As working from home becomes common for many employees, you may wonder whether the change would be suitable for your business too. There are many employee benefits, including flexibility, avoiding the daily commute, and saving money on travel.
But how does remote work impact companies?
If your business is considering a step towards remote working, you must read up on remote employee compliance to ensure you keep within the law.
Five Compliance Aspects To Consider For Remote Staff
Here, we discuss five compliance aspects for businesses employing remote staff.
Worker classification determines what benefits a worker may receive. You must classify employees correctly to avoid penalties. To maintain remote employee compliance, you must first establish whether your remote workers are company employees or independent contractors.
Keep in mind that classification criteria differ between states. Therefore, businesses must learn local and federal laws before taking on remote staff and classifying them.
While employers can decide how many hours count as full-time and part-time for their employees, they must be able to define what counts as each. Their rules must be consistent throughout the organization so all employees understand their rights.
On the other hand, independent contractors are responsible for setting their own hours. They are generally hired to complete short-term or one-off projects, such as web design. Conversely, employees’ work is normally ongoing unless their contract states that their position is temporary.
Data Protection For Remote Staff
If your staff are working remotely, you must ensure their and your customers’ data are protected.
For example, virtual call center agents handle a lot of customer data and can make or receive calls from anywhere in the world. Working outside of the office increases the risk of employees incorrectly handling, storing, and sharing data. You must ensure you and your staff comply with data protection laws.
In fact, 422 million people in the US were impacted by a security breach in 2022. Moreover, the healthcare, financial, and manufacturing industries all saw an increase in security breaches compared to 2021.
Therefore, you need to educate employees on how to handle data. For example, computers should be password-protected, and emails should be encrypted. Equally, employees must use secure wifi and keep their security software up to date.
Another consideration for remote employee compliance is how many people within an employee’s household may have access to sensitive data. If documents are not locked away, there is a risk that unauthorized people may see sensitive information.
Consider how you and your employees will share sensitive data and documents. This includes physical copies as well as digital ones.
Most importantly, consider how you will monitor your employees’ data handling. While employees must legally abide by data protection laws, the company is still responsible for ensuring these laws are followed.
Moreover, employee mishandling of data can have negative consequences on a business’s reputation. For this reason, it’s worth factoring in training when you create your employee development plan.
Payroll And Compensation
Although small business payroll software can streamline the process and help you stay tax compliant, you still need to do your research and understand your responsibilities.
For instance, if your employee resides in a different state to your business, to which state do you withhold the employee’s taxes? Generally speaking, you withhold taxes in the state where the employee works. This is called the ‘physical presence’ rule.
However, there are exceptions to this rule. Some bordering states, for example, have agreements where employers pay their tax to the state where their business is, even if an employee lives in the bordering state.
Things get even more complicated if your remote workers from a different state split their time between the office and home. To ensure remote employee compliance, you must review state laws. In complicated cases like these, you can reach out to a tax expert to help you.
If your workers are contractors, they are not entitled to compensation or worker benefits and pay their own taxes. With that in mind, ensure you set up a contract with remote contractors that is signed with an electronic signature. This will ensure you have a legally binding document specifying details such as fees, benefits, and exemptions.
Again, remember that employee compensation coverage varies throughout jurisdictions, so check local and state laws.
Tax Nexus And Triggering A Taxable Presence
Tax nexus is when a business operates in another state. This could be selling to out-of-state customers or having remote workers in different jurisdictions. This includes contractors as well as employees and could make your business liable for additional taxes.
A taxable presence is also called a permanent establishment. If you trigger this, your company is established enough in that jurisdiction to be liable to pay tax to local authorities. This could be from a single employee, contractors, or even sending your employees on business trips.
If you do not understand the rules in each jurisdiction you associate with, you could end up paying double taxes or receiving financial penalties. Using global payroll software can be hugely beneficial. Besides making it easier to pay remote or international employees in different currencies, such solutions also allow you to manage taxes in different locations.
Part of the beauty of hiring remote employees is that businesses have access to a much larger talent pool. Instead of working with people within a 40-mile radius, your company could hire employees worldwide.
That’s the theory, anyway.
In reality, international employment can be far from simple. Whether you hire workers the old-fashioned way or use modern AI recruitment software, you need to take their location into consideration.
Employees will typically need authorization to be legally employed by somebody in a different country. Some places require companies to register with employees’ local governments, even if the company is not based there. As such, getting someone in another country on the payroll can prove tricky.
As hybrid work models become more prevalent, where employees split their time between the office and remote work, businesses must be aware of the compliance implications of having staff working across different locations and countries. This includes understanding local employment laws, tax obligations, and data protection regulations in each jurisdiction, as well as ensuring proper worker classification and payroll management.
If In Doubt, Hire An Expert
When it comes to remote employee compliance, there are various legal implications to consider. The ones we’ve covered in this article are only five to consider.
In practice, it can be challenging to balance compliance with efficiency. It is especially complicated for workers living in different jurisdictions and states. If you’re not entirely sure what your legal requirements are, it is always better to check with a tax professional.
Jesse Liszka is the Senior Communications Specialist at Paylocity, a leading provider of cloud-based payroll and human capital management software. She is a highly experienced communications, client marketing, and content specialist with more than 12 years of experience. You can find her on LinkedIn.