Demands for remote work arrangements are increasing, and employers who allow employees to work remotely must be prepared for many compliance challenges, payroll professionals said March 21.
States have moved away from the lockdowns that were common at the start of the Covid-19 pandemic, but the remote work arrangements that initially arose out of necessity remain as a benefit for employees, said Robert Davis, partner at Davis & Harman LLP.
“We’re kind of entering a new phase,” Davis said at the American Payroll Association’s Capital Summit. “It’s not just about having to stay home or work remotely. Now it’s people who want to work remotely.
The new requirements for employers emphasize enforcement, Davis said. In particular, remote work performed when employees cross state lines can cause a range of complications for employers.
Employers who offer remote work options as a benefit should familiarize themselves with the ways remote work can affect payroll operations, said Peter Isberg, vice president of government relations at ADP, LLC.
After determining compliance risk areas, employers should create policies that outline the requirements for remote work and clearly explain the monitoring methods that may be in place, Isberg said.
Remote Work Risks
The issues posed by remote work affect multiple aspects of payroll processing, from state income tax withholding to worker classification, Davis and Isberg said.
Employers generally become subject to a state’s income tax withholding laws after an employee works in a state for a certain number of days, Isberg said. Many states did not enforce these requirements early in the pandemic, but most relief provisions have since expired; employers must continue to track how long employees have been in a state to determine when withholding begins, he said.
Employers may also be subject to requirements for paid sick leave, family leave insurance, minimum wage, overtime and workplace safety, Davis said, noting that in some states these provisions come under effective as soon as an employee begins working in the jurisdiction.
Worker classification laws also vary, Davis said. A worker classified as an independent contractor in one state may be considered an employee in another state, which could result in income tax withholding and other liabilities.
Policies and Privacy
A remote work policy should clearly state that, as a condition of employment, employees must notify employers in advance of a change in work location, Isberg said. Employers should establish a formal approval process and determine what to do when employees decide to work in a state in which the employer has decided not to operate, he said.
An employer may have to adopt different policies depending on where they already operate, Iseberg said. It may be necessary to “block” some states, as the rejection of remote work requests in jurisdictions poses too many compliance risks, he said.
Travel and expense systems should be programmed to report data indicating the employee has started working in a new location, Isberg said.
There are several technologies available to track when employees are actively working, Isberg said. For example, employers can use programs that determine when employees have worked required meal breaks or to send break reminders to employees.
However, employers should be aware of laws that prohibit certain wire transfer methods, Isberg said. More privacy laws are expected to be enacted in the coming years as more employee surveillance options become available, he said.
The first waves of legislation will likely focus on disclosure requirements, Davis said. Requirements could include written notification to employees of surveillance systems and keeping records of disclosures, he said.
Communicating transparently with employees about the monitoring measures in place, regardless of existing legal requirements, is generally good practice, Isberg said.
The legal landscape for remote work is likely to remain complex, Isberg said, noting that states tend to prioritize the impact of additional income on employers’ ease of compliance. However, payroll systems will likely continue to update to keep pace with changing requirements, he said.
Davis pointed out that proper compliance planning can reduce the volume of potential issues with allowing employees to work remotely.
“You can’t solve all the problems,” Davis said. “But, for many of the issues we’re talking about, you can really manage or mitigate the risks associated with them if you have a good, thoughtful remote work policy in place.”
