Even with many companies returning to the workplace, remote work is still more common than ever, and many organizations are continuing to adapt their processes and strategies to meet the needs of remote employees. For payroll professionals this shift has had some unique impacts both on how you manage your own payroll processes and how you keep up with compliance.
Here are three areas where remote work impacts payroll that you should be watching:
1. Shifting payroll processes
While supporting remote employees seems simple, some important payroll processes need to be adapted to ensure your remote employees’ experience is positive. There are many different areas you could possibly adjust depending on your organization, but below are some examples to get you started. Some of these may seem obvious, but it's important to review even the basics to ensure you can support remote employees effectively.
- Paychecks: For remote employees, getting paid via a physical check can mean a delay in getting their pay, and for payroll, it means the potential for the check to get lost in the mail or otherwise never get to the employee. It's critical for payroll teams to actively instruct employees to move to direct deposit or a pay card for their pay and provide an intuitive way to do that through the technology your organization uses.
- Communication: Office bulletins, notes on desks, paper requests or approvals, and other traditional methods of communication need to be adjusted to ensure remote employees have a positive experience.
- Onboarding: During the COVID-19 pandemic, many organizations needed to adapt their onboarding processes for remote new hires. However, this is still a pain point for some organizations who rely on paper W4s, direct deposit forms, and other forms that collect employee information that is critical for payroll. Leveraging a modern solution can help move all of these forms and processes off of paper – making it easier and quicker for payroll to onboard both remote and onsite employees.
- Service: Increasingly remote employees are expanding the geographic footprint of their organization. For payroll, this could mean that you’re supporting employees in different time zones, and you may need to adapt the hours you’re available to employees to respond to their inquiries.
Many of these processes also intersect with HR processes, so it's important for payroll to collaborate with HR to ensure every process is meeting the needs of both teams and address areas where both teams are impacted, such as the onboarding example above.
2. Keeping up with compliance
Compliance is always top of mind for payroll professionals, but supporting remote employees could potentially increase the risk of compliance issues on a few fronts.
A big impact is understanding laws around whether an employee working in a new state requires your organization to establish and official entity in that state (or country). This means that businesses with a physical location in one state may have compliance obligations in other states – because the state, locality, or country may consider them as “doing business” (aka having a significant and permanent business presence) there if they have remote employees working in the state.
Another big impact is ensuring employees are correctly classified is incredibly important. While many remote workers are exempt, some remote workers may be non-exempt employees – therefore all time and attendance data needs to be accurately collected and ready for the next payroll cycle so payroll teams can calculate what, if any, overtime is owed to the employee. So it is critical for payroll to provide their employees with an easy way to digitally track their hours worked, rest and meal breaks, and any paid time off.
3. Tracking tax implications
One of the biggest impacts that remote has on payroll impacts is the number of varying tax laws from country to country, state to state, and locality to locality. Different locations have different laws regarding withholdings, liabilities, and other key tax considerations – as well as leave laws and other time and labor laws that impact payroll.
Most employees are taxed in the state in which they physically work. If your workforce is spread across several states or if employees have recently relocated, payroll teams need to be diligent about reviewing all relocated employees and understanding the relevant payroll tax regulations for each new location.
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. And if your organization has employees in more than one state, it's essential to educate your payroll team and your employees on the specific requirements of each one – and that you stay on top of the ever-changing regulations for those locations. In addition, 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. For example, SHRM has a great resource for you to stay on top of state and local remote work tax and compliance issues.
Conclusion: Time to get proactive about remote work payroll policies
While the impact of remote work on payroll can be significant, payroll professionals can proactively assist their organization when they’re developing remote policies and provide feedback on processes and remote work locations that may or may not be easy to support from a tax and compliance perspective.
Being proactive about this issue can help payroll teams improve their employee experience, while becoming more strategic contributors to their organization.