When employers sent their employees home to work in March 2020, few anticipated the length of the pandemic or the impact it would have on work arrangements moving forward. As remote work dragged on along with the pandemic, workers made some surprising and life-altering choices. Workplace headquarters may be in Portland, Oregon, but maybe one employee is now tuning in from Hawaii. One could be in a remote cabin in Wisconsin. Maybe a handful have moved permanently across the Columbia River, buying houses in Vancouver, Washington.
As part of its Workplace Spotlight Series, ADP held a webinar Aug. 23 to explore some of the issues HR managers need to consider when home offices cross state lines. Pete Isberg, VP of government relations at ADP, and Tim Morris, legal compliance director at ADP, presented. Here were some of the takeaways.
1. Where are employees working?
First thing's first: if the workplace has a partially remote working population and HR hasn't surveyed employees in a while, find out where they're working. The housing market is booming due largely to a home-buying spree, "as potential buyers move from urban apartments to suburban homes," according to MarketWatch. If the company is located within commuting distance of a state border, workers may have used the pandemic as an opportunity to invest in a home across state lines.
While it may be tempting to assume employees will inform HR that they've moved, it may not be at the top of their to-do list. But that can lead to a rude awakening: states have established thresholds regarding how long a worker can work in a state before the employer must withhold income taxes. For New York, that number is only 14 days.
Check in with employees and provide occasional reminders to make sure employees are keeping leadership apprised of any moves. Let them know HR needs the information for their own benefit. "If the employer didn't recognize the need to start withholding right away, employees might be unhappy to realize that they owe a large amount with their income tax return at year end," Isberg said.
2. When it comes to local and state tax withholdings, were special rules adopted due to COVID-19? Are they still in effect?
Generally, long-standing laws require employers to withhold state income tax based primarily on where an employee performs services, and secondarily where an employee lives. Many states have established reciprocity agreements, which enable employees to pay taxes only where they live, not on where they work. An employee who lives in Maryland, but works for a Washington, D.C.-based employer, for example, must only pay Maryland income taxes.
Early on in the pandemic, some states issued guidance on income tax withholding for employees who had to work somewhere other than their regular work location. Alabama and Georgia ruled that they would not enforce withholding requirements if employees were temporarily working in the state due to government "work from home" orders, Isberg noted. However, many of these withholding orders have expired.
Employers should check whether their states have established reciprocity agreements, whether government officials issued tax relief and, if so, if that relief is still ongoing. "State and local withholding seem well understood. But in light of the many law changes and temporary guidance, every employee situation involving multiple jurisdictions deserves careful analysis," Isberg noted.
3. Does the company have different corporate tax obligations due to changing employee work locations?
Corporate income taxes can be directly affected by even one employee working within a given state. "Employers are generally careful not to inadvertently establish offices in new states, but this is an example where you might meet that threshold by mistake and not even know about it," Isberg said.
Some states addressed the question of nexus — whether a business has a tax presence in a particular state — early on in the pandemic, declaring they would not seek to establish nexus based on temporary work-from-home arrangements, Isberg said. But in many places, these temporary provisions have expired.
"Indiana announced that it would not use an employee's relocation to working from home in Indiana, as a result of COVID to establish nexus in Indiana, but this accommodation expired in June," Isberg explained. "So if an employee is working in Indiana after June, this could establish legal presence in Indiana, and the employer could be subject to state corporate income tax, and other taxes."
4. Are hybrid and remote employees subject to new wage and hour laws?
Employees working remotely are usually subject to the laws of the jurisdiction, state, county and city where they are physically located and perform work, Morris said. For a hybrid-working employee, that could mean the employer is subject to two sets of employment laws, including paid sick leave, family and medical leave, paid time off, minimum-wage requirements, overtime and meal and rest break requirements. California and New York have particularly stringent wage and hour laws that employers should be aware of, Morris noted.
Wage and hour laws can get particularly detailed and become easy for employers to overlook. Some states require an employer to cover an employee's full salary while they are reporting for jury duty; some have domestic-violence and victim-of-crime leaves; some have special wage-statement requirements. Overtime and termination pay requirements can vary widely by state. The list goes on.
Given the "new territory" employers are in with remote and hybrid-working populations, Morris said, it is uncertain how aggressive state Departments of Labor will be with employers on unintentional wage and hour violations. Legal trouble is likely to be driven by worker complaints, such as when a worker discovers she is entitled to a particular state's benefits, and the employer continues to apply the law that is customary where they are headquartered.
5. What are the local privacy laws where employees are working?
Employers may wish to monitor their employees' productivity when they're working from home, but employee privacy is an emerging field employers should keep in mind. While most privacy laws now concern consumers, "policymakers in many states are considering legislation to establish employee privacy rights," Morris said.
At present, employers can use monitoring solutions "to help maintain the integrity of their software and protect intellectual property," Morris said, but "some forms of monitoring may be viewed as intrusive and evolving privacy laws" may restrict employers' ability to monitor aspects of their employees' working lives.
States like Maryland, Illinois and California have all-consent or two-party consent laws that require everyone involved in electronic communication or telephone calls to consent to monitoring, for example.
"It is possible future legislation — as the hybrid employee phenomenon expands — may expand [privacy] protections to employment data and to employees' privacy in working from home," Morris said.