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 on-site and have to pick up the pieces when our “travelers” can’t be easily reached. We agree they can get some work done, but we have no way of knowing if they’re putting in 40 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.
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.
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. You’ll find the IRS.gov website useful.
You’ll need to rely on your employees to pay taxes to the states in which they temporarily live. Some states require anyone who works even a few days in their state to pay taxes. 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 need to accurately withhold, and your or your employee’s failure to pay taxes may subject you to penalties of 25% to 50% 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 hours, and labor relations. 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?
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 how they can fulfill their dream without creating a nightmare for you. Ask your employees how you’ll know they’re working a full shift and how they’ll take on the responsibility to make communication and coordination easy for those they’ve left behind.