Navigating Remote Work Compliance

What Businesses Should Watch For

Let’s talk about remote work. It’s not just a pandemic trend anymore — it’s here to stay. And while remote work is a dream come true for employees; it’s created a compliance maze for businesses. From tax nexus headaches to state-specific rules, there’s a lot to unpack.

I was lucky enough to moderate a panel at the ADP Accountant Connect Summit and I’m going to break down what the panelists said so you make sure your clients know what they’re up against. They were Taxgirl Kelly Phillips Erb and Ron Ulrich, retirement services executive, and Amy Miller, senior director of government affairs, both with ADP.

1. Know Where Your Employees Are Working

Rule #1 of remote work compliance: location matters. If your client’s employees are working in states other than where the business is headquartered, that could trigger tax nexus. Translation? The business might owe payroll taxes or even corporate income taxes in those states. As their trusted CPA, you need to make sure they’re tracking where their employees are and understanding the tax implications.

Pro Tip: Encourage clients to implement a system for tracking remote employee locations. It’s easier than cleaning up a tax mess later.

2. State Income Tax Withholding Gets Tricky

Employees working in different states may need state income taxes withheld based on their location. Some states have reciprocal agreements (shoutout to Pennsylvania for being a rockstar here), but others? Not so much. Employers need to navigate these rules carefully to avoid double taxation and keep their workers happy.

3. Paid Family Leave and Other State Mandates

Let’s not forget about paid family and medical leave. Many states have implemented their own rules, and some of them are pulling payroll taxes from remote workers even if the employer isn’t based there. Ouch. Make sure your clients know which states are doing this and how it impacts their payroll compliance.

4. Home Office Deductions: Clearing Up Misconceptions

Employees can’t claim the home office deduction if they’re on a W-2. (Thanks, TCJA!) But employers can step up by reimbursing home office expenses. This can be a great way to support remote workers while scoring some goodwill. If your clients aren’t offering stipends for internet, electricity or office furniture, now’s the time to start the conversation.

5. SALT Cap: The Hidden Remote Work Issue

State and local tax (SALT) caps are still a big deal. Remote workers who moved to high-tax states might feel the pinch, and your clients could see talent migration to low-tax states like Florida or Texas. This is a strategic issue for businesses, and CPAs should be part of the discussion about where their clients’ teams are based and what that means for tax planning.

6. Employment Laws and Wage Compliance

Remote work doesn’t mean a free pass on wage and hour laws. Some states require different minimum wages, overtime rules or meal breaks. Employers need to stay on top of these regulations to avoid compliance nightmares. As their CPA, you can flag these issues and help them navigate the complexity.

7. Double-Check Your Nexus

Remember, even a single remote worker in another state can create tax nexus. And it’s not just income tax; it could also mean sales tax, franchise tax or even gross receipts tax. Get ahead of this by working with your clients to analyze where they have potential nexus and how to address it proactively.

8. Communication Is Key

At the end of the day, compliance is about staying ahead of the curve. Make sure your clients are regularly communicating with their employees about remote work policies and expectations. And don’t forget to communicate with them about their tax obligations as well. A proactive CPA is a lifesaver in today’s remote work world.

Embrace the Opportunity

Remote work may come with its challenges, but it’s also an opportunity for CPAs to shine as trusted advisors. By helping your clients navigate the complex world of compliance, you’re adding real value to their business and setting them up for success. So let’s get out there and make remote work work — for everyone!