Remote Work on the Rise
Hiring remote employees has become more common and even popular among job-seekers and companies alike. Many known benefits exist for both a company and the employee and it’s a trend that will likely continue as the technology exists to allow for remote work arrangements, whether close-to-home, out of state or even abroad.
The working-from-home population has been on the rise and has grown by 159% since 2005, according to Global Work Place Analytics. A Stanford study even shows that offering telecommute work options to employees halves the attrition rate and that home-working led to a 13-percent performance increase with increased employee satisfaction.
Potential Surprise Tax Matters
As more companies continue to increase their telework options, especially when hiring fully remote employees, there will be a few business tax matters you’ll want to research before diving into the hiring process for remote workers.
When hiring your remote employees, you may need to consider and research certain options, in tandem with your HR and payroll offices:
- Do you need to open another office in that state to comply with any state or local laws there?
- Proper withholding from paychecks
- How are you paying into unemployment and workers’ compensation?
As an employer, determining remote work arrangements can have its challenges. While companies have seen annual cost-savings from utilizing remote-workers, they could also face a surprise depending on the tax situations.
Domestic Tax Implications
If you hire someone out of state who is working remotely in a different state than you currently operate in, you may have created a new income, gross receipts or franchise tax filing requirement in the state where the remote worker resides and works. Generally, employees who do nothing more than solicit sales in state will not cause an income tax filing requirement for a seller of tangible personal property. However, the remote worker will cause an income tax filing requirement if they are selling services or serving the company in any administrative function (e.g. IT, legal, accounts payable clerks or finance-related positions). Furthermore, the remote worker will cause a filing requirement for franchise and gross receipts taxes regardless of their duties within the company.
Consequently, if you have sales in that state, all of those sales may now be apportioned and taxed in that state simply because you have a remote worker located there.
This could be a big tax surprise to you if you don’t plan ahead of time with your HR department and tax provider. It is not unheard of to hear that a company will be forced to pay more in state income tax than the remote worker’s salary.
To learn more about your company’s tax planning for future remote workers, email State and Local Tax Practice Leader Tim Clancy.
