Hidden Traps of Using Remote Workers


Remote work arrangements, which began as temporary solutions during the pandemic, are permanent for many companies. There are three times more remote workplaces now than in 2020. These arrangements can be a win-win for businesses, employees and communities.

  • Companies save the necessary space and employees take fewer sick days. There is also reports that employees are more efficient.
  • Employees are happier because they have more time for family and personal activities. They save time and travel costs.
  • Communities have a better environment. There is reduced traffic and less carbon emissions.

But there are some cautions for employers. Don’t forget any of the following:



Take the correct payroll deduction

It doesn’t matter for federal income tax withholding where the employees are located, but it does matter for state income tax purposes. Each state with an income tax has its own rules, and problems can arise when the business is located in one state but the workers live and work in another. Income tax is usually withheld in the state where the workers perform their work. But there are exceptions that may require withholding in the state where the employer is located.

And things get even more complicated when a worker lives in the same state as the employer but works in another state. Generally, withholding is up to the employer unless an “employer convenience rule” applies. This says that the worker must work in another state at the employer’s request, so withholding is made in the state where the work is performed. Not all states have this rule.

There have been proposals at the federal level to restrict states from imposing income taxes on employees who are in a state only for a limited period (eg, a few days a month). For example, an employee works remotely in State A, but must attend company meetings held twice a month in State B. State B may require withholding during these two days a month? one bill proposed last year would have prohibited income tax and withholding for a remote worker unless that worker earned remuneration for work duties for more than 30 days within the year.

What to do: Consult with your CPA or other tax advisors, or work with an outside payroll company. And monitor federal legislation that may affect retention for remote workers.

Be aware of possible income tax consequences

Having remote workers creates “nexus” with another state, which means an employer is likely liable to pay some income taxes in that state. The amount of the tax depends on how the company’s overall income is distributed to that state. Each state has its own rules regarding the distribution of income for tax purposes.

What to do: Discuss this matter with your CPA or tax advisor and, if necessary, work to minimize distribution to higher tax states.

Continue with workers’ compensation

You must cover workers even if they work remotely and even if they work from home. OSHA will not inspect your homes for safety and doesn’t expect employers to, but you must have insurance and remote workers can file claims for work-related injuries or illnesses.

What to do: Discuss security issues with remote workers. Also, discuss workers’ compensation matters with your workers’ compensation agent if you have one or an employment law attorney.

Follow the state employment tax for remote workers

State laws apply to workers within their borders, even if they are on the payroll of an out-of-state company. This means the following:

  • State minimum wage and overtime rules
  • State benefits rules (eg, family and medical leave; time off to vote, school activities, etc.)
  • Payment of state unemployment tax

What to do: Review state laws for all locations where you have remote workers.

conclusion

Having a remote workforce can be a reality today. Employer responsibilities are amplified by the number of locations where employees work. Get good advice on what to do.

Image: Depositphotos






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