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October 23, 2020 | Payroll Software | Posted by Ascentis

How Does a Shift to Remote Work Impact Payroll?

The shift to remote work necessitated by the ongoing pandemic has altered the landscape of nearly every department in the average workplace. The impact of remote employees on payroll functions might not be as immediately obvious as it is in some other areas, but the COVID era is creating unexpected challenges and revealing existing inefficiencies for payroll teams across a wide range of industries.  

Some experts speculate that many workforces will remain remote even after the current crisis, with 75% of CFOs saying their organizations intend to expand opportunities for remote work in the future. Now is the time for employers to start taking stock of some common payroll concerns.  

State and Local Tax Issues 

One of the biggest potential payroll issues facing employers with sizable remote workforces is the variance of tax laws from state to state. Different states and localities have different laws regarding withholdings, liabilities, and other key tax considerations. For example, if an employee’s state of residence withholds payroll taxes at a different rate than the state where their employer is located, the employee runs the risk of being taxed twice unless both parties are on top of proper reporting protocols. If your organization employs workers in more than one state, it is essential to educate your payroll team and your employees on the specific requirements of each one.  

Most workers are taxed according to the standards of the state in which they physically work. If your workforce is spread across several states or if your employees have relocated to be closer to family during the COVID crisis, your team needs to be diligent about abiding by the relevant payroll tax regulations for each state involved. Some states have tax reciprocity agreements in place, but many do not. Putting in the time to do the research will pay off in the long run.  

Workspace Classification and Compliance 

Depending on the location of your business and your workers, there are a number of potential compliance complications involved in remote work. For instance, some municipal zoning laws require home occupation permits or certifications for home-based employees doing certain kinds of work. In the past, this kind of rule has applied mainly to dedicated home businesses, but there are reports of some municipalities enforcing these laws more stringently with more people using their homes as bases of operation in the COVID era. The way an employee’s home workspace is classified can have a major impact on the way your company reports and files payroll taxes. 

If your business classifies worker’s compensation as a payroll expense, this is another potential area of compliance concern. Is an employee who sustains an injury while working remotely qualified to make a worker’s comp claim? The answer varies by state and municipality, but it is important to know the specifics in order to avoid potential fines and lawsuits in the event of injuries in a home workspace.  

Data Privacy 

Your payroll team handles a lot of sensitive employee data, and a wide range of employees working in different locations with a variety of devices, networks, and ISPs means more potential for that data to be exposed or exploited. Requiring secure connections and upgrading to a single payroll dashboard with a self-service timekeeping tool can go a long way toward making sure that you remain in control of the information that matters most.  

Fraud Prevention 

For many companies, not having their workforce onsite opens the door to a host of new fraud concerns on both sides of the aisle. Hours may not be reported accurately. Contingent workers may be misclassified as full-time employees. Overtime reporting and sick leave become harder to verify. Unscrupulous payroll workers might even create “ghost employees” to skim funds away from the company. Depending on your industry, mitigating these kinds of risks in a remote-work environment can be a considerable challenge. This is another area where a reliable, automated timekeeping system with constantly updated records can be a great help in eliminating opportunities for fraudulent practices.  

No matter your industry, we are all operating in uncharted terrain during the COVID crisis. While payroll mistakes can and will happen even in the best of times, the new normal creates risk areas most businesses have likely never had to consider before. Still, with close attention to detail, a well-thought-out risk management plan, and the right technology for the job, your business can navigate the work-from-home payroll landscape with confidence.