As companies returned to business-as-usual post COVID, many remote workers say they don’t want their work environment to go back to how it was before. According to Upwork, a staggering 98% of U.S. workers say they want to work remotely at least part of the time. Forbes reports that in 2023, nearly 13% of employees are fully remote and approximately 28% have a hybrid schedule. Yet some of these remote employees are taking the idea of remote to an extreme, secretly telecommuting from across the country, or even across the world, while keeping their employers in the dark. While it might seem innocent enough, employees crossing state lines causes potential problems for employers, including taxes, workers’ comp, health insurance, wage and hour laws, and cybersecurity to name a few.
During COVID, many U.S. states offered relief measures giving employees the ability to work somewhere other than their regular work location. Now, most of the waivers established during COVID for these laws have expired.
Some states such as New York, Pennsylvania, Nebraska, Delaware and Connecticut maintain a ‘convenience of the employer’ rule to tax out-of-state employees. In these states, all employees are taxable unless the employer requires their services to be performed out of state. For instance, in New York, all earnings are taxable to the state unless the employee is working from a physical office located out of the state.
Another concern if employees are working in different states is that state corporate and other business taxes can apply for the a state, even if just one employee is working there. This means it may be necessary to register with the secretary of state and local tax authorities, and pay corporate and business activity taxes, sales taxes and employment taxes, including employee withholding.
The bottom line: if you’re considering allowing employees to work anywhere, you may be creating new legal and tax obligations. Be sure to consult your tax professional for advice.
Health and other benefits
In cases when an employee moves out of a state where an employer does not have an established network for health benefits, this move may expose the employer to benefits required by the employee’s new state of residence and for needed coverage. Employers need to know about employees’ relocation in order to decide how health benefits will be applied. Situations may get complicated if the employee complains to the new state of residence agencies about issues such as family leave, state disability or unemployment insurance. Such issues can cause audits and fines.
Wage and Hour laws
As a general rule, employees working remotely are subject to the laws of the state where they work. Employers are held liable for state benefit programs such as minimum wage, paid leave and many other mandates.
Other laws may also apply. Some examples include:
Family/Sick and COVID leave requirements
Privacy
Transportation taxes (withheld from wages)
Different tax treatment of employee benefits
Garnishment restrictions/limits Worker classification (i.e., employees versus independent contractors)
Disability insurance
Pay Equity laws and reporting Background screening restrictions
The Federal Labor Standard Act defines non-exempt employees’ work hours as a 40-hour work week, but in some cases different state rules may apply. For example, if an employee works from California, then the employer is liable for paying overtime if they work more than eight hours in a day, and double time if they work more than 12 hours a day. Generally, when an employee works in a state with diverse benefit and work documentation mandates - such as standards for leave, minimum wage, required disclosures, privacy and monitoring of hours - the state laws in which the employee works prevail.
If employees work outside the country, that opens up another can of worms with regard to international work authorization and more.
Cybersecurity
With the COVID pandemic causing many industries to shift to remote work, it created new attack surfaces for cybercriminals to take advantage of, according to a recent Digital Defense report by Microsoft. This is forcing many employers to think about security in new ways that weren’t required when work was conducted in a physical workspace. According to the report, there are several things businesses should do to secure their remote workforce, including mandating more secure passwords, implementing two-factor authentication, ensuring all devices have the latest software updates and train employees on secure practices, including how to identify phishing attacks.
Recommendations for Employers
When an employee remote program is being considered, especially as an out of state possibility, work directly with Human Resources, Insurance, Tax, and Legal departments to identify the potential issues as well as the administrative costs and burden.
As part of the Employee Policy or Guidelines, ensure that the term ‘remote’ is carefully defined, especially as it pertains to in-state or out-of-state employees. Some employers even set limitations for in-state remote such as within 1-2 hours of the worksite. This means that if you have a clause in your policy that states employees can be called in for emergencies, that it is within a commuting distance to the office.
Be clear in all recruitment and retention advertising and rules.
Require that employees apply for varying work locations in advance of any relocation.
Ensure that as an employer, you have documented all relevant laws and regulations.
Develop an approach for identifying all cost-related items with employees and ensure compliance with laws and regulations.
If this is a cost that as an organization you are not prepared to undertake, then set your limitations accordingly.
Avoid public Wi-Fi. If necessary, use personal hotspots or some way to encrypt your web connection.