With the rising amount of workers gaining specialized skills and wanting more stay-at-home flexibility, companies are offering work-from-home options. It’s a great way to increase employee morale and reduce employer overhead. The most important thing to remember is that remote workers must be set up correctly for payroll and registered as an employee in the state they reside (basically, their home address). The Department of Labor and Department of Revenue for each State require its share of the employer burden. In other words, employers are required for payroll to contribute to the state’s unemployment insurance fund (the SUI burden or payroll tax) and employers are also required to pay employer taxes (the SIT burden or payroll tax).
Employers also need to be aware that a red flag can be set off from a simple tax return. If the remote worker files taxes in the state he or she works, but the Employer issues a W-2 Payroll Form in a different state, there may be an inquiry from the IRS. Additionally, Employers that issue 1099 forms to 1099 Independent Contractors who work from home, may want to reconsider. If a 1099 Independent Contractor only works for that employer, that could trigger 1099 misclassification and render an IRS or Department of Labor audit. The safest way is to set up payroll correctly and classify the remote worker as a W-2 Employee
If you have remote workers in multiple states, you need to make sure you are paying everyone according to the laws in those states. You and your payroll provider should know, at minimum, the following information in order to comply with each state’s regulations:
- Minimum wage in the employee’s state
- Paid Sick Leave Laws
- Mandatory State Disability Laws
- Mandatory off boarding pay cycle state regulations
- Payday frequency requirements
- Payroll deduction requirements
- Overtime calculation (if it differs from the federal regulations)
- Payroll tax calculations
Learn more about UNIFORCE Workforce Solutions.