Employees who move to other states or countries raise tax issues, and others, for employers.
Everyone knows that millions of people are still working from home (WFH). But not every employer knows exactly where every employee is working—a potential headache discussed by members of NeuGroup’s Internal Auditors’ Peer Group (IAPG) at a recent virtual meeting.
- “We’re super worried about it,” said one auditor about the various tax, legal and compensation issues WFH can raise for corporates.
- It is critical that employers know where their employers are performing services, tax attorney Larry Brant of Foster Garvey said in a recent article. “The consequences of not knowing where your employees are working could be costly,” he wrote.
Tax troubles? Taxes are a big source of the potential problems raised by employees who have used the pandemic to relocate to states or even countries other than where the company operates.
- Having an employee working in another state subjects employers to the tax regimes of that jurisdiction, Mr. Brant explained. Those may include income taxes, gross receipts taxes as well as sales and use taxes.
- Employees working remotely in another state—even temporarily—could also affect withholding requirements that apply to the employer.
Lower taxes, lower pay? Compensation is another issue members discussed in the context of workers who have taken the opportunity presented by the pandemic to move to states with lower taxes and costs of living.
- If an employee is Webexing in from low-tax Nevada vs. high-tax Silicon Valley in California, the employer may choose to pay them less—a subject that came up at a recent meeting of treasurers at life sciences companies.
- At the IAPG meeting, one auditor said, “Salaries might get adjusted down if they’re in a cheaper place.” This auditor is one of a few members who have been investigating some WFH situations at their companies.
Where’s Waldo working? Auditing a corporation’s policies around remote work right now is challenging for members because there’s not much companies can do aside from asking employees where they are.
- Unless there is a full-blown audit investigation, there is no way of knowing if employees are telling the truth. So far, no one in the IAPG has said their company is actively tracking where people are WFH.
- That said, one company located an employee through the virtual personal network (VPN) the person used to access Netflix.
- At least one company has told employees they need to declare where they are by Jan. 1, 2021.
- Another member said his company is predicting that 10% to 20% of employees won’t come back to work in the office once the pandemic threat has abated.
- The company has started using a document (via Microsoft’s SharePoint) for employees to “self-declare” where they are or where they will be working from.
- “No one is going to say no” to the employee, the auditor said; he had decamped to Europe temporarily. “We just need to know when [they go] and where they are” to manage the related tax issues.