Hybrid work is here to stay: What does this mean for payroll?

What began as a temporary experiment with remote and hybrid work is now the expected norm. The share of companies offering location flexibility has increased to 61%, and 83% of workers prefer it.

Nevertheless, many companies are still calling their teams back into the office, facing resistance from employees who fiercely seek to safeguard the flexibility they experienced working from home. Companies that do this experience higher levels of employee attrition and difficulty recruiting new talent, leading executives to wonder if it’s simpler to just maintain the hybrid status quo.

The reality is that hybrid work is here to stay, and it’s time to adapt for the long-haul.

Still, remote work comes with its own set of challenges, the most complex of which is differing state and local labor laws and regulations. Having employees in multiple locations means managing multiple tax laws and legal jurisdictions – for example, California employers need to withhold state income tax based on the employee’s income level and filing status, while Texas doesn’t have a state income tax at all.

Meanwhile, employees based in Washington are subject to an entirely unique payroll tax that goes towards subsidizing long-term care for qualifying individuals. Things get even more complex when looking at differences across minimum wage, worker classifications, overtime pay, etc.

With hybrid work being the present and the future, it’s important to run a company in a way that balances employee retention with payroll logistics. Here are three ways to navigate the nuances of payroll in a remote world:

1. Make sure everyone is on the same page. HR is responsible for ensuring executives understand the implications of hiring remote workers, including any potential compliance issues that might arise. State income tax withholdings can differ by as much as 13.3% between states, and these differences can be particularly meaningful for small businesses and startups with limited resources to accommodate them. It’s critical everyone has a shared understanding from the get-go, before hiring decisions are made. Optimizing for location agnostic talent can be a huge boon for businesses but it’s not without financial and compliance risks.
2. Implement systems for managing differing tax laws in different states. In a hybrid world, where people live and work matters. Employers need to pay taxes in every state that they employ someone in. An employee could live and work from home in New Jersey two days a week while commuting to work in New York the other two. Their employer must pay taxes in both states, which means they need separate FEINs for both states. This gets even more complicated when looking at laws governing hourly workers and managing overtime, rest time and meal breaks. For example, California’s laws require employees to be paid 1.5x for overtime exceeding 8 hours/day and 2x when it exceeds 12.Meanwhile, in North Carolina, overtime pay only applies on a weekly basis when exceeding 40 hours total/week. Add this on top of differing (and ever-changing) state minimum wage requirements, plus payroll tax, and it’s enough to make your head spin. There’s no need to try and keep track of this all in your head – leverage systems that can manage this for you. The more geographically diverse your hourly workforce gets, the more complicated this equation becomes.
3. Make sure your payroll infrastructure can handle different types of workers. The explosion of the gig economy has created new regulations and nuanced debate around worker classifications. Before deciding to DIY your payroll, consider the lawsuits Uber and Lyft faced after California’s Proposition 22 was ruled as unconstitutional. Since then, other companies with similar models have implemented new policies. For example, DoorDash is now allowing drivers to opt-in to an hourly minimum wage or delivery-based pay. This followed news that NYC is raising the minimum wage for app-based restaurant employees. As the conversation about the gig economy continues to unfold, we can expect to see several more iterations of these laws and regulations pop up across the country. The best thing organizations can do in the meantime is make sure their payroll infrastructure is prepared to handle these quick changes as they arise.

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Managing diverse payroll regulations can be overwhelming, but the complexities don’t need to hinder a thriving hybrid work culture. With the right understanding of hybrid work’s impact on payroll, companies can harmonize compliance with employee retention as they scale.

Corinne Beksha is the COO of Check, a modern payroll infrastructure company that enables platforms to embed payroll into their products.