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Out-of-State Remote Workers Are Increasing Legal Risks for Employers

As remote work continues for many employers, HR professionals should ensure they are staying current on where remote employees are working. Out-of-state telecommuting may bring unexpected legal liability. “Far too many companies are failing to monitor the location of their remote employees,” said Peter Siegel, an attorney with Greenspoon Marder in Fort Lauderdale, Fla.

Costly ‘Laissez-Faire Attitude’

Siegel said that “such a laissez-faire attitude has caused many employers to run afoul of state tax and related laws, the repercussions of which can be costly.”

Suppose a Florida-based company has an employee who technically is a Florida resident but is performing remote duties exclusively from California. “Such an arrangement, while perhaps initially beneficial to the employer and the employee, could inevitably become a liability headache,” he cautioned. For example, California might determine that by virtue of this remote setup, the Florida company has become subject to California law.

“Employees working from home in a state different from the assigned office could subject the employer to sales tax, income tax, and, in some cases, local or city gross receipts taxes that they were not subject to before,” said Michael Semes, an attorney with Baker Hostetler in Philadelphia. An employer may want to contact the taxing agency for its opinion, he suggested. “In that case, however, one should formulate and support an answer beforehand to increase the likelihood of the taxing agency agreeing with the employer’s position.”

“Whether the issue is daily overtime, enforceability of noncompete agreements, PTO carryover, post-separation payments, family leave rights, 1099 misclassification, unemployment compensation, workers’ compensation, licensure requirements, or unexpected state and local taxes, the sudden imposition of burdensome out-of-state laws can be a scary new reality for any business,” Siegel said.

Pay particular attention to differences in paid leave and anti-discrimination laws, said Joe Nuzzo, a vice president at ADP in Roseland, N.J. During the pandemic, many states and municipalities created new leave obligations—some related to COVID-19 and vaccinations. “Employers may find that some of their employees are covered by laws that they are not familiar with,” he said. “And some of these laws contain notice and posting obligations that should be considered and addressed.”

The COVID-19 pandemic has shown many businesses that it’s possible for employees to work productively from just about anywhere, Siegel noted. So, he said, it is now incumbent on employers to:

  • Aggressively track the locations of their remote employees.
  • Become familiar with the tax laws and licensure requirements of those states where their remote employees are working.

In contrast to the laissez-faire attitude of some employers, others have started to limit where they will permit remote workers to be based, not just restricting work from other countries but even from certain states that may have unique compliance obligations, Nuzzo said.

Many State Tax Waivers Have Expired

Earlier in the pandemic, some states adopted interim policies providing that they would not assert certain tax obligations for temporary remote workers during the pandemic. “This was not universal,” Nuzzo said. The waivers “did not exempt all of a company’s potential obligations.”

In addition, such waivers were never intended to be indefinite and many of these waivers have already come to an end, Siegel said.

Considerations for Local Remote Work

Even when remote employees work in the same locality as the company, HR needs to prepare and disseminate new policies that are specifically directed to remote employees, Siegel said.

“In the pre-COVID world, a typical employee handbook would make only scant reference to appropriate protocol and expectations for remote employees,” he said.

HR should, according to Siegel, consider dedicating an entire section of the employee handbook to issues uniquely related to remote employment, such as:

  • Workers’ compensation guidelines for working at home.
  • Clocking in and out from outside the office.
  • Professional etiquette and dress code for videoconferencing.
  • Reimbursing employees for costs directly associated with telecommuting.
  • Maintaining confidentiality of company information and related security concerns.

Time-keeping can be challenging for remote workers who lack access to a company time clock. “Companies will want to make sure that employees’ ability to log their time is unimpeded and that there are no irregularities,” Nuzzo said.

“Be sure to communicate to employees what is expected, and do a self-audit to make sure your record-keeping practices are just as good with your remote workers as when they were onsite,” he said. “The pandemic and remote work have led many to feel like they are always on because there is no longer any separation from work, other than the distance between the desk and kitchen. For nonexempt employees, this can create wage and hour issues if not properly monitored and addressed.”

Employers might want to reinforce their equal employment opportunity and anti-harassment policies and revamp them to fit the remote-work environment, said Kelly Cardin, an attorney with Ogletree Deakins in Stamford, Conn., and New York City. “Doing so will help remind employees that they should behave appropriately for work even when working at home,” particularly as that relates to an employer’s e-chat and videoconferencing functions.

Hybrid Workers Pose Fewer Risks

“Hybrid workers do not generate the same amount of risk as full-time remote employees because their at least occasional presence in the workplace allows for some of the more traditional HR safeguards to remain viable and relevant,” Siegel said.

Siegel observed that “the explosion of remote work has, in many ways, turned the traditional HR model on its head. An essential component of human resources has always been the constant, in-person evaluation of workplace behavior and production, with the goal being retaining good performers while weeding out the problems.”

He concluded, “While that mission continues unabated even during this new era of remote work, it is obviously more of a challenge to effectively evaluate those whom you rarely, if ever, see.”

reprinted with permission from SHRM 01.2022

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