Taming the Wild West of work-from-anywhere
How employers can prioritize flexibility while maintaining tax compliance.
Airbnb CEO Brian Chesky made headlines recently when he announced he’d be spending the next year moving from city to city every two weeks living and working in Airbnb properties. This sounds like a digital nomad’s dream, and technically it’s entirely feasible. But the first thing that came to mind is, “I wonder if HR is freaking out? This could be a compliance nightmare if they’re not prepared.”
While living in a new city every two weeks probably isn’t a realistic scenario for many employees, it underscores the possibilities that remote work affords. Employees have made it abundantly clear that flexibility to work anywhere they choose is a top priority. And as long as they’re remaining productive and engaged, employers have little choice but to extend the opportunity—otherwise they risk losing great talent.
Related: How work from anywhere complicates employee benefits
However, the notion of employees working all over the country or around the world could create a Wild West scenario for HR when it comes to tax compliance. Here’s how to give employees the flexibility they want while minimizing risk:
Focus on the benefits
Remote work has become an essential factor in hiring and retaining talent and for supporting employees’ mental health and job satisfaction. Some 38% of workers plan to add three to six days to their vacation plans, and many are increasing vacation budgets because of remote work policies.
This is a far cry from just a few years ago when Americans were notorious for not taking all their vacation time—a workaholic mentality that damaged mental health and fueled burnout. Remote work policies that give employees the opportunity to enjoy a leisure trip where they squeeze in a bit of work can reduce employee burnout, support their mental health, create higher job satisfaction and increase retention—all great things for employers.
Be wary of the risks
Of course, the biggest risk in work from anywhere for employers is maintaining tax compliance and immigration compliance if employees are crossing borders. For a while, we were in a period of “don’t ask, don’t tell,” when employees’ whereabouts flew under the radar because of the COVID state of emergency. But companies can’t get away with that now. States and municipalities have gotten wise to the flexibility and are more diligent in enforcing the rules.
When employees work in another state or country, immigration documentation may be necessary, employers may be obligated to withhold payroll taxes and employees might have to file an additional state tax return. While some states have no taxes, there are others that impose thresholds, such as 14 or 30 days, before withholding must begin. Worse yet, these rules are retroactive, so if you find out later an employee breached the limit, you’ll have to pay back taxes to that state.
Then there’s the problem of establishing business nexus. If your organization doesn’t already have a business presence in a particular state, and an employee spends more than 30 days working there, you may inadvertently establish a business presence. This opens a whole new can of worms that requires you to contribute to unemployment and workers’ compensation, even if it’s just for one employee.
There could also be other unexpected requirements. For example, in the Canadian province of Quebec, any company with more than 50 employees must use French as their official language. Are you willing to make such a drastic change within your organization if a few too many remote workers head to Montreal at the same time?
The fact that only 33% of employees have reported to HR when and where they worked outside their home jurisdiction shows just how far-reaching the problem could be. And despite his position, execs like Airbnb’s Chesky aren’t exempt from the rules. In some cases, the more senior the position, the greater the risk: if you’re signing contracts, hiring staff or conducting sales activities, you could create a substantial business presence.
Prioritize saying “yes”
To protect themselves from risk, or simply because they don’t know how to handle it, many organizations create very strict rules for remote work, essentially building a policy to say ‘no’ most of the time. But these restrictive policies mean organizations risk losing great talent, which could be more costly to replace than it would be to design flexible, compliant policies. In today’s climate, organizations need to prioritize saying “yes” as much as possible. Here’s how:
1. Consider your need for strategic advantage. How employee-centric your policy needs to be may depend on your brand value. Do you want or need to be on the bleeding edge, offering Airbnb-style unfettered flexibility? Is middle-of-the-pack ok? Or is your brand so strong you can get away with being uber restrictive and employees will still want to work for you?
2. Design policy based on compliance rules, not operational headaches. The reason most companies would choke on the Airbnb situation is because they simply don’t have the operational capacity to deal with that level of flexibility. If someone wants to work in 24 states over the course of the year or an EU citizen wants to bounce all over the EU—and they can remain engaged and productive in their work—there’s really no downside. That is, unless you’re not set up for withholding across all those jurisdictions. Too many organizations establish restrictions not because of compliance issues, but because they don’t have the capacity to manage it. The fact that it’s difficult isn’t a valid reason to say “no.” In today’s environment, operational shortcomings are a liability.
3. Find the technology to manage it. Once you’ve established the level of flexibility you’re comfortable with, you’ll need the right software to keep up. Aside from employee location tracking so you don’t have to rely on employees to self-report, consider how you’ll integrate that location data into your existing HR/payroll tech stack. If an employee worked in California for two weeks, is there a way to feed that to payroll to drive the correct withholding? You’ll need to have a talent mobility management solution in place that integrates seamlessly with existing systems. Otherwise, your employees will be loving their free-wheeling, flexible lifestyles, but your HR and payroll team will want to crawl into a hole and never emerge.
If you’re waiting for things to normalize and employees to return to the office so you can get away with defining a simpler policy, let’s just rip that band aid off right now: it’s not happening. Now that we’ve proven what’s possible and return-to-office gets repeatedly delayed, employees expect flexibility as table stakes.
That means, in order to be competitive, companies must devise employee-centric policies and implement the operational strategies and technology to support them to tame the work from anywhere Wild West—or perhaps East, as the case may be.
Steve Black is co-founder and chief strategy officer at Topia.
Read more: