Question:
Several of our employees regularly travel out of state. Before the pandemic, they took vacations for several days or weeks. They and we understood they were on vacation. The situation was clear cut.
Our current team includes three employees who want to travel and stay for weeks or even months, in places like Hawaii and Thailand or with relatives. While they insist they can work and should receive full paychecks, this doesn’t seem fair to the rest of us who remain onsite and have to pick up the pieces when our “travelers” can’t be easily reached. We agree they can get some work done, but have no way of knowing if they’re putting in forty hours a week. We tried to explain how messy this felt to us and the discussion morphed into a horrible, morale-killing trust issue.
We want to keep these employees, but the situation makes us uneasy. They seem to want the best of both worlds—vacation and paychecks. Your advice?
Answer:
If you trust these employees, you can work around issues such as whether they’re turning in enough work to justify their paychecks and how to coordinate with them despite the different time zones. Other issues, however, may turn your employees’ dream into an employer nightmare.
Employer obligations
As the employer of employees working remotely, you need to adhere to the tax requirements and laws in each state and country in which your employees work. State income tax on wages may be imposed by your employee’s state of residence and any other state in which your employee works, even if you as an employer have no physical presence in those locations. Many states take the position that employers that pay wages to an employee who works in their state need to register and withhold taxes, https://www.jacksonlewis.com/publication/remote-employees-geographic-tax-and-benefits-challenges.
Although allowing your employees to work from wherever they choose helps you attract and keep talented employees, you’ll need a system for tracking where your employees work so you can comply with the different locales’ tax requirements, https://www.foxrothschild.com/publications/state-and-local-tax-implications-of-having-hybrid-and-remote-employees. You’ll find the IRS.gov website, https://www.irs.gov/businesses/small-businesses-self-employed/state-government-websites useful.
You’ll need to rely on your employees to pay taxes to the states in which they temporarily live. Some states have a require anyone who work even a few days in their state pay taxes, https://www.shrm.org/resourcesandtools/hr-topics/compensation/pages/employers-latest-headache-employees-secretly-working-from-different-locations.aspx. If your employees don’t honor their tax obligations, you may be on the hook for more than your “fair share” of the problem, if your employee’s state of temporary residence decides to collect. You as the employer needed to accurately withhold, and your or your employee’s failure to pay taxes may subject you to penalties of 25 to 50 percent of the unpaid tax.
Next, while federal law is uniform across state lines, laws vary from state to state in areas related to overtime, employee discrimination, wage and hour, and labor relations. As just one example, if your employee has an accident in another state, you’ll need to understand how that state handles workers’ compensation. Worse, what happens when your employee works in Thailand? Do you know your employer obligations related to international work authorization?
Employer solutions
As an employer, here’s what you need to do. Make sure you’re aware of where your employees work. If you allow remote work, require your employees to report where they’re working. Ask them to sign a statement letting you know that they’ll honor the taxing requirements in that state. These actions show you’re attempting reasonable due diligence. Learn the laws of those states. Make certain you’re properly withholding taxes according to the regulations in the locations in which your employees work.
Finally, few employees realize the financial and liability risk their employers take when they work remotely. We all slid into this during the pandemic, and some employment and tax attorneys believe tax regulators will begin cracking down on employers in 2023.
Eliminate the distrust cloud by making your employees partners in figuring out they can fulfill their dream without creating a nightmare for you. Ask your employees how you’ll know they’re working a full amount and how they’ll take on the responsibility to make communication and coordination easy for those they’ve left behind.
(c) 2023 Lynne Curry, author of Managing for Accountability and Navigating Conflict
Additional resources
p.s. I’m including a roundup of useful sites if you’d like to further research this topic.
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Useful sites for your continued research:
Remote Employees: The Geographic Tax And Benefits Challenges
Jackson Lewis | May 2021
Expert Q&A: Resolving Tax-Filing Issues for Remote Workers
SHRM | Feb 2022
Charts
State Guidance Related to COVID-19: Telecommuting Issues
Hodgson Russ | On-going Updates
Responses/Waivers from State and Local Taxing Authority
Wipfli | On-going Updates
2021 State Income Tax Nexus for Telecommuters
Wolters Kluwer | Mar 2021
For the most update-to-date information, see your state’s tax administrator’s site:
Links to Sites: State and Selected Local Taxing Authorities
Drucker & Scaccetti
Law and Accounting Firm Articles
State and Local Tax Implications of Having Hybrid and Remote Employees
Fox Rothschild | Sep 2022
Understanding the State and Local Tax Consequences of Remote Work
Berdon | Jun 2022
Dear Littler: What is so Taxing about our Wandering Workers?
Littler | Jul 2021
State And Local Tax Considerations For Remote Employees – And Their Employers
Kerr Russell via Corp! Magazine | Apr 2021
Some Remote Workers (And Their Employers) Wrestle With State Income Tax Issue
Vinson | Feb 2021
The Implications of State Taxation on Teleworking
Flaster | Feb 2021
Out-Of-State Workers Create Tax And Employment Law Challenges For Employers During The Pandemic
Fraser Trebilcock | Jan 2021
Another thing I think some employers are missing is defining exactly what is required from employees and how it will be measured. A recent anecdote I read on the internet was a good case in point- an employee whose job it was to pack boxes had a broken foot and so he sat on a stool while packing the boxes, and he produced 240 units per hour for his entire shift, more than any other employee that shift. He got reprimanded for sitting down while working. His response, just before he resigned, was “So, just to be clear- the fact that I packed 240 boxes per hour for my entire shift is less important than the fact I wasn’t uncomfortable enough while doing it?” and I think illustrates that his employer was using the wrong metric. Employers need to make sure they are using the right metrics to measure productivity.
Terrific comments, thanks, Dee!
Clear back in the late 1960’s, I lived in Pennsylvania, but had a summer job driving truck out of Wildwood & Cape May, New Jersey. As a nonresident, I had to pay a “work Tax Fee” imposed by Wildwood that I think was $25 and also pay NJ state income tax which was automatically deducted.
Great example.
Just remembered, I also had to get a Wildwood City ID with picture. Can’t remember the price.
Holy cow! Why hasn’t there been more discussion of state tax obligations and employer liability for those for each place in when an employee is working remotely? This is huge–even bigger than an elephant standing in a room! And yes, thinking about the coworkers left behind to pick up the pieces when the “remote” or “traveling’ employee can’t be located/isn’t responding to emails/texts/messages is also a big morale and fairness issue. There’s a lot of this so-called “work-life balance” discussion that really is about me-me-me over everyone else and especially over the employer and the job. It’s really being complacent and doing your own thing, everything else be d****d.
Completely agreed. When one of my clients asked me to write their policy & to monitor their remote employees in this area, I told them that it was a bit more complex than they knew.
I used to hold this viewpoint, especially when I see all over the internet people complaining about software like Teams “snitching” when they aren’t at their computer and gadgets for sale that will shake your mouse or people making other suggestions to fool software into thinking you’re working. Like, how about just do your job? This does appear, to me, to be more of a generational thing, primarily gen Z. Gen Z, for whatever reason, seems to have a lot of antipathy towards work in general, and some antagonism towards employers.
On the flip side, I know many people who are very productive working remotely. I didn’t think I would be, but it turns out I am, and I know a number of other people who work remotely and do very well at it. I think remote work is going to get increasingly common for many reasons, and not all just work-life balance. Some companies have found it saves them money to not have to have huge buildings for their entire staff. For people concerned with the environment, it’s indisputable that remote work reduces greenhouse gas emissions, road congestion, etc. I think software will get more advanced, and companies will get more savvy about supervising people working remotely. I think metrics will change and it will become more about productivity and results than just having yourself physically in a seat from 8am to 5pm.
Honestly I’d like to see tax laws change that make remote work more appealing to employers. If someone can do their job well from Bali, I say let them. But I do look forward to when the software fully catches up with the work-from-home revolution that really got going due to the pandemic because employers definitely deserve to receive the work they are paying for.
Agreed. As I mentioned to another blog reader who also noticed that there hasn’t been needed discussion about this aspect of remote work that it was challenging to research/write the article. I also worried about how readers who work remotely might react…but it’s reality and it needs to surface. And I agree, Dee, that many work effectively remotely, and that some don’t.