The way employees work continues to morph as a result of COVID-19, and it appears the remote workforce is here to stay. However, most HR departments haven’t adjusted to this uptick in remote work. With more and more employees working across state and international borders, this workforce trend is poised to set off a multitude of problems, including potential tax violations. As long-term remote work sparks a growing number of consequences, HR professionals need to reassess their remote work policies now to avoid long-term headaches in the future.
What the Remote Work Revolution Means for HR Teams
COVID-19 didn’t invent remote work, but it opened the floodgates for a work segment that has been growing for years. And the trend toward remote work doesn’t appear to be going away anytime soon. According to one Gartner survey, 82% of business leaders are planning to allow employees to work remotely at least part time once COVID-19 dissipates. All told, Upwork now expects the remote workforce in the United States alone to jump to 36.2 million employees by 2025.
For HR professionals, remote work requests may already be piling up. Still, what leaders don’t realize is that as the remote workforce grows at a rapid rate, it’s poised to cause complications for HR professionals. Here are just a few challenges HR professionals may need to address as a larger percentage of the workforce continues to work across jurisdictions:
- Tax violations: Not all HR professionals realize it, but when employees work across state, province, or country lines, it can trigger additional withholding obligations. Another major issue is that specific tax laws and obligations can vary dramatically from one jurisdiction to the next. If the company and employees aren’t meeting their tax obligations, it can cause reputational damage, fines, and audit frustrations. As remote work requests continue to flood in, more and more HR professionals may be asked to help sort through tax or immigration policies that fall far outside of their realm of expertise.
- Duty-of-care concerns: During the pandemic, companies experienced some of the duty-of-care issues that can flare up when thorough remote work policies aren’t in place. Many employees who were working across borders found themselves stuck overseas when borders shut down. At the same time, employers were and are expected to provide a layer of support during emergency events, such as national disasters or unsafe political unrest. As more and more employees scatter across the globe to work, with their exact whereabouts often unknown to employers, it may prove challenging to help keep employees safe.
- Deflated incentives: HR professionals know how important incentives are to attracting talent. However, if remote employees end up facing unexpected taxes, it could shift the value of their compensation. Employees may face tax violations, extra taxation, or fines for unreported taxes when they work, untethered, across country, province, or state lines. Ultimately, this can throw off compensation, making the HR department’s recruitment and retention jobs harder.
Tips for Determining How and Where Employees Should Work
To avoid tax and compliance issues as remote work booms, the most important thing HR professionals can do is update or create remote work policies. This means determining where employees can work, how long they can work there, and what processes remote workers need to take before hitting the road. Here are a few tips for creating remote work policies:
Determine where employees are working.
It’s difficult to keep employees safe and free from tax violations when employers don’t know where their employees are. That’s why it’s important to get a handle on where the company’s workforce is conducting business.
To start, HR professionals should determine whether employees are working domestically or internationally. Here are a few tips for protecting each category of worker:
1. ‘Domestic Work Anywhere’ Employees
When looking at the corporation’s workforce, it’s important to ask: “Is the payroll system capable of handling multistate withholdings?” Often, companies will need to pay extra to upgrade their payroll systems to account for the additional withholding requirements that are tacked on by remote employees. This can occur when employees travel between multiple states or provinces for work.
Also, it’s a good idea to note whether the company has a business presence within a state or province. If not, there’s a chance remote employees are creating a business presence, or tax nexus, within a state—an action that could set off extra tax obligations for the corporation.
2. ‘International Work Anywhere’ Employees
When employees hop from country to country while working, it may create many of the same compliance concerns as with remote workers working across domestic lines. However, there are often even more complicated dangers that pop up internationally. For instance, HR professionals may need to consider country-specific Social Security rules or potential immigration violations if they don’t know where employees are choosing to work.
Ultimately, an important step in setting up a remote work policy that prepares for these dangers is establishing a way to keep track of employees’ whereabouts. Although outright GPS tracking is not recommended, corporations may want to encourage routine location check-ins, build an approved work location list, or create a policy that asks employees to provide location updates.
Determine how long is too long.
In many cases, employees’ tax obligations will depend on the amount of time they work within a given jurisdiction. However, the rules for how long employees can work in a given jurisdiction tax-free will vary drastically from place to place. That’s why HR professionals need to understand where employees are working, how long they will work there, and that jurisdiction’s specific laws in order to maintain compliance. Because this can lead to an overwhelmed HR department, it’s a good idea to consider third-party assistance or technology if there is a large number of employees working in cross-border locations.
It’s also important to create documents, such as remote work FAQs, to guide remote employees. In the end, if employees are confused or concerned about their working situation, they may uproot and head elsewhere. That’s why HR professionals should make sure remote employees understand their tax reporting obligations and what policies they need to follow in order to stay tax- and company-compliant.
Proactive HR Professionals Can Avoid Tax and Compliance Pitfalls
Remote work has the potential to drive employee risk higher, and this could stack extra work on HR professionals’ plates. However, HR professionals can plan a more manageable path forward. By setting up proactive remote work policies, understanding risks, and setting boundaries now, HR departments can avoid the upcoming surge of risk that’s bound to follow from the remote work revolution.
Mark Tirpak is managing director for GTN’s South region. He has more than 20 years of professional experience in advising multinational companies on global mobility-related issues, including expatriate taxation, payroll, equity compensation planning, international assignment policy review, and program administration. Having been an expat himself enhanced his desire to assist and help simplify the process for employees working outside their home countries.