The COVID-19 pandemic has increased the number of employees who are teleworking. The shift to teleworking resulted in numerous considerations for employers who did not have remote operations including, but not limited to, expense reimbursements, time keeping, meal and rest breaks, unauthorized work, monitoring productivity, data security and engagement. In addition to these considerations, many employers have seen an uptick in requests from teleworkers to work in locations which are away from their home state, either permanently or on a temporary basis. In some cases, employees have also relocated without having notified their employer. While remote work makes it easier for employees to work anywhere and has some clear business advantages, employers must be aware of the potential compliance issues that may result from having remote employees working in states for which the employer does not have an established business presence as it may create a “nexus”. A nexus can occur when an employer has a business location, conducts sales transactions or has employees performing services in a state.
A key issue that may result in having an employee telework in another state is taxation. Employers may be obligated to establish employer accounts for purposes of unemployment and state and/or local payroll tax compliance. This may also result in employers needing to educate themselves and/or work with their payroll provider and/or tax professional to register their business in the state and to ensure that quarterly tax reports are filed, and payments are remitted accordingly. In addition, teleworkers may also find that they will need to pay income taxes to more than one state on the same earned income. Some states, including New York, follow what is known as “the convenience rule”. The rule comes into effect if the employee works from a home in another state out of their own convenience instead of due to the employer’s necessity; thereby making the employee liable for personal income tax to the state where the employer is located, in addition to taxes in their state of residence.
Aside from potential tax liability, employers also must consider a host of other employment related laws that may be applicable in the state where the work is being performed, such as wage and hour, leave laws, state mandated disability and/or family leave insurance benefits and workers’ compensation, as an establishment of presence in another state may entitle teleworkers to coverage under that state’s labor laws. To further complicate matters, if an employee is only temporarily working in another state, it is not always clear which laws would apply. Generally, the laws of the state in which the work is being performed will govern, even when an employee is merely assigned temporarily to work in that state. According to the Society for Human Resource Management (SHRM), “because state laws vary, the most risk-free way an employer can assign work out of an employee’s home state is to comply with the most employee-protective laws of any applicable jurisdiction. But for employers whose policies provide only those protections that each applicable jurisdiction requires, more scrutiny is needed.” As a result, it is recommended that employers consult an employment attorney barred in each applicable jurisdiction.
For employers with teleworkers, it is recommended that a Telecommuting policy be implemented and communicated to all employees to ensure that employers are aware of a teleworker’s location and can proactively consider any labor laws which may become applicable should an employee want to relocate. An employer’s Telecommuting policy should clearly communicate that employees are not permitted to telework in another state without first discussing and receiving permission to do so. In addition to a Telecommuting policy, it is also recommended that employers consider having a Telecommuting Arrangement Agreement which includes the terms and conditions of the arrangement and is signed off on by the employer and employee. Having both a policy and a written agreement in place will allow employers to maintain oversight of teleworkers and implement disciplinary measures should the employee fail to adhere to the policy and/or agreement.
Ultimately, employers should seek guidance from an experienced employment attorney in addition to their tax professional regarding their options and the legal obligations associated with teleworkers in other states. Employers also need to remember that employee obligations are separate from their own business obligations, and it is up to the employee to ensure they receive proper guidance from their personal tax advisor or preparer to understand any tax issues that may result from working in another state.
HR Works Can Help
HR Works Strategic Services and Virtual Helpline clients can reach out to their Human Resources Strategic Partner and/or the Helpline for additional information and guidance related to telecommuting, including a sample Telecommuting policy and/or a sample Telecommuting Arrangement Agreement. Employers who are not current HR Works Strategic Services or Virtual Helpline clients and would like more information on either of these services or information on HR Works’ other service offerings may contact firstname.lastname@example.org for a referral to a HR Works Business Development team member.