Pick a metaphor: The genie is out of the bottle. There’s no getting toothpaste back in the tube. We are past the point of no return. No matter how it’s expressed, the pandemic almost overnight transformed the nature of how and where we work. The notion that work “must” be done in a corporate office every day vanished, and now millions of workers find themselves in a position to request—or demand—that their pandemic flexibility be made permanent.
Often, employees began their work-from-home isolation in major employment hubs like New York, San Francisco, and Los Angeles, then moved to much smaller, less expensive locales to be with family. Tools such as Zoom, Slack, and Microsoft Teams made the ability to collaborate with work teams from anywhere easier than ever. The pandemic also showed that employees could be as productive from home as in the office.
A January 2021 PwC US Remote Work Survey found, “Compared with the June survey, more employee respondents say they’re more productive now than they were before the pandemic (34% vs. 28%).” And, the survey found, “more executives agree: over half (52%) say average employee productivity has improved vs. 44% who said the same in June. Also, employees who report higher productivity are much more likely to say their companies have been better at performing various activities, including collaborating on new projects and serving customers.”
The ongoing, pandemic-fueled labor shortage only compounds current work-from-home complexities, but the upshot is that employees feel newly emboldened and powerful. Among those with prized skill sets, many have picked up, packed up, and told their employers that they’re moving to the hills and not coming back. Either the job could go with them, or the company could hire someone else.
Many employers have had to do adapt to this new model. Fortunately for workers, several studies show that employees were more productive while working from home. Nevertheless, employees moving to different locations have created several dilemmas for companies in taxes, benefits, compliance, and data management. Traditionally, companies deployed in a wheel, hub, and spoke model characterized by a fully staffed headquarters and smaller satellite offices. That model slid off its axle when Covid hit. Today, companies are experimenting with more of a mesh model, wherein employees are far more geographically dispersed. This shift places several new burdens on businesses that bear close consideration.
Organizations have been asking employees to self-identify if they have moved, but some workers may try to disguise their location change. Managers should explain why this knowledge is important to their tax situation and essential to the company. Businesses need this data for compliance purposes, not retribution for the employee move.
Businesses have struggled with workers not willing to self-identify. This has forced companies to correlate worker IP addresses with city/states to ensure a match with home address information. Companies have also been using their payroll provider software to mark where employees are submitting hours/time. This ensures that accurate information for employees gets introduced in the company systems so appropriate taxes can be withheld for the appropriate legal entities.
Accurate Tax Reporting
Organizations need to talk with leaders, managers, and employees about legal tax reporting requirements. Employees who move to a new state or country must talk to their HR and payroll teams about the move. In some cases, companies may need to establish a new legal entity to be an employer in that location. Many states require registrations, and there may be city and county fees or taxes for employees living in those locations. Certain states require employers to withhold and remit state income tax payments. For this reason, it is crucial to know where the worker’s physical presence is to accurately withhold and remit state taxes and avoid costly tax penalties.
Sometimes, the worker may be subject to taxes where they reside and where the company is located. While this may require the employer and employee to file additional state tax returns, two or more states cannot tax the same earnings. This means the payors will only pay state taxes. In instances where states require registrations, there may be city and county fees for taxes for employees living in those locations. For example, in New York City or San Francisco, you may be subject to a city income tax in addition to state income tax. These complex reporting and withholding requirements may pose additional administrative and tax expenses for organizations. Small employers may need to hire outside payroll processors if performing these duties in-house proves to be too complex and costly.
If employees move without notifying HR, their benefits may not work in a new location. For example, Kaiser Permanente insurance is only valid in a few states, and a family may not have coverage in a new location. Employee notification of a move to HR and payroll will start the process of setting up new plans for benefit coverage.
Companies that allow employees to work remotely may have to restrict that flexibility to states where they have a legal presence. For instance, companies based in Colorado can usually have workers in Texas, Utah, Wyoming, Montana, and Oklahoma with little to no complication. Researching this before making promises to employees can help limit compliance issues.
Some businesses move all remote employees into a separate payroll run for better clarity and organization.
As the nationwide labor shortage persists, companies will continue to see employees calling more of the shots in their careers. The pandemic made most employees re-evaluate their priorities. Flexibility and a closer connection to family, in terms of time in the home and geographic proximity, were important discoveries for many. So far, nothing on the horizon indicates that employees will soon be flocking en masse back into the office.
Genie and bottle. Toothpaste and tube. Companies that ignore having passed a point of no return and seek to force workers back to their point of departure may face unwanted results. It’s far better to adapt, reach win-win compromises with employees, and embrace today’s changing remote work environment.
This article does not necessarily reflect the opinion of The Bureau of National Affairs, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.
Jason Walker and Rey Ramirez are the co-founders of Thrive HR Consulting, an Austin, Texas, and Denver-based HR advisory firm that seeks to augment HR needs for organizations, providing fractional HR services for leading, managing, or providing guidance in all facets of HR. Thrive provides a unique model that is helpful for companies that don’t need full-time support but need expertise and guidance in the areas of executive coaching, mergers and acquisitions, employee relations, diversity and inclusion and belonging, compliance, payroll, global HR expertise, talent acquisition, and digital workforce transformation.
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