Navigating Payroll Issues with Remote Workers

Navigating Payroll Issues with Remote Workers

Posted by HR Division of Propel HR on 11/29/23 2:30 PM
HR Division of Propel HR
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Posted on: November 29, 2023

Many employees have the option to work anywhere, at any time. While there are many advantages, remote workers present new challenges for your payroll team. Here’s what you need to know. 

Choosing the Right PEO

The Remote Work Revolution

By now, employers understand the value of remote work and how it benefits employees as well as their businesses. According to a McKinsey study, nearly 60% of employees can work remotely at least part of the time. That means employers are managing remote workers in different states and even other countries on their payrolls. 

AdobeStock_629672404_01The remote work revolution is primarily driven by the freedom and flexibility it offers. Remote workers have the ability to work from anywhere, allowing them to create a work-life balance that suits their needs. This newfound flexibility also leads to significant cost savings, as remote workers can eliminate expenses such as parking fees and commuting. Furthermore, remote work provides the opportunity for workers to spend more quality time with their families.

The advent of remote work also presents advantages for employers. One of these is the ability to tap into a wider pool of available talent, resulting in more productive, engaged, and satisfied employees. Allowing employees to work from home leads to significant cost-savings, such as eliminating rent expenses for office space and the option to explore more affordable alternatives like coworking spaces.

Remote Work Payroll Issues

While it can be a win-win for employers and workers alike, remote workers also expose employers to a new set of issues. 

AdobeStock_403409896_01State Employment Laws. One of the primary hurdles in managing payroll for remote employees is navigating the complex maze of labor laws and regulations. Employers have a responsibility to follow federal, state, and local regulations. If you have employees working in other states, you must also follow the applicable state and local employment laws in the state employees are working. Since these laws vary from state to state, it can be challenging for businesses with a geographically dispersed workforce to stay compliant.

A few examples of state-specific mandates include: 

  • Paid Leave. Earlier this year, the Department of Labor (DOL) issued new guidance regarding the Family and Medical Leave Act (FMLA) and eligibility requirements for remote workers. While remote workers are eligible for FMLA on the same basis as in-office workers, employers must use the remote worksite location - where the employee reports or assignments are made - as their primary address. 

  • Minimum Wage and Overtime. Although a basic minimum wage is established by federal law and the Fair Labor Standards Act (FLSA), wage and hour laws vary depending on the state. Some cities even have different minimum wage standards. When hiring remote employees, it can be more challenging to keep track of locations, wage requirements, and overtime hours.

  • Pay Statement Requirements and Pay Rules. State and local laws also vary regarding pay, such as the information that must appear on paystubs, requirements for pay frequency, and vacation and final wages paid upon termination. 

AdobeStock_632727067_01Multi-state Tax Implications. When it comes to taxes, the location of your remote employees can make things more complicated, especially for multi-state employers. If the employee lives and works in a different state, the employer must comply with the requirements of that state. The amount of state taxes can vary significantly depending on where the employee is located. Therefore, it's important to determine which states have taxing authority over your remote workers. Ultimately, employers are liable for tax withholding. If the employer fails to withhold the correct tax from wages, the state can collect it from the employer.

Calculating Remote Compensation. Pay can also be an issue. Determining fair compensation for remote employees can be challenging due to disparities in the cost of living and regional pay scales. 

Future-proofing the Remote Work Payroll Process: What Employers Can Do

As the remote work landscape continues to evolve, businesses must adopt a forward-thinking approach to payroll. Future-proofing payroll processes involves staying ahead of regulatory changes, leveraging technologies, and maintaining open lines of communication with remote employees. Employers can prepare by implementing the following:

AdobeStock_157526787_01Conduct Compliance Checks. Regular audits and assessments of remote payroll processes ensure they align with your business goals and comply with new and evolving regulations. To achieve this, involve your legal, tax, benefits and HR teams to develop assessment procedures that recognizes changes, such as state locations and classification. By integrating artificial intelligence and other technologies, payroll management can be further enhanced by predicting trends, identifying discrepancies, and streamlining processes. Automated compliance checks can also help businesses stay ahead of regulatory changes and ensure compliance with local laws.

Stay Up to Date with Multi-state Payroll Laws. Understand the laws in the states where your remote employees are working. Your business may be required to establish an official entity in that state, have compliance obligations, and be required to file a business tax return. Also, review guidance provided by the Department of Labor Localization of Work Provisions - Principles for Determining Where Wages Should Be Reported When Work is Performed Entirely in One State or in a Number of Different States. 

AdobeStock_392514123_01Establish Remote Work Policies. Prevent payroll issues by setting clear remote work policies. These guidelines should outline expectations such as working hours, time tracking, work locations, procedures for communicating changes and move notifications, job descriptions, classification descriptions, work-related responsibilities, remote work expense reimbursement mandated by local laws, and any additional requirements for employees working remotely. Include remote work policies, as well as state-specific information, in your employee handbook.

Keep Accurate Records. Maintain accurate records, including home and worksite addresses for remote workers, to ensure compliance with local minimum wage requirements.

Remote Work is Here to Stay

Allowing employees to work from anywhere may create new legal and tax obligations and payroll issues for employers. To navigate multi-state tax and compliance issues, it's important to invest in a payroll system that can adapt to different regulatory frameworks and engage experts, such as an IRS-certified PEO like Propel HR, who have a thorough understanding of the intricacies of payroll, HR, compliance and benefits.

Small Business Payroll Series

➡️➡️Read more about topics related to small business payroll: 

01_Small Business Payroll: In-house vs Outsourcing

02_Most Common Payroll Mistakes (and How to Avoid Them)

03_Important Year-end Payroll Tasks to Take Care of Now

04_The Importance of Accurate Record Keeping for Small Business Payroll

PLEASE NOTE: This information is for general reference purposes only. Because laws and regulations are constantly changing, please check with the appropriate organizations or government agencies for the latest information and consult your employment attorney and/or benefits advisor regarding your responsibilities. In addition, your company may be exempt from certain requirements and/or be subject to different requirements under the laws of your state.

Choosing the Right PEO

About Propel HR. Propel HR is an IRS-certified PEO that has been a leading provider of human resources and payroll solutions for more than 25 years. Propel partners with small to mid-sized businesses to manage payroll, employee benefits, compliance and risks, and other HR functions in a way that maximizes efficiency and reduces costs. For more information, visit www.propelhr.com.

Topics: Featured, payroll

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HR Division of Propel HR

The HR Division is made up of a team of professionals with a vast level of experience and HR expertise, assisting organizations of all sizes and within a wide variety of industries. They readily partner with clients to address strategic and compliance challenges surrounding the employment life-cycle and the ever-changing laws that regulate it. Inquire below about how they can help you!