These are extremely challenging times and companies are requiring their workforce to move from a traditional office workplace to a remote workplace. Due to the recent COVID-19 pandemic, some employees are afforded the opportunity to maintain their role as a remote worker and work from home. Sounds like a win-win scenario, but there are other factors to consider when it comes to worker compliance.
When an employee works from home, it is important to remember that the worker is technically working from a home office in the state they reside. Consequently, the employer is required to file payroll taxes in that state where the remote worker lives and works. Such payroll taxes include:
- Employer paid State Unemployment Insurance – SUI
- Employer paid State Income Tax – SIT (employee tax deductions such as FUTA, FICA, State/Local Taxes)
- Workers Compensation Insurance Premiums from the labor category the State where working
- State Temporary Disability Benefits (TDB) mandated by the state
If a company is not already registered as an employer in those states where the remote worker lives, it should register with the state’s Department of Labor and Department of Revenue. Another option is to partner with a staffing firm that provides third party payroll solutions. A staffing firm or employment agency with an existing state account or registration can quickly on board the employee and handle the mandatory employer liabilities in the state of the remote worker. Additionally, it can be a creative tool to minimize headcount, if necessary, during these financially challenging times. Many CFOs keep an extensive eye on monthly headcount to monitor:
- Financial and Business Planning
- Censuses for Employee Benefits and eligibility (health benefits, 401(k) discrimination testing)
- New Federal laws requiring employer benefits actions with regards to sick leave, family paid leave, and unemployment benefits eligibility due to COVID- 19 and the new FAMILIES FIRST CORONAVIRUS RESPONSE ACT (FFCRA).
It’s also a good time to review those 1099 Independent Contractors who’ve been sent to work from home. A remote worker that 100% relies upon the business of the client, may technically be an employee and not an Independent Contractor. It may be a good time to question whether that worker can provide billable services as a 1099 or should rather transition to an official W-2 employee. Staffing firms can also provide third-party payroll solutions when it comes to 1099 Independent Contractor worker compliance. The employment agency will become the legal employer of record and convert the 1099 to an employee. Now the States that can get their share of taxes and State Unemployment Insurance contributions.
While companies are doing what they can to retain existing employees as remote workers, employer should factor in worker compliance issues that may resurrect as other issues.