Payroll & Tax Logistics for Remote Workers – Don’t Be Scared!

Nine months into the pandemic, around 42% percent of the American workforce was working from home full-time. (Upwork) 

And, according to a Gartner survey, 47% of employers will allow employees to work from home full-time after the pandemic.

For many, the benefits of eliminating rent costs and providing more flexibility for their employees is enticing enough to make the switch to remote work. But, perhaps the most exciting, game-changing benefit presented by offering remote positions is the ability to recruit and hire from a WAAAY larger talent pool.

When you eliminate geographical boundaries, talent options grow from those within your region to people across the globe. As exciting as this sounds, you may also be asking yourself how this will all work.

How do I handle the complexities of by-state minimum wages and taxes?

Which HR laws should I follow?

Can my employees handle remote work? 

These are the questions that scare business owners. And, while, they should be asked, don’t let them halt you from what could be an excellent move for your business. From a payroll and HR perspective, here are a few obstacles and best practices to keep in mind:

Managing State and Local Taxes Can Be Tricky – These Resources Help

If you have remote employees working in different states, it’s your responsibility as an employer to know and set up specific withholding and filing information and to deposit required taxes (income, unemployment) with the respective state.

For official by-state tax applications for unemployment tax, withholding tax, and (if applicable) EE withholding, this map is a great resource. 

Payroll Tip: For each state tax application you finish, make sure that your payroll company has the corresponding tax ID information. State agencies provide tax identification numbers to you (the client) and not necessarily to us (payroll providers) who need this information to correctly withhold taxes for these employees and prepare for certain state’s mandatory electronic filing and payment mandates.

Don’t Forget Local Tax Requirements

Across the US, certain cities, counties, and other small localities impose local income taxes, often used to fund community resources, parks, and education. These taxes are in addition to state and federal taxes. As an employer, you’ll need to check for local taxes where your employees work. Be sure you’re clear on whether these are withholding (requiring you to set up withholding from employee paycheck) or employer taxes (requiring you to pay it).

Minimum Wage and other State Specific Payroll Requirements

When employing remote talent, state-specific tax laws aren’t the only laws you’ll need to pay attention to. You’ll also need to be compliant with state pay and employment laws including minimum wage laws, mandatory direct deposit, pay frequency, local income taxes, and workers compensation requirements.

California, for example, is known as the most protective state when it comes to employee rights. Within the state, employees are protected with the right to be paid on time, a two paychecks/per month minimum for most businesses, and what information your employer must provide on your paycheck.

Considerations for International Employees

Hiring globally can be challenging as each country’s laws present their own unique challenges regarding benefits, payroll, taxes, and compliance. Typically, when companies outsource labor in other countries, they must open a local branch of their company there, abiding by all the country’s national and local labor laws.

Another option for employers is hiring remote employees as contractors, giving employees the responsibility to register themselves as self-employed or as a freelancer in the country they’re working in. In this case, employees would also be responsible for paying their own income tax as well as any other work-related taxes.

Not all Employees are Made for Remote Work

Remote work isn’t for everyone. While some thrive in the comfort of their home and their own time management, others prosper with in-person conversations and the formality of having to get dressed for work.

When hiring an employee for a remote position, ask yourself not only whether or not this person is a great fit for your company but whether or not they’re fit for remote work. In our experience, qualities of a successful remote worker include excellent communication skills, the ability to separate work from home life, and superb time-management, and confidence in self-directed decision making.

For Alex Turnball, CEO of Groove — a company that’s been fully remote for over 7 years now — timely communication is crucial. “If I respond to a candidate and they don’t reply within 24 hours, they’re not going to get hired.”

Conclusion

Companies who hire remote talent have a serious competitive advantage over those who only hire locally. And, for most, this advantage alone outweighs the tax and payroll challenges involved.

If you see your business thriving remotely, don’t let the complexities of payroll and HR stop you from exploring. Walk thoroughly through the logistics and know that many companies invest in help from CPA’s and payroll companies to ensure compliance and to make their transition easier.

Dominion Payroll can help you with:

• Electronic onboarding: capture and store employee documents before their first day
• Organization: upload, view, and store payroll records, forms, and consent documents all within a single platform
• Updates and reminders on important payroll and tax updates affecting payroll
• Communicating important updates and reminders directly to employees via email or uploading messages in payroll platform
• Sending out payroll to employees via direct deposit or pay cards
• Calculating annual wage and tax reports
• Electronic access to year-end forms
• Submitting payroll tax reports, like Form 941s, and tax payments to the IRS and states
• Other payroll tasks like reporting and paying unemployment taxes
• Deducting and sending payments for employee 401k’s, HSA’s, FSA’s as well as garnishments and liens

Contact us today to learn how we can help your business! 

Legal Disclaimer: This article is intended for informational purposes only and does not constitute legal information or advice. This information and all Dominion Payroll materials are provided in consultation with federal and state statutes and do not encompass other regulations that may exist, such as local ordinances. Transmission of documents or information through Dominion Payroll does not create an attorney-client relationship. If you are seeking legal advice, you are encouraged to consult an attorney.

Sources:

2020 Upwork Future Workforce Pulse Report

Gartner Survey