4. Tax nexus considerations
Tax nexus describes a business’s sufficient connection with a state to create tax obligations there. An out-of-state employee’s activities, authority, duration of work, and role in generating sales may subject the business to that state’s income, sales, or other tax laws. Consult a tax adviser to assess the specific facts.
5. Remote worker classification
To reduce payroll taxes and other labor costs, it’s common for employers to want to classify remote workers as independent contractors. But it’s wrong to assume that a remote worker is an independent contractor simply because they work out of state or have some autonomy because they work from home.
To determine whether a remote worker is an employee or independent contractor, that worker’s daily activities are just one of the many factors that a court will consider. A court will also look at the economics of the relationship and whether the services the worker provides are integral to the employer’s business and the amount of judgment and initiative the worker exhibits.
Evaluating whether a worker is an independent contractor is a complicated and nuanced process. And different states use different tests in determining who is an independent contractor and who is an employee.
6. Privacy and data security
As you add remote employees to your workforce, your network endpoints and potential avenues for cyber-attacks increase. Mobile devices, wireless networks, and even inadvertent disclosure of data in public spaces all expose your business to unwanted vulnerabilities. Ensure that you have security policies and guidelines in place to prevent data loss. Educate yourself on cross-border data transfer laws and the implications of sharing information about global customers with home office workers.
7. Workers’ compensation coverage
Most states require that businesses provide workers’ compensation coverage for employees. But what if a remote worker is injured on the job? In most instances, they can claim benefits, but state laws differ on what constitutes a work-related injury.
To avoid any confusion, set clear guidelines around the job duties and work hours of your remote employees so that you can more easily separate truly work-related claims.
8. Unemployment insurance requirements
If at least one of your employees conducts business in a state, then you are generally required to pay premiums for state unemployment insurance. So, if your workplace is situated in State A but an employee or employees work from home in State B, you must generally register with the state unemployment office of State B. A failure to do so may bring penalties for non-compliance.
9. Hybrid employee tax compliance
Not all employees work in one place — whether that be in the office or at home (or another single remote location). Some work in a combination of each. These are considered hybrid employees. And when hybrid employees work in more than one state, that can be particularly challenging when it comes to tax compliance.
Other hybrid workers may work from a variety of different locations and in several different states. While remote workers tend to be stationary, these hybrid employees are often on the move and must be continually tracked for tax purposes.
10. Documentation of working arrangements
If you operate a multinational business with remote or hybrid workers outside the U.S., you may need to amend existing employment contracts or create new ones. Some countries have telework laws that require specific documentation for remote work arrangements.
As you hire new employees, consider adding language to offer letters and employment contracts that clarifies the approved work location, schedule, job duties, reporting expectations, equipment and security requirements, and the process for requesting a change in work location.
Learn more
Maintaining good standing requires constant attention, especially when you do business in multiple states. If you want to learn more about how to maintain your good standing, contact a CT Corporation specialist today.
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