The Implications of Remote Employment (United States)

This Wisdom of the Crowd (ACC member discussion) addresses possible implications resulting from a company employing a worker remotely in a different state. This resource was compiled from questions and responses posted on the forum of the Employment & Labor Law ACC Network.*

*(Permission was received from the ACC members quoted below prior to publishing their forum Comments in this Wisdom of the Crowd resource.)

Question:

We have a full time employee that is moving from Florida to California, we would like to keep the employee and allow him to work remotely – does anyone have any experiences to share? What should we be mindful of? Is this a good idea or should we make him an independent contractor?

Wisdom of the Crowd:

• Response #1: I think it is mostly role dependent. If he can function remotely, I don't see a problem other than payroll tax and associated compliance questions. The independent contractor solution will have compliance problems, particularly in CA.

• If this is your first person in CA, it is worth knowing the wage and hour landscape is very different there. They seem to have unique rules about a whole host of issues, and a uniquely difficult series of penalties, which attach to non-compliance. There is daily overtime, seventh day worked overtime, unique definitions of exempt vs. non-exempt, limits on how much vacation time must be allowed to carry from year to year, requirements on paying out waged on termination along with penalties for non-compliance, etc. The list is daunting. You might consider running payroll through a PEO (Professional Employer Organization) instead of doing it yourself so you get some assistance on the compliance issues.ⁱ

• Response #2: A lesser concern, but one you may want to think about, is whether you might accidentally create a "doing business in California" situation that would cause unintended tax consequences. You probably want to avoid the employee's "home office" being viewed as a branch of your company.ⁱⁱ

• Response #3: The company I worked at before here actively encouraged remote working, and we actually staggered schedules so half of the office worked at home on certain days, and in the office on others. It allowed us to have twice as many people in the same amount of space. It's very common, and I think is the wave of the future.

• What I did was work with our management to draft specific at work-home policies which addressed remote-specific issues. For example, we had a policy that the worker must keep their office clean and organized and secure. If someone trips over junk in their home and gets inured, they are still eligible for worker's comp.

• I found a lot of good model policies online that we built on. I would also make sure to focus on the fact that this is a "privilege" and not a contractual term. It's discretionary, and if the employee is not meeting her expectation, the employer can change it unilaterally.ⁱⁱⁱ

• Response #4: Remote work-at-home employees are a challenge, but it's possible to make it work. Employing people in California is also a challenge, particularly if you don't already have any presence in the Golden State, but it also can be done. I would suggest having a formal agreement that will cover: (a) work hours expected, including how the employee will record hours worked if non-exempt and how the employee will record taking required breaks, (b) recording obligations - frequency and methods for keeping in communication with his manager in Florida, (c) performance expectation, (d) obligation to maintain a home office with appropriate ergonomics, and then most importantly (e) reserving to the company the absolute right to terminate the remote work arrangement for any reason if the Company determines that it's not working, giving the employee the option to return to the office in Florida or quit. If it works out, make sure you have a California payroll provider who can ensure your compliance with California regulations on taxes, contributions, and benefits – don't try to run it out of your Florida payroll.

• Finally, trying to make the person an independent contractor is probably a very bad idea. If he's doing the same job for you - just from a different location - it is unlikely that you could sustain an argument that a person who was an employee is now not an employee. Since the person will be working in California, a later determination that he is misclassified will create liability for fines and penalties because you will have failed to comply with California payroll requirements, etc. So, my advice is not to go in that direction.^iv

• Response #5: We are a California-based organization, with a few individual employees working remotely in other states, either at home or in shared office space. It has been manageable. Here are a few points I've noted:

• - We use an outside payroll service. The payroll service knows how to handle withholding, etc. for different jurisdictions, so they handle it appropriately based on location. - In some jurisdictions, having an employee there constitutes "doing business," so we have had to qualify/register in those states. Not a big deal.

• California information:

• - California employment laws: I have not found them to be especially complicated, but I'm based here, and our employees are primarily exempt professionals. Useful resource: http://www.calchamber.com/california-employment-law/pages/california-employment-law.aspx - Note that non-compete clauses are not enforceable in California, and the courts treat that as a firm public policy.^v

• Response #6: You don't indicate what your business is or whether you already have minimum contacts with California, but having an "employee" in California will likely create a nexus for tax purposes. My company once allowed an employee to relocate to Washington State for personal reasons, and we wound triggering tax nexus there. Washington's statute requires you to collect and remit sales tax on all merchandise sold within the state for 5 years after you stop having a physical presence there. So, when our employee quits after a few months, we were will on the hook for 5 more years.^vi