Series introduction: In this four-part Q&A series, Senior Professional in Human Resources (SPHR) Lisa Calick speaks with experts from Wiss to learn about the challenges that clients face due to the changes in work arrangements and culture as a result of the pandemic.
As a Senior Professional in Human Resources (SPHR), I spend my days giving human resources advice to Wiss clients, helping them with everything from benefits inquiries to staying in compliance with employment laws. My job is to help clients strengthen their operational processes to allow them to focus on their core strategic support.
I am interviewing experts from Wiss about the challenges clients face due to the pandemic and the new work-from-home paradigm. Here is a conversation I had with Laura Melville, manager of Wiss’s Outsourced Payroll services group, in which we discussed what effect remote work might have on payroll.
My key take-away from this interview is that companies need to be very alert to the legal requirements pertaining to employees who are working in states other than the one where the business is based. There are implications for registration, workers’ comp, minimum wage, and taxes.
As a result of the pandemic, companies are becoming more comfortable hiring remote employees, even in different states. What does a company need to consider when hiring remote workers in new states?
Employers need to make sure that they withhold the correct state taxes from employees. This goes for new hires and current employees who may now be working remotely. This is not always an easy task. There are several things to consider. Does the employee live in a state different from the state in which the business is located? Does the employee live and work in a state different from the state in which the business is located? Is the remote work arrangement permanent or temporary due to pandemic restrictions? Do the two states have reciprocity agreements? Depending on answers to these questions, an employer may or may not have to register in a state different than where the business is located.
Is that something that companies would typically do through their payroll provider or on their own?
A lot of the payroll providers will not register companies for state payroll tax. Employers are often told to try it on their own, or to seek their accountant’s assistance. Registrations can be done on each state’s website. We’ve had clients who have tried to do it themselves but end up asking us to register them because it can be very confusing if you’re not knowledgeable about the process. If more than one state is involved, it’s even more confusing as each state is different.
Does a company need to be aware of any obligations for unemployment and workers compensation when adding employees in new states?
Yes. Most states require employers to pay unemployment tax and have workers’ compensation coverage for employees in the state in which they perform work. For example, if your business is in New Jersey and you have a remote worker in California, that worker has to be covered by unemployment and workers compensation in California. This is something many companies are not aware of. In that example, you would check with your insurance carrier on how to get the workers’ comp coverage set up. Unemployment would be part of the payroll tax registration. Again, each state is different with regards to their requirements.
Is there anything employers need to do with regards to filing for income tax or payroll tax when they have remote employees?
Before registering in any state, an employer should consult with their tax advisor regarding any possible income tax filing requirements. Most every state will have payroll tax filings, usually monthly or quarterly, even if they don’t have income tax, because they may have unemployment tax that needs to be remitted through their quarterly returns.
What are the challenges for companies that process their payroll in-house, rather than use a payroll service?
In some states, certain localities have additional tax withholdings. Payroll providers often have systems that automatically calculate the required taxes based on the employee’s residence. Companies that process payroll themselves, however, need to get this right. If you were to just enter a city, you might be lucky and end up with correct calculations. But if you’re wrong, it can be costly to fix. If you’re doing your own payroll, the responsibility falls on you to do the research, so you know and understand the laws and requirements of each state and locality.
Is there anything else that you are seeing that has been concerning for employers?
We have seen both small employers and new employers who have received workers’ comp notices. Even if there’s one employee on your payroll, you are required to have workers’ compensation insurance in most states. Some states, such as New Jersey, compare the employer records to all the state records and can easily determine if a company does not have workers’ compensation coverage.
I would encourage any employer to speak to their workers’ comp carrier to make sure that they have all the information that they need to know.
Employers should also make sure to follow minimum wage laws in the state in which their employee works. While the federal minimum wage is $7.25 currently, different states, and some localities, have their own minimum wage requirements. As an example, New Jersey’s minimum wage is $11.00 (set to increase to $12.00 on 1/1/21) for most workers, but New York’s minimum wage varies depending on the geographic region within the state. California, on the other hand, has not only a state minimum wage but varying rates by city. Companies need to make sure that they’re meeting the minimum wage requirements in each area they have workers.