Articles

Unintended Consequences of Remote Employees

One of your valued employees comes to you with exciting news – her partner has been offered a big promotion, but it requires a move across country.  She would love to continue working for your company and you would hate to have to replace her.  So you both agree on a plan that allows her to continue to work remotely from her new state. Everyone is happy, until you learn about the unintended consequences of having a remote employee.

You expected to have to register your company for employee withholdings in her new state of residence.  Maybe you expected to have to arrange for workers compensation insurance too. But did you realize that the employment laws of the state where your employee is working are applicable to the employer/employee relationship?  Your employee handbook may not comply with the laws of the state where your remote employee is working.  Some employers solve this by trying to make all of their employment policies applicable to all of their employees, wherever they may be working.  However, a more practical solution, particularly if there are employees in multiple jurisdictions, is to include a section of the handbook with each applicable state’s unique requirements.

In addition to employment laws, there are compliance and tax issues to consider.  Having a single employee working from a state on a regular basis often meets the statutory definition of doing business in that state.  As a result, the employer could be required to register as a foreign corporation, file corporate income taxes, obtain and maintain a local business license, and collect sales and use taxes on any of the company’s sales of taxable products and services to residents of that state.  While all of this might be manageable if only one or two employees are remote, what happens when 15, 20 or more employees want to work remotely, each in a different state?  The cost of compliance can be crippling for a small to medium size employer.  Unfortunately, the law has not caught up to the 21^st century remote and mobile workforce.  Until it does, employers should think twice about approving remote work in other states.