Bret Bonnet, co-founder of the Illinois-based company Quality Logo Products, Inc. was none too pleased when he found out that one of his employees had moved to another state to work remotely without informing the firm.
“The state he moved to came after us for a week’s worth of state income tax that we failed to pay as a result,” Bonnet recalls by email, noting that while the amount only totaled $87, with late fees, fines and penalties, the final sum was $1,700. “After more than 40 hours and countless phone calls/emails, we eventually got this cleared up, but it just goes to show what a headache out-of-state employees can be unless you’re a major national corporation.”
Working from home used to be a rare occurrence for most people, but the COVID-19 pandemic has seen many companies really ramp up the remote option to keep things running during unprecedented times. Indeed, it has been largely a success, with employers enjoying increased productivity and happier employees who don’t have to commute as much. Major companies like Twitter, Amazon, Zillow, and Spotify have announced varying levels of work-from-home expectations, ranging from occasional office face-time to none at all.
Some states (and even some foreign countries) are enticing remote workers to try them out with all kinds of incentives. Other workers might just want to move someplace more inviting for “work from home.” After all, working near the beach or from a mountain cabin sounds better than in a tiny city apartment or a cookie-cutter suburb.
But before you make a move, know this: Just because a job can be done remotely 100 percent of the time doesn’t mean you can do it from any place you want. So why not?
The Tax Issue
“Each state’s income and withholding tax requirements differ for individuals out-of-state, as do the laws on business registration, which depend on several factors, including the nature of the business,” emails attorney David Aylor, who is based in Charleston, South Carolina. “States have different thresholds for when employees working remotely triggers tax changes, so each individual situation needs to be assessed by looking at federal, state, and local laws in both a potential remote employee’s and the business’s location.”
It’s not just taxes. Employers may also be liable for workers’ compensation insurance and unemployment insurance in the state that the employee is working. So, if it’s just one person in the company working from that state, it’s probably not worth it to take care of all the legal and accounting implications.
“To allow administration to be completed correctly means that the HR and payroll departments would need knowledge of all the different rules in the areas in which employees resided,” emails James Crawford, co-founder, CEO and hiring manager of e-commerce platform DealDrop. “The expense and time spent in applying all these differing rules can prove to be too complicated to allow the employer to permit working in different regions.”
Time Zones and Meetings
Even if you work for a large company with locations in all 50 states and several foreign countries, an employer may still not grant your request to work remotely from another state from which you were hired originally. While many employers are cool with not laying eyes on employees every single day, they may still want to have regular in-person meetings. If your office is in Georgia, but you decide to move to California or Canada, that could be a problem.
“Although meetings can be done via web conference, some employers still expect staff to, at least occasionally, call into the office for face-to-face meetings or team building events,” says Crawford. “If the team is spread over different states, or even different countries, this can be highly problematic.”
Most companies have set “core hours” during which they expect employees to be active. This gets tricky if too many time zones are crossed. “For example, it might be difficult for remote workers in Los Angeles to work for a company in New York because of the three-hour time difference,” says Bowen Khong, founder and head of research at ForexToStocks, an online brokerage review firm, who employs many remote workers for his business. “Clocking in at 5 a.m. PST for an 8 a.m. EST shift isn’t desirable and makes the workers less productive.”
What Happens if You Relocate Under the Radar?
You might be tempted to make the move even if your company forbids it. After all, how would they know that you left town? You’d be surprised.
“Employers find out this sort of thing via social media, where people forget that their colleagues and employers often have access to their posts. If that employee tries to file their taxes in their current state, the employer may find out about the move via a tax agent when the filing flags their alert system,” says attorney Aylor, noting that this deception could be grounds for termination.
“Lying about your location could also cause the business to improperly file their taxes, in which case they may be liable for tax fraud, a very serious legal dilemma that can bankrupt a business quickly,” he adds. “Generally, tax agents won’t pursue legal action if steps are taken to right the wrong after they discover it. When it comes to legal matters, you do not want to lie and hope you get away with it — be honest and up-front with your employer.”
To avoid such mishaps, employers need to clearly communicate the ground rules when offering a remote position and employees need to ask how “remote” they can be if they’re thinking of moving location.
“Before you decide to relocate because you work remotely, be sure that the terms of your employment allow you to do so, and if not, stay put or find a new job,” says Khong.