How to manage compliance complications created by remote work

Remote work is here to stay. And for employers, so are the headaches that come along with it. 

COVID-19 dramatically altered the way employers juggle their workforce, forcing companies to implement remote work as a normal part of business. Traditional work arrangements and a slow-to-change legal landscape have created substantial challenges for organizations in balancing the considerations that can arise from remote work. 

In many cases, there are no easy answers, nor is there a one-size-fits-all model that will work for every organization. But let’s unpack three areas where the convergence of remote work and legal compliance patchwork will be top of mind for your employer clients.

Local employment laws
Remote employees are likely to become subject to local employment laws in the location in which they are working, even if the organization does not otherwise operate in that location. For example, local laws may require employers to provide paid sick time, leave entitlements or other benefits. State and local laws have varying hour, day or headcount thresholds for coverage.

Read more: 10 best and worst states for work from home jobs

New York, for example, requires an employer to provide certain paid leave for any employee working in the state for 30 or more days in a calendar year. In certain circumstances, the employee may be covered by multiple sets of local requirements, depending on the remote arrangement involved. 

State laws also differ with respect to restrictive covenants, including the categories of employees subject to restrictions and the scope of those restrictions that may be enforced. If an employee entered into an agreement prior to beginning a remote work arrangement in another state, the restrictive covenants might no longer be enforceable.

In addition, state laws differ in what they require for reimbursing employee expenses incurred in connection with employment, including remote working expenses. In California, for example, an employer must reimburse “all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties,” which has been interpreted to include work-related use of cell phones and Internet services. An employer allowing remote work may be required to reimburse expenses that previously had not been paid for by the organization. 

Corporate taxes and registration
Remote and hybrid work arrangements also may change the employer’s obligations as it relates to taxes and registrations, particularly if the employee is working outside the states in which the employer is physically based. Many state revenue agencies issued guidance during the pandemic to address withholding practices for employees working remotely. However, states began reverting to their standard tax practices, which may or may not address how employers should handle remote work arrangements. 

Read more: How TD Bank is transitioning its 95,000 employees to hybrid work

Depending on the employee’s responsibilities, remote work could force the organization to qualify to conduct business, which may require corporate filings and related registration fees. Additionally, the employee’s work in a state may subject the organization to corporate taxes there, including reporting of wages and payment of unemployment taxes.  

International considerations
Remote work arrangements in which an employee will work in a country other than where the employer is physically located present unique challenges. For example, unless the employee is a citizen of the country in which he or she is electing to work, the employee is likely to need work authorization to lawfully work in that country. 

Additionally, in certain jurisdictions, an organization must register with the local government to employ an individual there. If the employer does not operate in that country, it may be difficult, if not impossible, for the employer to sponsor work authorization or set up payroll without establishing a legal presence of the organization in that jurisdiction. There may be options for the organization to engage a professional employer organization to act as the legal employer of the employee, but not all countries allow such arrangements. 

Many countries take the position that all employees are subject to local employment laws immediately upon performing any work in the jurisdiction, even those who are not citizens of that country. As a result, an employee working outside of the U.S. may need to be paid through local payroll to support mandatory benefits provided in the country, such as retirement or other employment programs, each of which may require additional registrations. 

Read more: 4 ways this startup enticed its 800 employees to return to the office

Outside of the U.S., employee protections and privileges are also typically generous, meaning an employer allowing remote work in a particular country may be required to provide significant or additional benefits for employees there, including various types of leave or termination payments. In addition, there may be restrictions on the working relationship. For example, in many countries, employers may not require an employee to work over a certain hours threshold in a day or month. Local employment laws may significantly increase the costs and complications of establishing a compliant international work arrangement and should be considered in implementing these work arrangements.

Remote work presents an array of legal challenges that will continue to plague employers as this trend cements itself as a necessity for managing today’s workforce.