Remote work has been on the rise since 2012, thanks to improving technology and some workers’ desire for greater flexibility. However, the COVID-19 pandemic significantly accelerated many companies’ move to a remote workforce. According to some estimates, more than half of the country’s workforce moved to remote work, and many businesses plan to make these changes permanent.  

Hiring remote workers can have many benefits. It can help companies hire top talent, retain employees that prefer to work from home, and even spur innovation and creative thinking among employees. But, having a large remote workforce is not without its pitfalls, and more businesses than ever are now trying to figure out how to make remote work feasible at a large scale.

As more employees leave the office and spread across the country—or even abroad—one of the biggest problems this can cause for employers is complicating the company payroll system.

Payroll Complications for Remote Workers

Independent Contractor or Employee?

When an employee doesn’t come to the office every day, it can be tempting to classify them as an independent contractor, but workers’ office space is not the most important factor when classifying an employee. Workers who were hired and classified as employees don’t usually become contractors once they go remote. This can get confusing for HR departments, and it’s important to consult a payroll expert and have a clear policy about how to classify employees.

Differing State Laws

Managing federal and state taxes is hard enough for any payroll department, but it becomes even more complicated with remote workers in different states. After the pandemic, some workers have even become mobile, working in different states and not maintaining a set address. In general, businesses need to withhold income taxes for the state where the employee does the work. This is known as the “physical presence rule” and can mean that remote employees are subject to different taxes than other employees, but this gets complicated when workers go remote. An employee might reside in a different state than where they do most of their work—they may even split their time in different places.

It’s not just taxes that differ between states, other labor laws will also apply to remote workers. States may have different requirements for the way employers manage retirement plans, healthcare, overtime, and benefits. Companies with a large number of remote workers may need to manage that information for multiple states, and businesses could face penalties if they do not withhold taxes correctly or follow local labor laws.

Outsourcing Payroll for Remote Workers

Remote workers make managing payroll significantly more complex. It’s easy to make payroll mistakes, and many in-house HR departments won’t have the expertise to manage remote workers. The easiest way to eliminate the headache of managing a complicated payroll is to outsource the work to a payroll management company.

Payroll management companies sync with a company’s existing HR department to take over all tasks related to payroll and payroll taxes. These companies have built effective systems and processes for handling payroll in different states and with differing numbers of employees. These services can also be scaled up as your business grows to support more remote workers.

As one of the top payroll service providers in Tennessee, LBMC Employment Partners is equipped to handle all your payroll needs, including managing remote workers. Contact us today to learn more about how LBMC EP can help your company.