In February of 2020, only 8% of the U.S. workforce did their job entirely from home. As the pandemic took hold, that number increased to 35% in May, and the general movement to homework resulted in home workers working in less densely populated areas.
The debate continues as to whether homework is good or bad, as some contend that remote employees are not as productive, that corporate cultures will be eroded, and that mental health could even suffer. Further, the debate continues as to how much of the shift to homework will be long-term or permanent.
Whatever develops, compensation practices are developing where home workers may be paid different compensation levels, and in some cases some companies are setting forth different homework compensation levels based on the cost of living in that particular area. Thus, an employee who no longer works in an expensive place but instead works remotely from a lower-cost area might receive a 10-20% reduction in pay. The question remains whether it is fair for people doing the same jobs to be paid different wages depending on where they live. Further issues are how to treat workers who want to come back to the office for only a day or two a week.
A further complication is that where people live may affect taxes. Thus, remote working arrangements where the employee works elsewhere may trigger state payroll tax registration and filing requirements in those areas. Generally, employers are required to register and withhold taxes on wages of employees in the location where they work. Most states tax only income earned proportional to their employment activities within their borders. However, at least six states tax non-residents working at home. There is even a possibility that if enough employees are working in other locations where an employer is not otherwise operating, it may give that jurisdiction a reason to impose corporate income/franchise tax filing obligations.
Additional complications include the fact that certain states and cities have specific wage/hour laws that apply to remote workers in that jurisdiction. Many employers send communications to remote workers to clarify remote working expectations and obligations, including specific guidelines such as duration of the arrangement, productivity and work-hour expectations, record-keeping requirements, etc.
This is part of our March 2021 Newsletter.
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