November 16, 2021Payroll & Tax Support
Do You Know Where Your Remote Workers Are? Here’s Why You Should Care
Understanding our critical role in helping protect our clients from risk, Wise payroll professionals want to provide education about employer responsibilities regarding remote and hybrid workers. Ana Woods-Hill, CPP, Manager of Payroll Services with Wise, says all organizations with remote or hybrid employees need to be asking the question: “What is an employer’s responsibility to know where their workers are?”
Payroll State Tax Laws & Regulations – No Excuses
Woods-Hill confirms that the law is clear on this: “It is the employer’s responsibility to know where their workers are working. No excuses. Nexus is impacted and other leave policies are impacted. Make it part of your year-end checklist: “We know this can be challenging for employers manage, but we feel strongly that employers should develop a process of collecting this information from employees because if they don’t, there may be legal consequences.”
According to an article by Michael J Lombardino published by SHRM, HR considerations impacted by remote and hybrid work include paid leave, overtime, tax withholding, vacation policies, meal- and rest-break plus wage and hour laws, noncompete agreements, and the possibility that some state laws might contradict each other. Lombardino’s article restates a long-repeated truism: “Ignorance is not a defense against violating the law.”
Woods-Hill cites a fictional example in which an employee, ‘Doug’, moved from working in-office in Wisconsin to working full-time remote in Florida. If company policies were not in place to stipulate that Doug must communicate this change in location to the employer, coworkers might know that Doug moved, but Payroll might still be withholding taxes in Wisconsin. When Doug goes to file his taxes in 2022, he might come back to Payroll and ask, ‘Why did I pay all these Wisconsin taxes? I’ve been living and working in Florida for 11 months.’ So, now Payroll has to produce a W-2c. Multiply this type of occurrence for large companies and that is a lot of avoidable extra work for Payroll to manage. In addition, businesses that do not have their eyes on the nexus ball are putting themselves at legal risk due to varying state laws that have changed, sometimes multiple times, during the course of the pandemic.
What is Nexus?
“Nexus is about business relationship,” says Woods-Hill, “meaning that a company or corporation could have liability in some regard to there being a business relationship in a state where they were not aware they had an employee working. It is about knowing where your employee is physically working and what laws impact the inter-state business relationship.” For companies with employees in many states, this can be a lot of work, including completing tax jurisdiction registration for every state in which even just one employee is working. “Where the employee is sitting when they work is where the liability is potentially created,” explains Woods-Hill. “Once COVID-19 prompted employers to send employees to work remote from home, we started getting questions from clients like, ‘my employee is now working at home in Connecticut and not driving to the office in Massachusetts every day, what does that mean?’ Or, ‘I had to hire an employee who is working from home but I think they are going to come into the office later, I don’t really know…and what does it mean if they will be working a hybrid schedule across state lines?’ The content of conversation with our clients really changed with COVID.”
What Happened to The State of Emergency ‘Forgiveness’ Situation?
Initially, many states issued emergency or relief orders, which meant that if an employee was suddenly working remotely in a state, then it was okay to turn a blind eye to the nexus rules; there was a kind of ‘forgiveness’. But Woods-Hill explains that this wore off as the pandemic wore on. “The more time went on, from the state point of view it became ‘yes, we do care where your employees are working.’ States wanted to be clear that if an employee is working from home in a different state that they used to be, the worked-in state could create a business relationship. Because the relief orders gradually got peeled away, it is easy to understand how some employers might be unsure of what their responsibility on this moving target is now.”
In addition to concern over tax issues, there are other potential pitfalls lurking in state law disparities around paid leave, vacation policies, overtime, etc. A lot of this legislation has been shifting almost daily, and it is understandable that employers might have been waiting for clarity, but they do not have the luxury of waiting until things are crystal clear. For new or ‘green’ payroll staff who are unaware of nexus and do not know they should be following the law and regulation changes, risk is increased. What should companies do to mitigate this risk? Educate themselves about nexus, state laws and regulations, and find out where their workers are now, before the need for W-2c’s arises. Or, tap into expertise from a team of seasoned payroll professionals who have been dedicated to staying educated about these issues since the start of the pandemic.
When do I Need to Worry About Tax Jurisdiction Registration?
Wise Tax Compliance Manager, Lynn Lauricella, CPP, fields client requests for state tax jurisdiction registration and wants you to know that: “One single employee in a state can be considered to create nexus for most states. So, if you have one remote employee working in any state, you should assume that means you have created nexus. Also, remember that one employee can cause your company to be subject to corporate tax.” Once you have that first person in a new state, tax jurisdiction registration becomes necessary.
It also becomes essential to get informed about the paid leave, overtime and vacation policies, tax withholding and other laws and regulations that can differ from state to state. The bottom line is that you need to be cognizant of the rules in all the states where you have even a single employee – Wise Consulting stays on top of this on behalf of Managed Payroll clients, which has been particularly helpful since the onset of the pandemic.
What Can be Done Now to Prevent W-2c’s and Legal Consequences?
“There is a lot going on here,” says Woods-Hill, “it’s a moving target with moving pieces and it would be easy to understand how it could be overwhelming for employers. From an HR perspective I have heard from clients that they felt as though if they solicited requests to their employees about where they are that their workforce would have gotten the message that it’s okay to go wherever they want and so they hesitated to have the conversations.”
But Woods-Hill says it’s not too late to start those conversations. “As a business, you are legally able to limit your work-from-home policies. You are able to restrict employees from moving anywhere they want. Maybe businesses don’t know that they can create policies with restrictions to protect themselves. But then, we are also in a time when companies are wanting to create employee-friendly policies to retain workers. This is a big topic that is not going away.”
Requiring remote or hybrid workers to declare where they are working from on their timesheets is one way to get information about their work location. It is reasonable to draft and require employees to sign remote-work agreements or seek permission before moving out of state. Communicating expectation and requirements is critical, as is updating your employee handbook with any new policies. For other best practices around this issue, reach out to Wise consultants who have been helping clients navigate nexus throughout the pandemic.
Get Nexus and Tax Support to Tackle this Issue
Getting expert help is also an option. “We find this to be a high area of risk for our clients and we are informing them so they can make good decisions,” says Woods-Hill. “Our job is to protect them from risk and to work hard to keep them in the most compliant place with the best information that we have.”
To consult with a Wise payroll professional on this subject, reach out to us at HCMhelp@WiseConsulting.com or call us at 800-654-4550.
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