Larry's Tax Law

As previously reported, due to the COVID-19 pandemic, remote workforces currently dominate the landscape of most U.S. businesses.  In fact, in many industries, remote workforces may be the new normal post-pandemic.  Unfortunately, as workers become more mobile, the tax and human resources issues become more challenging for employers.

I was asked by Dan Feld, Principal Editor, Tax Journals, of Thomson Reuters, to author an article on this topic for the July 2022 Practical Tax Strategies Journal.  With Dan’s approval, I have provided a link to the complete article, Remote Workforces: Tax Perils and Other Traps For Unwary Employers, for my blog readers. 

Background

Early in the pandemic, I reported on the widespread newly created remote workforces resulting from stay-at-home orders issued by the governors of most states.  In many cases, neither the employer nor the workers were prepared to take this journey.

Fears were rampant among employers that workplace productivity would diminish, quality of work would be impacted, technology would not support remote workers, culture would be compromised, employee recruiting and retention would be harmed, and customer goodwill would be tarnished.  On top of that, many employers worried that employee fatigue (mental and physical) would accompany the new workforce model.

Preliminary Results

Now that we are over two years into the pandemic, employers and employees alike are surprised to find that their fears, for the most part, were misplaced.  In most cases, it is reported that the remote workforce model is working quite well.    

• • Employees generally like the remote workforce model;
  • In a large number of cases, employees desire to remain remote post-pandemic;
  • The lack of commuting to and from work reduces employee disruption, stress  and household expenses (commuting costs, daycare, meals and clothes), and allows more time for family and leisure activities;
  • Workplace politics are diminished;
  • It creates flexibility as to where employees may live, resulting in housing costs reductions in some cases; and
  • Employee absenteeism is diminished.

Today, as a result of the COVID-19 pandemic and resulting stay-at-home orders issued by the governors of most states, many employees are working remotely from home for their employers.  In fact, for many employers and employees, the arrangement is working well enough that they will likely consider continuing the arrangement, on a full-time or part-time basis, when the stay-at-home orders are lifted.  This type of arrangement raises all kinds of issues and concerns for employers, including compliance with applicable laws.  Many of the issues are obvious, but some of them are more nuanced and may not be on the minds of employers.

Employees Working Remotely

The trap is set when an employer has an employee performing services outside of the state(s) where it operates.  Historically, this scenario was likely rare.  It probably only occurred when an employer was physically located near a state border and had an employee working from his or her home located in the neighboring state.  Today, with the internet and sophisticated communication technologies, it is not limited to employees residing in neighboring states.  Further, with the COVID-19 pandemic facing the world, more and more employees are working remotely.  Assuming a remote work arrangement is acceptable to both an employer and an employee, I suspect it will continue to be a prevalent employment arrangement post-COVID-19.  As a result, employers may find themselves with employees working in states, and possibly countries, different from where the employer has its business physically located.  As discussed below, it is vital that employers know where their employers are performing services.  The consequences of not knowing where your employees are working could be costly.