organization has a hybrid, remote, or WFA framework, it is imperative that consideration is given to the regulatory, administrative, and operational challenges from employment regulatory and tax perspectives. In this article, we will discuss the relevant strategic considerations when considering a hybrid, remote, or WFA framework to avoid financial, operational, and reputational risks to the organization and employee.
- Applicable Regulations: Employees working remotely may become subject to the regulations of the state and/or country in which they are physically working. This means that organizations may need to immediately adhere to significant changes in state or country specific employment tax and payroll withholding rules as well the wage and hours, benefit program, and applicable disclosure requirements of that state or country.
- Wage and Hours: Organizations will need to keep an inventory of state and country pay-specific regulations, and to consider separately how these apply to their non-exempt workforce. For example, many states have varying requirements regarding overtime pay obligations, minimum wage requirements, information that must appear on paystubs, and payday frequency requirements. Maintaining compliance with these differing requirements means that an organization must maintain an up-to-date understanding of applicable wage and hour rules based on its employee footprint and prioritize the development of timekeeping policies and processes that accurately track time-worked for employees.
- Benefits and Entitlements: States and countries have different health coverage level requirements. As a result of the expansion of their employee footprint, organizations may need to re-evaluate their health network and provider coverage to allow for adequate employee healthcare coverage. Leave and time-off requirements also vary by state and country. For example, some states require accrued but unused vacation time to be paid out at termination of employment. It is the organization’s responsibility to ensure that the correct benefits and entitlements are provided to employees within the required timeframe, based on their location.
- Employee Cost Reimbursement: Many employees who work remotely are paying typical business expenses, such as internet, phone, and office supplies. Organizations should consider reimbursing employees for equipment used to work from home. While there are no federal regulations in the United States that mandate such reimbursement, there are state-specific requirements that organizations must consider. While many states don’t include an explicit requirement to pay for these expenses, organizations will need to be cautious of any situations where the cost of these items might effectively bring the employee's pay rate below the minimum wage (for non-exempt employees) or salary exemption threshold (for exempt employees). To avoid this risk, organizations should consider setting up either a “stipend” or “reimbursement” strategy to pay for some or all of these expenses.
- Immigration/Visa Requirements: Countries have different requirements according to various immigration laws including waiting periods, fees, and visa and work permit needs. While some countries issue digital nomad visas that allow tourists to work legally in the country for a limited time, this benefit is not yet prevalent internationally. It is both an organization and employee’s responsibility to ensure that the employee has satisfied the appropriate work and visa requirements prior to an employee shifting his or her work location to another country. Another consideration is that remote employees may want to move back to their home country at some point and may request for the cost of travel to be covered.
- Technology and Data Privacy: Cybersecurity and data privacy issues increase when employees work remotely, and are amplified when employees work internationally. States and countries have different data privacy requirements which may impact the security of an organization’s intellectual property, trade secrets, and other proprietary and confidential information. Maintaining a clear understanding of cross-border technology and data privacy requirements (and proactively identifying potential threats) is necessary to develop robust security policies to prevent enterprise data loss.
- Payroll: Organizations will generally be required to withhold taxes based on where the employee is working (with limited exceptions). In certain circumstances this may lead to double taxation for the employee, as well as additional employment tax registrations, filings, and wage allocation requirements for the organization. This also presents the administrative challenge of maintaining an understanding of evolving tax requirements, tracking employee work location, and providing limited information on the tax implications of WFA to the workforce.
For organizations allowing employees to work in a hybrid, remote, and/or WFA environment, now is the time to step back and re-evaluate their strategy to ensure that the appropriate guardrails are in place to avoid risk. Organizations should review their WFA policy to ensure that it provides comprehensive guidance to employees, clearly delineating the employee’s responsibilities and the organization’s. Other interdependent policies (e.g., Timekeeping, Business Expenses, Data Privacy, etc.) may also need to be reviewed and refreshed to take into account the evolution of employment regulatory and tax considerations that apply based on the changing employee footprint. Organizations must also ensure that they have processes in place to consistently apply the workforce policies to prevent discrimination and retaliation claims.
Finally, standing up a compliant hybrid, remote, and/or WFA program requires carefully constructed, automated processes to enhance tracking and reporting capabilities to ensure compliance with this myriad of changing employment and tax requirements. We recommend reinforcing the policy with an effective governance structure to maintain accountability through improved ownership and control of the program.