4 things to Consider Before Allowing Employees to be 100% Remote

In our March newsletter, we published an article about things to think about if you’re considering allowing employees to work remotely on a permanent basis. In this article, we take the discussion one step further and discuss considerations if your company receives a request from a permanently remote employee to relocate to another state.  If an employee relocates to a state where your company does not already have a presence, another layer of complexity will require some heavy-duty investigation and decision-making, including:

1. Fairness and Employee Engagement.  When you allow a remote employee to actually relocate to another state, other employees will be keenly aware that this change is happening. In order to avoid complaints of unfairness or possible claims of discrimination, consider the following:
   • Internal policy – formulate a clear internal policy regarding relocation to other cities or states. This is not to say the company should publish all the details that have gone into the company’s decision to accept one employee’s request and not another’s.
   • Be as transparent as possible – once leadership has formulated and agreed to an internal policy, the general parameters of that policy could be articulated to employees. The company could use an internal decision-making rubric to make decisions about relocation. The areas being evaluated could be shared with employees. The company wouldn’t necessarily have to share the entire, fleshed-out rubric.
   • Communicate a time-frame to manage employee expectations – the policy you share with employees could include who at the company makes the decision and could lay out the time-frame the company will take to make that decision. Giving an approximate time-frame for the decision allows the company adequate time to make the decision, without feeling rushed or backed into a corner.
   • Evidence of non-discrimination – If the steps above are followed this can serve as evidence that the company ultimately made their decision based on objective, bona-fide business criteria. If this is well-documented, this is the best defense against complaints of unfair treatment, or in the worst-case scenario, claims of discrimination.
2. In addition to the company being required to comply with the wage and hour laws for non-exempt employees for the location where the employee is actually doing the work, the employer must comply with all the labor laws of that city and/or state, whether the employee is, exempt or non-exempt. If your company does not already have a presence in the state, here are some things to consider:
   • The company will have to register as an employer in that state for payroll purposes. You’ll need to establish an employer identification number in that state in order to remit payroll taxes. This can sometimes take several weeks and each state has their own process for registering as an employer. A good place to start is the state’s Department of Revenue.
   • Your payroll department will have to deduct and remit income taxes (if the particular state has a state income tax).
   • You’ll have to make sure your Workers’ Comp insurance policy will cover employees in the state. Reach out to your carrier to confirm. Some states require employers to buy state-sponsored Workers’ Comp insurance.
   • You will be required to pay into some sort of state-administered unemployment insurance program.
   • In addition to employers being required to register for payroll purposes in the state, some states require companies that are outside of the state with employees in the state to register as a foreign corporation, pay state business taxes, and pay annual licensing fees. When you’re on the Department of Revenue’s site for that state, you’ll need to check if these additional requirements apply.
   • Some states require professional services workers to be registered in the state (there are ongoing expenses as well as logistical costs of doing this).
   • If you offer health insurance to your employees, you will need to make sure you offer medical insurance to the employee in the state to which they are relocating. Many companies in California use HMOs that are only available in California, such as Kaiser, or even more localized providers like Sutter Health Plus and Western Health Advantage in Northern California. Work with your insurance broker to find a comparable plan in the state the employee is moving to. There are ongoing logistics involved in this as well. If the employee is on an individual plan in the state, sometimes the employer doesn’t have the visibility into that plan that it has for the California group plans.
3. Expense Reimbursement. If an employee’s “assigned place of work” is remote (not in the company’s offices), employers should reimburse for the costs the employee incurs as a result of doing work for the employer in their remote office such as adequate internet, cell phone costs, office equipment (including ergonomic chair, desk, etc.), and office suppliers. On the conservative side, this could be considered the case even if this is a voluntary arrangement initiated by the employee.
4. Business Travel Costs. There will be costs associated with the employee traveling from the state they are working in to any other site (corporate offices, client sites, etc.) from their remote office for any work-related activity. In addition, if the employee is non-exempt, the employer must pay for the time it takes the employee to leave their remote office and arrive at the work location and start working. As long as the employee is under the “employer’s control”. This can get expensive for employee’s who live four and five hours away by plane.

If you are thinking about allowing one or more employees to relocate to another state, make sure you go into the process armed with this information and consider thoughtfully before making this important decision.