Now that many companies are allowing people to work virtually, employees are going all over the world to work. While working from home or a vacation destination abroad has its perks, it can also affect the company in many ways. Where an employee works determines which laws apply to a company as many countries and states have different legislation. Thus, there may be some states that a company won’t allow their employees to work remotely from due to the incurred jurisdiction and laws that would ensue.
Three main things that are affected by having remote employees are workers compensation, benefits, and tax consequences. Workers compensation, P & C coverage as well as Benefits can change from state to state. This is because not all benefits are available in each state, so employers and businesses need to be sure proper coverage is available in the states where employees want to work. In regard to the tax consequences of remote employees there are multiple factors that must be considered. These include variations on income tax withholding requirements, unemployment tax requirements, potential international tax consequences, and income tax nexus.
Nexus is a complicated factor that many businesses are often unfamiliar with, but need to consider when allowing remote workers. “Nexus” is defined as a connection with a jurisdiction sufficient enough to subject a business to taxation. Nexus rules are determined on a state-by-state basis where companies pay taxes differently in the state they are located. A remote employee can therefore create nexus in a state where a business did not previously have an income tax obligation. Thus, if even one employee is in a certain state, there may be additional income taxes, gross receipts taxes, or sales taxes required in that state. This can become very expensive depending on the state of residence for your remote employee.
To learn more about the consequences of allowing remote work, be sure to research the specific protocols and laws of the states your employees would choose to work in.
DII is your partner in navigating the remote working world. Our team of experts can work with you to understand the costs and benefits of having remote employees in a world where many are choosing to work from home. Please contact your DII representative for more information. #WorkFromHome #Remote