The work-from-home environment is producing tax complexities for companies and their human resources departments, according to a new report.
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The pandemic upended the work environment last year, with many employees, including accountants and tax professionals, forced to work remotely. While many organizations are planning to bring remote employees back to the office this year, thanks to the wider availability of vaccines, in many cases those employees have chosen to buy new homes that aren’t within easy commuting distance and they hope to continue to work from home. While more employers said before the pandemic that all or up to 25% of their employees worked remotely, a smaller percentage of employers anticipated the same percentage of their workforce being remote in the future. That has changed over the past year or more since the outbreak of the pandemic. Approximately 64 to 72% of respondents have implemented some form of work-from-anywhere policy within certain national boundaries, tax jurisdictions or nearby organizational offices.
Companies need to follow state and local laws and regulations when it comes to tax compliance for remote workers. “The whole regulatory aspect of remote working is really important,” said Ed Hannibal, a principal at Deloitte Tax. “First of all, it’s determining the potential tax implications or benefits that are going to be created by workforce locations and mitigate any other reporting requirements. If you think about it, beyond sheltering in place, now in a work sense, it’s really important to identify where your talent is working today and then to be able to have an ongoing cadence to make sure you know where your employees are beyond where they told you they are. In this remote world, employees may move around, and you need to know on an ongoing basis where they are and make sure that you have a gauge of all the tax and further regulatory implications that come out of that.”
Some companies are setting up hybrid models to allow employees to work part of the time from home, and part of the time from the office. The HR department may need to set up explicit policies to deal with remote work and hybrid forms of work. “Some of this is going to come down to establishing clear HR policies, which really bridge that gap between onsite, hybrid and remote, and then positively enhancing or utilizing technology tied to the working environment, while layering in considerations that can make sure you’ve got the data that is required to assess roles,” said Hannibal. “That’s where all of this fits together. Consider any legal or union impacts created by change in work locations as well. There’s a lot of factors that will go into this.”
Nearly three-quarters (71.7%) of the survey respondents indicated they’re working to determine the options available to meet the circumstances of their business, and whether a position is permanently remote, permanently on-site, or a blend of the two scenarios whereby the employee spends time both off-site and in the office.
Compensation is an important factor, and some companies may decide to lower compensation for employees who move to lower-cost areas, although that’s bound to have an impact on an employee’s decision to remain with the company if their salary is cut. At a time when there seems to be a shortage of talent to fill various jobs, companies may be loath to cut anybody’s salary right now, giving employees more leverage.
One-third (32%) of respondents reported that they would adjust total rewards on a case-by-case basis, reviewing elements such as salary, variable compensation, and even health and wellness benefits based on an employee’s choice of a remote-work location.
“Companies are still figuring this out,” said Hannibal. “There are compensation impacts related to employees working in potentially a new or different jurisdiction. It calls into question not only the rewards philosophy, but how someone is paid. For example, if you were paying someone for a high-cost area and now they’ve relocated to a lower-cost area, it needs to be taken into consideration if the company is going to potentially lower that cost because you may have offered higher salaries for some markets pre-pandemic, but for a host of reasons employees may have relocated, so they have a lower cost of living, and on top of that, there’s also the issue of payroll tax implications in the jurisdiction where they’re working. Organizations are digging in and will continue to realign their compensation and reward programs for remote work. Cost of living is only one part of this, but pre-pandemic you did have high-cost locations where higher-cost salaries were offered.”
Companies are trying to track their remote employees so they can better assess the tax and payroll implications. The survey found that 40.2% of the corporate HR mobility specialists polled said they are in the process of developing and establishing ongoing tracking of employees related to remote work, while 34.4% are creating a process for ongoing risk assessment. When they were asked what actions they would take to ensure global tax compliance, 64.8% said they are working with the business and HR functions to develop an overall approach to remote work. “This is very much a work in progress because each organization is coming out of the pandemic and [deciding] how they’re going to respond,” said Hannibal. “We’re coming into a time when talent is the most important asset so companies are going to be looking at and modifying their policies.”
