Working from home is here to stay. What does that mean for you as an employer? What does it mean for your employees?
While remote working might be a simple task if all your employees are in the same state as your business there are implications you should consider as you develop your remote working policies. Unfortunately, it’s not as simple as sending folks home with a laptop and a VPN connection. There are state tax issues, sales tax issues, insurance issues and potentially federal income tax issues related to having employees in more than one location.
Before you approve your first remote worker, you need to review technology, space available, and productivity; however, you also need to consider your workers comp insurance. Having an employee in their own home but on your clock could cost you extra premium. While they are in their own home, not all policies will cover them if they have a work-related injury. We haven’t yet seen many injury lawsuits surrounding work from home situations yet, it is only a matter of time.
One of the most common issues of having a remote workforce is dealing with state withholding tax issues. This is nothing new for large corporations who have employees in many states, but the pandemic has brought this issue to small businesses across the country in a rapid fashion. Much of the population of the United States lives in regions that cross state lines easily. People who are working in one state and living in another state must still have the appropriate withholding for their own home state taxes. An example would be someone living in Georgia working for a Florida company. The Florida company is not used to dealing with state withholding however it is required for the Georgia employee. This gets more complex if there are multiple states or locations with local tax as well. Make sure you discuss in detail what travel to the office will look like, if required and who will pay for the cost of the travel.
Another issue adding complexity is sales tax. If you are a retail establishment or a taxed service provider, sales tax Nexus may be an issue. Items that an employee sells or facilitates may create a requirement for you to collect and remit sales tax in other states. Many counties and cities also have sales taxes for their municipalities as well. There are services that will manage this requirement for you, but they may be beyond your budget. State sales tax audits are on the rise and notices or questionnaires from a state should be managed carefully and with professional assistance.
Additionally, if your employees are generating revenue in other states, you may have to file a state income tax return for the income generated in that state. The part of the income would be taxable in that state and must be tracked very carefully. When it’s difficult to determine whether an employee is generating revenue or not, careful consideration and documentation must be made to ensure you can support your position in a state income tax audit. Many state income tax audits have become extremely aggressive states fight for funds and struggle to meet budgets.
Before allowing employees to work remotely make sure that you’ve considered all of these issues and have a plan in place for each of them. You should consult your team of professionals, your CPA, your contract or labor law employee, and your insurance professional. In this process it’s also critical to consult your IT professional to make sure you have sufficient policies and procedures in place to protect you from cyber security risks caused by your employees having family members or guests in their home as well as communicating to your server from potentially unsecure locations. If you would like to book an appointment to talk to us about the tax consequences of your situation, please call our office manager at 904-725-5832 or reach out to us at office at fordefirm.com
