Hidden pitfalls when using remote workers

Remote working arrangements, which started as temporary solutions during the pandemic, are permanent for many companies. There are now three times more remote jobs than in 2020. These arrangements can be a win-win for businesses, workers and communities.

Companies save on space requirements and employees take fewer sick days. There are also reports that workers are more efficient. Employees are happier because they have more time for family and personal endeavors. They save travel time and costs for commuting. Communities have a better environment. There is less traffic and less CO2 emissions.

But there are some warnings for employers. Don’t overlook any of the following:

Take the correct wage deduction

It doesn’t matter for federal income tax withholding where employees reside, but it does for state income tax purposes. Each state with an income tax has its own rules, and problems can arise when the company is in one state but employees live and work in another. Usually, income tax is withheld in the state where employees carry out their work. But there are exceptions that may require withholding in the state where the employer is located.

And things get even more complicated when an employee lives in the same state as the employer, but works in a different state. In general, withholding is in the employer’s state unless a “convenience of the employer rule” applies. This states that the employee must work in another state at the request of the employer, so withholding takes place in the state where the work is performed. Not all states have this rule.

At the federal level, proposals have been made to restrict states from levying income taxes on employees who stay in a state for only a limited period of time (for example, a few days a month). For example, an employee works remotely in State A, but is required to attend company meetings twice a month in State B. Can State B demand withholding for those two days a month? One bill proposed last year would have excluded income tax and withholding for a telecommuter unless that employee has earned compensation for work duties for more than 30 days within the year.

What to do: Contact your CPA or other tax advisors, or work with a third-party payroll company. And monitor federal laws that may affect remote employee deductions.

Watch out for possible income tax consequences

Having outside employees creates a “nexus” with another state, meaning an employer is likely required to pay income tax in that state. The amount of the tax depends on how the company’s total income is distributed across that state. Each state has its own rules about the distribution of income for tax purposes.

What to do: Discuss this matter with your CPA or tax advisor and work on minimizing distribution to higher tax states as appropriate.

Continue Workers Compensation

You need to cover employees even if they work remotely and even if they work from their own home. OSHA does not inspect their homes for safety and does not expect employers to do so, but you must have insurance and employees can make claims for injuries or illnesses while on the job.

What to do: Discuss safety issues with remote workers. Also, discuss matters related to workers’ compensation with your workers’ compensation agent if you have one, or an employment attorney.

Track state tax for remote workers

State laws apply to employees within their borders, even if they are on the payroll for an out-of-state company. This means the following:

Government rules for minimum wage and overtime workGovernment rules for benefits (e.g. family and sick leave; free time to vote, school activities, etc.) Pay state unemployment tax

What to do: Check state laws for all locations where you have remote workers.


Having a remote workforce can be a reality these days. Employers’ responsibilities are enhanced by the number of locations where employees work. Get good advice on what to do.

Image: Depositphotos

This post Hidden pitfalls when using remote workers was original published at “https://smallbiztrends.com/2022/07/using-remote-workers.html”

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