If the future of work is remote, when will policymakers login?
Here’s what you need to know…
Coronavirus has changed so much about how we live our lives – and many of those life modifications just may turn out to be permanent. Perhaps the most significant of these changes is the shift among businesses to allow more work to be done remotely. While time-honored traditions like the business lunch may return, many Americans are eager to cling to one particular aspect of the new way of working: teleworking. In fact, 6 in 10 respondents told Gallup pollsters they’d like to continue working from home after the coronavirus crisis is over.
As companies become more comfortable with allowing telework, however, they are finding a surprising reality welcoming them. While some of those surprises are pleasant, such as the increased productivity of remote workers and greater flexibility for parents balancing work with “Zoom school,” there are also unpleasant surprises as companies learn more about the confusing tangle of state and local regulations and unexpected costs awaiting them when employees can work from anywhere.
So before public affairs professionals celebrate their companies’ decision to move all operations offsite or allow employees to work remotely, here’s what you need to know to ensure the decision does not come with unexpected costs and compliance challenges thanks to regulatory regimes still largely based on a business’ physical footprint that is increasingly inapplicable to the future of work.
COVID-19 showed employers productive telework is possible, and employees want to keep the flexibility.
The Big Shift: In 2014, just 6 percent of respondents told Gallup they worked at least 20 hours each week from home. By the time pandemic shutdowns began nationwide in mid-March 2020, 31 percent of Americans were working remotely. In the weeks that followed, that number doubled. According to Pew Research, 90 percent of those who lost jobs due to COVID-19 shutdowns worked in industries or for organizations where telework was either not permitted or impossible. For Americans able to work virtually, technology provided job security – jobs they might have otherwise lost if Internet-based tools were unavailable. For employers, the promising results of this great remote work experiment means many are thinking employees could live anywhere, reducing relocation costs and expanding the talent pool nationwide.
Now What? With a return to normal appearing slowly on the horizon, organizations are preparing for what a future with reduced in-person office presence would look like. According to CNBC, 43 percent of employees said they would like to continue teleworking permanently. Employers sensed this trend, and by late March, 74 percent of company executives interviewed by Gartner said they anticipated at least 5 percent of their company workforces would telework after the pandemic concluded.
Indeed, many organizations have already begun that transition for great numbers of their employees. Most notably, Facebook, which had once given $10,000 bonuses to team members who lived within 10 miles of their offices, says it will now permanently shift tens of thousands of its employees to remote work. Other tech companies like Google, Twitter, and Shopify have also announced making virtual collaboration from home permanent, and because the industry often sets trends for top employers across the nation, many more will likely follow suit to compete for the best talent. However, as organizations cast a wider net in their recruiting and retention strategies, picking the best candidates from far and wide, there are hidden costs and complexities that may surprise them.
Before moving operations online, organizations should anticipate compliance costs and confusion.
Postcards from Paradise: Now unbound from their offices, teleworking employees have the opportunity to pick where they live, not based on where a job may be but on where they want to be. While employees may move to the Florida Keys or atop a mountain in Montana, their mobility comes at a price to their employers. The new virtual workspace will require organizations to be familiar with the rules governing a myriad of potential residences of their employees, both current and future. Benefits like workers’ compensation, disability insurance, and unemployment insurance vary wildly from state to state. So, too, do licensure and business registration requirements, which often are not clear because they were written for a physical world of business with storefronts and official offices, not for a virtual world. Organizations will now have to look into whether or not they’re required to register in each state where an employee lives, which means that 12 employees living in 12 different states could potentially necessitate 12 different registrations, with such costs rising exponentially and unexpectedly for employers.
Even More Tax Men Come Calling: Another complication facing organizations considering virtual work options are the vastly different tax structures for different states and municipalities. Some states, like Texas and Florida, do not have state income tax. Then, there are issues with sales tax, as rates and what is taxable can differ wildly from locality to locality. These considerations include not only e-commerce transactions but also state and municipal sales taxes imposed on service-based offerings such as consulting or digital subscriptions. Still other locations have different withholding and pay stub requirements.
All of these can leave human resources and accounting departments scrambling to ensure they are constantly in compliance with thousands of different tax conditions simultaneously. When all the accounting is complete, many companies will face a shocking uptick in taxes owed and compliance costs – expenditures for which they might not have budgeted prior to a remote working shift. Indeed, many organizations choose their operating base on a location’s tax and regulatory environment. With team members scattered across the country, these considerations are no longer in the hands of corporate officers, but of employees who are moving with other considerations in mind.
Jurisdictional Confusion: A persistent concern among employers remains the correct application of rules that depend on number of employees within a firm, office location, or certain jurisdiction. For example, the Family Medical Leave Act (FMLA). Current regulations say that in order to receive qualified medical leave, an eligible employee must be “employed at a worksite where 50 or more employees are employed by the employer within 75 miles of that worksite.” This complicates matters for teleworking employees, whose employers may think that they are not covered by FMLA if they live elsewhere.
According to legal experts at Lowenstein Sandler, LLP, however, the employee’s worksite “is the office to which the employee reports and from which assignments are made,” not where the employee lives. “So, for example, the lone Massachusetts employee who works from her home, but who receives all of her work assignments from her supervisor in New York where the company employs more than 50 employees, may be eligible for FMLA leave,” Lowenstein explains, adding, “State leave laws may impose additional leave obligations upon employers.” Multiply that across various jurisdictions and a plethora of federal, state, and local work rules, which often conflict with each other, and companies shifting to remote work could face considerable legal and regulatory confusion.
Despite a few emerging solutions, policymakers are still applying 20th century rules to 21st century work.
Practical Solutions: In one of the country’s regions most devastated by coronavirus, business advocates have come up with solutions to navigate each state’s tax laws for employees working from home. There’s a growing movement in the tristate area of New York, New Jersey, and Connecticut to allow for reciprocity, so employees can avoid paying taxes in multiple states as they work from home for an extended period. Illinois already has a similar arrangement with nearby states, so employees working there but living in Kentucky, Michigan, Wisconsin, or Iowa may pay taxes where they live. Employees across America may soon demand the Illinois model, especially if they reside in states with low or no income tax but work in states that charge it.
20th Century Rules Meet A 21st Century Workforce: Most of the rules and regulations governing labor in the U.S. originate from 20th century practices and standards. However, the future of work was changing even before the pandemic, and with the American workforce increasingly going virtual, compliance requirements must change, too. This leaves organizations in a tough spot: their workforce demands the kind of flexibility that working from home provides, while the laws and regulations make delivering these benefits difficult, time-consuming, and expensive. As companies try to adapt while maintaining compliance, mistakes are inevitable, leaving them exposed to reputational and legal challenges.
No More HQ2 Competitions? This shift to a more remote workforce could also add complications for states, counties, and cities, who for years have wooed businesses to their territory for the promise of tax income and jobs. Now, employees can vote with their feet, regardless of where the business chooses to locate its headquarters. This shift in power dynamics means something like the Amazon HQ2 competition may be a relic of the past.
Work from home is here to stay, and in the months ahead, we will discover just how many Americans will maintain their telework flexibility. As organizations modify their practices to accommodate this trend, they will have to navigate a compliance landscape that is more complicated than they may have realized. They will also need to consider new challenges that can arise as a result. By understanding these challenges ahead of time, leaders will be able to save themselves time, money, and headaches while creating a safe, desirable workplace that keeps current team members happy and recruits the best and brightest, too.