Work-from-Home: Considerations for Remote Work Arrangements

Be Aware of WFH Compliance Requirements

Employment law compliance requirements differ by state. Employers and employees should both be aware that there might be additional work-from-home employment compliance requirements when one works outside of the company’s home state. Moreover, remote workers also have the potential to present hurdles in the form of registration requirements and even tax implications.

Consider a situation in which an employee works in a state different from that of the employer. State tax withholdings from wages and even unemployment taxes are two unique payroll challenges to overcome. Employees are to pay taxes to the state where they conduct work in accordance with the language of the physical presence rule. 

There is also the potential problem of double taxation in which income tax is applied in the state the work-from-home employee resides in and where the employer is located.

Those engaging in work-from-home or considering it should be aware of the foreign qualifications. This qualification is applicable to businesses that are formed as limited liability companies (LLCs) or corporations and have workers in a state outside of the organization’s state of incorporation/formation. It might be necessary to qualify the LLC or corporation in the foreign state to formally obtain authority to conduct business there.

Permission to Work at Home

Though few know it, some municipalities mandate that those who work from home secure a home occupation permit. Several states require such strict licensing and permitting yet few remote employees are aware of the rules. The failure to obtain a home occupation permit has the potential to present problems at tax time.

Remote Worker Classification

Employers sometimes classify those who work remotely as independent contractors to cut payroll costs. However, the mere fact that one works remotely does not automatically make him or her an independent contractor. The classification of employees is a complex process that often requires the expertise of a South Carolina business attorney.

Additional Considerations of Note

Every remote worker should be trained in data security. Moreover, such workers should be aware of potential legal liability for the improper disclosure of data. Employees should also have clear guidelines regarding the role’s duties and work hours for workers’ compensation purposes. 

Remote workers and their employers should also be aware of a potential tax nexus. This term describes situations when businesses have a tax presence established by conducting business in a state outside of their primary location. The specific activities of the remote workers have the potential to affect tax status.