5 Payroll Considerations for Remote Employees

Today, 58% of Americans work from home at least once a week. By 2025, the number of remote workers is likely to reach 36.2 million. 

Employers understand that flexible work opportunities are one of the driving forces behind attracting top talent. However, hiring someone to work remotely comes with specific payroll consequences. 

Let's take a closer look at five things to consider about payroll for remote employees. 

Payroll withholding for remote employees comes with a variety of nuances. In simple terms, when you pay a remote employee, you usually pay the local taxes in the state where that employee works. If the employee works in the same state that the company is registered in, all you have to do is: 

• Withhold state income taxes 
• Pay state unemployment insurance in that state 
• Withhold local income tax 

If the employee works in a state that's different from your company's registration state, you would need to: 

• Register with state and local tax agencies 
• Register with local labor agencies 
• Withhold taxes in the state where the employee work 
• Become compliant with the new jursidction  

For example, if your company that is registered in Massachusetts hires an employee who works in New York, you would have to review all the tax liability regulations and labor laws in NY and comply with them. 

Payroll Reciprocity Agreements 

Some states have reciprocal agreements with other states. If the state your company is registered in has such an agreement with the state your employee works in, the employee only pays state and local taxes in the state of your company's registration. 

Without a reciprocity agreement, an employee wouldn't always have to pay double taxes. However, they would need to file multiple tax returns.   

When you hire employees from out of state, it can be hard to track when they are at work. To do that, you would have to invest in time clock software. Some of these clock programs have a steep learning curve and require significant expenses. Other time and attendance solutions come as a complimentary addition from HR outsourcing partners.   

An alternative to clock software is a Result Only Work Environment (ROWE). This structure focuses on the team's performance, results, and output rather than on the hours they spend working.  

However, if you have hourly employees, ROWE can't work for your organization because you need to know exactly when overtime begins. 

When employees don't work in an office, an employer may need to reimburse them for such expenses as: 

• Equipment 
• Internet 
• Office supplies 
• Desks and chairs 

In addition, you may need to reimburse expenses that aren't directly related to the employee's job duties. For example, traveling to a conference. 
 
It's important to know the local laws that regulate remote employee reimbursement costs. Otherwise, you could end up facing a lawsuit. 
 
While federal laws don't regulate remote employee reimbursement, the Fair Labor Standards Act (FLSA) requires you to reimburse work expenses that cause your employee's earnings to fall below the minimum wage. 

Local labor laws, minimum wage laws, and overtime laws related to hiring a remote workforce can be different from what you are used to with on-site workers. Meanwhile, you need to stay compliant with your own local regulations. 

Managing a remote workforce is more complicated than dealing with local employees, especially when they work in several different states. Things get even harder when a remote worker spends some days in the office and other days working from home in another state.  

Multi-state payroll processing can be time-consuming. Many employers miss important elements and end up facing fines, unexpected fees, and even lawsuits. If you don't have a large enough HR team to handle multi-faceted payroll processing, you may want to consider partnering with an HR outsourcing service. 

An HR service provider that specializes in multi-state payroll and compliance can be a valuable asset to your company's operations.  

Besides handling multi-state payroll processing, these companies take care of other HR tasks, including employee benefits, unemployment management, recruiting, and much more. 

Payroll for Remote Employees is Complex 

When you start managing remote employee payroll, you immediately face a variety of complex nuances that have to do with tax withholding, attendance clocking, multi-state compliance, and much more. The overwhelming number of tasks your HR team needs to perform to handle such payroll often leads to errors. 

By working with an HR outsourcing partner, such as a professional employer organization (PEO), you can delegate remote employee payroll to the experts and focus on vital HR tasks that require your personal attention.